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Archive for the ‘FRE 502’ Category

Amending the FRCP: More Questions than Answers

Friday, October 14th, 2011

Outcry from many in the legal community has caused a number of groups to consider whether the Federal Rules of Civil Procedure (FRCP) should be amended.  The dialogue began in earnest a year ago at the Duke Civil Litigation Conference and picked up speed following an eDiscoverymini-conference” held in Dallas last month (led by the Discovery Subcommittee –  appointed by the Advisory Committee on Civil Rules).  The rules amendment topic is so hot that the Sedona Conference (WG1) spent most of its two day annual meeting discussing the need for amendments and evaluating a range of competing proposals.

During this dialogue (which I can’t quote verbatim) a number of things became clear to me…

1.  This rules amendment quandary is a bit of a chicken and egg riddle — meaning that it’s hard to cast support wholeheartedly for a rules change if there isn’t a good consensus for what a particular change would accomplish and what the long term consequences might be as technology quickly morphs.  As an example, if there was a redefined preservation trigger that started the duty to preserve when there was a reasonable “certainty” of litigation (versus a mere “likelihood”), would this really make a material impact?  Or, would this inquiry still be as highly fact specific as it is today?  Would this still be similarly prone to the 20/20 hindsight judgment that’s inevitable as well?

2. While it is clear that preservation has become a more complex and risk laden process, it’s not clear that this “pain” is causally related to the FRCP.  In the notes from the Dallas mini-conference, a pending Sedona survey was quoted, referencing the fact that preservation challenges were overwhelmingly increasing:

“[S]ome trends can be noted. 95% (of the surveyed members) agreed that preservation issues were more frequent. 75% said that development was due to the proliferation of information.”

3. Another camp of stakeholders complain that the existing rules (as amended in 2006) aren’t being followed by practitioners or understood by the judiciary.  While this may be the case, it then begs the critical question: If folks aren’t following the amended rules (utilizing proportionality, leveraging FRE 502, etc.) is it really reasonable to think that any new rules would be followed this time around?

4. The role of technology in easing the preservation burden represents another murky area for debate.  For example, it could be argued that preservation pains (i.e., costs) are only really significant for organizations that haven’t deployed state of the art information governance solutions (e.g., legal hold solutions, email archives, records retention software, etc.) to make the requisite tasks less manual.

5. And finally, even assuming that the FRCP is magically re-jiggered to ease preservation costs, this would only impact organizations with litigation in Federal court. This leaves many still exposed to varying standards for the preservation trigger, scope and associated sanctions.

So, in the end, it’s unclear what the future holds for an amended FRCP landscape.  Given the range of divergent perspectives, differing viewpoints on potential solutions and the time necessary to navigate the Rules Enabling Act, the only thing that’s clear is that the cavalry isn’t coming to the rescue any time soon.  This means that organizations with significant preservation pains should endeavor to better utilize the rules that are on the books and deploy enabling technologies where possible.

A Judicial Perspective: Q&A With Former United States Magistrate Judge Ronald J. Hedges Regarding Possible Discovery Related Rule Changes

Friday, September 9th, 2011

If you have been following my previous posts regarding possible amendments to the Federal Rules of Civil Procedure (Rules), then you know I promised a special interview with former United States Magistrate Judge Ron Hedges.  The timing of the discussion is perfect considering that a “mini-conference” is being hosted by a Federal Rules Discovery Subcommittee today (September 9th) in Dallas, TX.  The debate will focus on whether or not the Rules should be amended to address evidence preservation and sanctions.  I am attending the mini-conference and will summarize my observations as part of my next post.  In the meantime, please enjoy reading the dialogue below for a glimpse into Judge Hedges’ perspective regarding possible Rule amendments.

Nelson: You were recently quoted in a Law Technology News (LTN) article written by Evan Koblentz as saying, “I don’t see a need to amend the rules” because these rules haven’t been around long enough to see what happens.  Isn’t almost five years long enough?

Judge Hedges: No.  For the simple reason that both attorneys and judges continue to need education on the 2006 amendments and, more particularly, they need to understand the technologies that create and store electronic information.  The amendments establish a framework within which attorneys and judges make daily decisions on discovery.  I have not seen any objective evidence that the framework is somehow failing and needs further amendment.

Nelson: You also said the “big problem” is that people don’t talk enough.  What did you mean?  Hasn’t the Sedona Cooperation Proclamation made a difference?

Judge Hedges: The centerpiece of the 2006 amendments (at least in my view) is Rule 26(f).  I think it is fair to say that the legal community’s response to 26(f) has been, to say the least, varied. Civil actions with large volumes of ESI that may be discoverable under Rule 26(b)(1) cry out for extensive 26(f) meet-and-confer discussions that may take a number of meetings and require the presence of party representatives from, for example, IT.  There is an element of trust required between adversary counsel (with the concurrence of the parties they represent) that may be difficult to establish – but some cooperation is necessary to make 26(f) work.  Overlay that reality with our adversary system and the duty of attorneys to zealously advocate on behalf of their clients and you can understand why cooperation isn’t always a top priority for some attorneys.

However, “transparency” in discussing ESI is essential, along with advocacy and the need to maintain appropriate confidentiality. That’s where the Sedona Conference Proclamation can make a big difference. Has the Proclamation done that? It’s too early to reach a conclusion on that question, but the Proclamation is often cited and, as education progresses in eDiscovery, I am confident that the Proclamation will be recognized as a means to realize the just, speedy, and inexpensive resolution of litigation, as articulated under Rule 1.

Nelson: You also mentioned that the Federal Rules Advisory Committee might be running afoul of the Rules Enabling Act.  Can you explain?

Judge Hedges: There is a distinction between “procedural” and “substantive” rules.  The Rules Enabling Act governs the adoption of the former.  Rule 502 of the Federal Rules of Evidence is an example of a substantive rule that was proposed by the Judicial Conference.  However, since Rule 502 is a rule dealing with substantive privilege and waiver issues, it had to be enacted into law through an Act of Congress.  I am concerned that proposals to further amend the Federal Rules of Civil Procedure may cross the line from procedural to substantive.  I am not prepared to suggest at this time, however, that anything I have seen has crossed the line.  Stay tuned.

Nelson: If you had to select one of the three options currently being considered (see page 264), which option would you select and why?

Judge Hedges: To start, I would not choose option 1, which presumes that the Rules can reach pre-litigation conduct consistent with the Rules Enabling Act.  My concern here is also that, in the area of electronic information, a too-specific rule risks “overnight” obsolescence, just as the Electronic Communications Privacy Act, enacted in 1986, is considered by a number of commentators to be, at best, obsolescent.  Note also that I did not use the word “stored” when I mentioned electronic information, as courts have already required that so-called ephemeral information be preserved.  Nor would I choose option 2.  Absent seeing more than the brief description of the category on page 264, it seems to me that option 2 is likely to do nothing more than be a restatement of the existing law on when the duty to preserve is “triggered.”

So, by default, I am forced to choose option 3.  I presume a rule would say something like, “sanctions may not be imposed on a party for loss of ESI (or “EI”) if that party acted reasonably in making preservation decisions.”  There are a number of problems here. First, in a jurisdiction which allows the imposition of at least some sanction for negligence, all the rule would likely do is be interpreted to foreclose “serious” sanctions. Isn’t that correct? Or is the rule intended to supersede existing variances in the law of sanctions?  At that point, does the rule become “substantive”?   Second, how will “reasonableness” be defined?  Reasonableness supposes the existence of a duty – in this case, a duty to preserve.  For example, is there a duty to preserve ephemeral data that a party knows is relevant?  We come back full circle to where we began.

Remember, Rule 37(f) (now 37(e)) was intended to provide some level of protection against the imposition of sanctions, just as the categories are intended to.  Right?  And five years later 37(e) remains defined variously to be a “safe harbor” or a “lighthouse” by some lawyers such as Jonathan Redgrave or an “uncharted minefield” by others like me.

Nelson: What about heightened pleading standards after the Iqbal and Twombly decisions?  Do these decisions have any relevance to electronic discovery and the topic at hand?

Judge Hedges: Let me begin by saying that I am no fan of Twombly or Iqbal. The decisions, however well intended, have led to undue cost and delay all too often.  Not only is motion to dismiss practice costly for parties, but it imposes great burdens on the United States Courts and, as often as not, leads to at least one other round of motion practice as plaintiffs are given leave to re-plead.  All the while, parties have preservation obligations to fulfill and, in the hope of saving expense, discovery is often stayed until a motion is “finally” decided.  I would like to see objective evidence of the delay and cost of this motion practice (and I expect that the Administrative Office of the United States has statistical evidence already).  I would also like to see objective evidence from defendants distinguishing between the cost of motion practice and later discovery costs.

Putting all that aside, and if I had to accept one option, I would choose to allow some discovery that is integrated to the motion practice.  First, even without the filing of a responsive pleading, there should be a 26(f) meet-and-confer to discuss, if nothing else, the nature and scope of preservation and the possibility of securing a Rule 502(d) order. Second, while I have serious concerns about “pre-answer discovery” for a number of reasons, I would have the parties make 26(a)(1) disclosures while a motion to dismiss is pending or leave to re-plead has been granted in order to address the likely “asymmetry of information” between a plaintiff and a moving defendant.  Once the disclosures are made, I would allow the plaintiff to secure some information identified in the disclosures to allow re-pleading and perhaps obviate the need for continued motion practice.

All of this would, of course, require active judicial management.  And one would hope that Congress, which seems so interested in conserving resources, would recognize the vital role of the United States Courts in securing justice for everyone and give adequate funding to the Courts.

Top Ten Trends in Electronic Discovery

Wednesday, November 11th, 2009

Since I’ve finished off the last of the Halloween candy and tossed out the moldy, squirrel ravaged pumpkins, it occurred to me that now might be a good time to think about what 2010 will hold for the electronic discovery industry.  My 2009 list seems to have been fairly prescient and many of those notions still hold true since the legal industry (as we know) doesn’t move at the most blistering pace.

Again, doing my best Nostradamus impersonation, here are my top ten trends for 2010:

  1. Early case assessment (ECA) moves from a “nice to have” to a “must have” requirement for any matter involving electronically stored information (ESI).  In 2009, we saw ECA move into the mainstream as a methodology to quickly understand case facts, assess risk and lower both review and data processing costs.  But, in 2010, with the advancement of the tools and the increased socialization within the bar and the litigation support community, ECA will graduate into a core methodology for savvy litigators regardless of matter type or size.
  2. Appetites for broad information lifecycle management initiatives diminish as organizations realize these programs are far too complex to solve specific pain points, and they often take too much time (measured in years) to execute.  The economic reality is that these holistic, cross data, cross enterprise pipe dreams really can’t demonstrate the ROI that’s needed in today’s challenging economy.
  3. Staffing roles continue to evolve with a newfound focus on project management. The role of an in-house e-discovery coordinator will emerge as more of a project management and analyst versus pure legal or IT. This shift will become increasingly necessary as e-discovery evolves from an ad-hoc fire drill to a standard business process that is repeatable, measurable, and defensible.
  4. Data analytics and statistical methodologies gain traction to augment the type of subjective decision making approaches that have historically formed the backbone of the e-discovery search and review processes.  These objective methodologies have long been called on as best practices by the likes of the Sedona Working Group. In 2010, they now will start to move from theoretical to practical task as e-discovery tools increasingly move in-house and departments enhance defensibility and add elements such as sampling into the workflow.
  5. Platform e-discovery solutions finally become a reality as customers finally graduate from painfully stitching point solutions together, thus requiring less physical document hand-offs (i.e., exports and imports) between applications, cutting costs and lowering the risk of data loss.
  6. Associate-based review gradually goes extinct, as both clients and law firms tire of expensive, linear review processes.  More review work becomes either insourced or is managed with specialized contract attorneys, who are both cheaper and better trained for this type of work.
  7. Similarly, FRE 502 and “clawback” agreements will be increasingly used to reduce the need for any manual, eyes-on review, although many litigators will resist this trend because of the fears of “un-ringing the bell” when privileged information is disclosed in any context.
  8. While perhaps anathema, alternatives to the much lauded EDRM model will gain traction, as practitioners strive to find an even better, and perhaps more practical, project management framework, in many cases acknowledging the role that the EDRM has taken in forming *the* lingua franca of the e-discovery industry.
  9. The push for cooperation in the e-discovery process, will make incremental progress despite reticence by old school litigators.  Increasingly, this type of cooperation, as strongly advocated by the Sedona Working Group, will be ironically forced by judges and local rules.
  10. “Cloud” computing starts to really impact how e-discovery data preservation/collection is done, both in terms of social media and traditional ESI.  More and more companies block social media applications and file types in the workplace because of fears surrounding the inability to preserve and collect.

Defensible E-Discovery a Hot Topic at the Masters Conference

Thursday, October 29th, 2009

Recently, I moderated a panel at the Masters Conference with John Loveland, Sonya Thornton, and Bruce Markowitz entitled: How Defensible is Your E-Discovery Process? (Click here to read a summary of the panel.) It was well attended, and I think that the draw (aside from the esteemed panel) was that this topic still remains very vexing for most practitioners.

Initially, we started at ground zero with the notion that defensibility is in most instances equated with the “reasonableness” standard, which is pervasive across many areas of the EDRM spectrum… from preservation to production.  Instances include:

  • Preservation — “[a]s soon as a potential claim is . . . identified, a party is under a duty to preserve evidence which it knows, or reasonably should know, is relevant to the future litigation.”
  • FRE 502 (b) – the disclosure does not operate as a waiver in a Federal or State proceeding if the (2) the holder of the privilege or protection took reasonable steps to prevent disclosure;
  • General Privilege Waiver — In SEC v. Badian, 2009 WL 222783 (S.D.N.Y. Jan. 26, 2009)(link), “there is no basis … to conclude that there were precautions [to prevent the disclosure], let alone whether they were reasonable.”
  • FRCP 37(e) — Absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system.

While the foregoing isn’t exhaustive it does highlight the persistent nature of the reasonableness standard as practitioners seek a defensibility sanctuary.  The good news is that the law doesn’t require perfection and there are also a number of ways to obtain reasonable defensibility:

  • Demonstrable acceptance by the opposition – here the notion is that collaboration with the opposition allows the parties to comfortably move ahead with their discovery process and even if it’s not objectively reasonable, the parties consent to the protocol will in most instances carry an imprimatur of reasonableness.
  • Auditing / process transparency.  Similar to the first bullet, auditing the process and giving the opposition visibility into the process steps will often make it hard for them to lodge successful downstream challenges.
  • Adherence to Local Rules (See 7th Circuit Pilot Program) or judicial order.  Another avenue than can provide some degree of safety is compliance with a discovery protocol mandated by local rules, although that compliance may ultimately be challenged.
  • Statistical confidence intervals / sampling – the use of statistics as a way to bolster process defensibility is starting to come to maturity and in the future I think that detailed precision, recall and other statistical indicates will play a large role in e-discovery defensibility.

None of these steps can be guaranteed to really get you off the hook from a rapid opposing party calling foul, but using them in a “belt and suspenders” fashion will certainly help buttress any discovery process.

For more illumination on the topic please see the following video of my interview with John Loveland, who’s waxing poetically about discovery defensibility.

Five Electronic Discovery Questions Regarding Inaccessibility With David Isom

Thursday, April 30th, 2009

David Isom and I have collaborated a number of times over the years on a variety of electronic discovery presentations and articles.  So, when I saw that California was proposing new state electronic discovery rules that had some interesting variances vis-à-vis the FRCP, I thought David might be able to give us the benefit of his unique and sage perspective.

1. David, as the author of the definitive piece about inaccessibility under the Federal Rules of Civil Procedure (The Burden of Discovering Inaccessible Electronically Stored Information: Rules 26(b)(2)(B)& 45(d)(1)(D)), how many litigators do you think really understand and use these provisions?

I sense that litigators with a basic understanding of the new electronic discovery rules know that the inaccessibility rule exists and provides some protection for parties against unduly burdensome discovery.  Few seem to have noticed that Rule 45 contains an inaccessibility provision whose language is similar to the Rule 26(b)(2)(B) inaccessibility protection for parties, but whose protections as applied to subpoenaed nonparties are greater than the protections for parties.  Here are the three most basic and exciting (or excruciating, depending upon your side of the fence) impacts of the new inaccessibility rules:

(1) The inaccessibility rule has completely changed a nonparty’s leverage to narrow subpoenas seeking electronically stored information (ESI).  Subpoenaed nonparties now have protection against fishing expedition subpoenas that did not exist before — to narrow subpoenas, or to require the payment of costs and attorney fees in responding to broad subpoenas.

(2) Cost-shifting, for parties as well as nonparties, is now controlled by the inaccessibility rules.  Several federal courts have recently held that discovery cost-shifting is allowed only if these inaccessibility rules provide for cost-shifting under the circumstances.

(3)  The inaccessibility rules must be asserted and asserted timely if they are to provide protection.  For example, after counsel for nonparty Office of Federal Housing Enterprise Oversight spent $6 million of our money responding to a subpoena in In re Fannie Mae Securities Litigation, 552 F. 3d 814 (D.C. Cir. 2009), counsel tried to recover the money on an inaccessibility cost-shifting argument.  To which the United States District Court and the Court of Appeals for the District of Columbia said, in essence:  you might have had a good idea, and saved your client $6 million, had you raised the arguments before agreeing to produce the documents and spending all that money.  But you agreed to produce the ESI and cannot come back now and get any protection.  You should have studied the inaccessibility rule.

2. So, assuming we’re still early in the learning curve, do you think these FRCP provisions are really gaining traction either in practice or in the case law?

Judging by the number of reported decisions, the inaccessibility rules are receiving as much attention as the other new features of the federal electronic discovery rules.  Which, I suppose, is damnation by faint praise — a large percentage of the reported cases are about what should happen because lawyers didn’t understand or apply the rules properly. Cason-Merenda v. Detroit Medical Center, 2008 U.S. Dist. LEXIS 51962 (E.D. Mich. July 7, 2008) is a good example.  There, defendant’s counsel produced ESI without any objection and without pre-identifying the ESI as inaccessible.  After production, counsel tried to get their opponents to share the cost of producing the allegedly inaccessible ESI.  The court correctly held that the ESI must be identified as inaccessible in advance of the production to give the seeking party the option to decide whether the discovery is really worth the candle, especially given the prospect that the cost of production might be shifted to the seeking party.

3. What are your thoughts on the new California state provisions regarding “inaccessible” ESI where they’re proposing a different treatment and slightly different burden?  And, will this approach ultimately weaken responding parties abilities to make “inaccessible” claims successfully?

I am not an expert on California law, but am keenly interested in what the states are doing with electronic discovery.  As of this writing (May 2009), it appears that California Assembly Bill No. 5 has not yet been enacted.  Yet, here are some thoughts about how the inaccessibility provisions of this bill, if enacted, would compare to the federal rules of inaccessibility.  The bottom line is that the California bill is remarkably similar to the federal rules on inaccessibility issues.

Under the federal rules, a party seeking protection for inaccessibility initiates the process by “simply” (so far, the courts have tolerated fairly sparse identifications as satisfying this requirement) identifying the sources of information claimed to be not reasonably accessible because of undue burden or cost.  The subpoenaed nonparty seeking protecting can initiate by identifying the ESI sought as not reasonably accessible in an objection, motion to quash or motion for protective order.  In the federal system, either the seeking party or the protecting party or nonparty can move to test the issue (one by a motion to compel, the other by a motion for protective order).

The California bill is nearly identical to the federal process.  The bill provides that a person resisting a subpoena for ESI on inaccessibility grounds may “oppose” the subpoena.  If this means that such a person can either object or move to quash or move for a protective order, it appears to be the same as the federal rule.  The California bill specifies that a party resisting a production request on inaccessibility grounds initiates protection by identifying the types or categories of sources of electronically stored information that it asserts are not reasonably accessible.  This is similar to the federal rule, whose text requires identification of “sources”, but whose committee notes clarify that merely “types or categories of sources” of inaccessible, responsive ESI need be identified.  The California’s Legislative Counsel’s Digest indicates that the process for protecting inaccessible ESI, apparently for both parties and subpoenaed nonparties, can be initiated by moving for a protective order, or by opposing or objecting to the subpoena or request.

Even if there are any distinctions in the above processes, the two processes appear to merge thereafter.  In both systems, the motions to test inaccessibility must be preceded by a conference of counsel to attempt in good faith to resolve the issue, together with a certificate that such an attempt has been made.  In both, the person seeking protection has the burden of proving inaccessibility (this is even true in the federal system where the process is initiated by the seeker’s motion to compel).  In both systems, if the holding party proves inaccessibility, the burden shifts to the seeking party to show good cause for producing the ESI, despite its inaccessibility.

And in both, if good cause is shown, the court may still impose conditions upon production, including cost-shifting.  In both, the factors that the courts are to consider in determining good cause are similar — more accessible, less burdensome sources; cumulativeness of the discovery; whether the burden or expense of the discovery would outweigh the likely benefit of the discovery, considering such things as the importance of the issues, the amount in controversy and the resources of the parties.  One possible difference between the California bill and the federal rules on good cause is that the California bill requires the court to limit discovery if any of the listed factors exists, where the federal rules and committee notes seem to envision a pure balancing.

In sum, the California bill essentially adopts the federal approach.

Some confusion has arisen because California commentators have drawn a distinction between the California bill and a misinterpretation of the federal rules.  One commentator, for example, stated that “under the federal rules, if ESI is inaccessible, the responding party simply doesn’t need to produce such documents.”  This ignores the affirmative identification duty that I discussed above.

4. With the rapid advancements in ESI restoration technologies, which the Comments to the Rule anticipated, are backup tapes in your mind still “inaccessible”?

The rules make it clear that inaccessibility cannot be measured by technology category alone.  The test does not depend upon the type of technology involved, but upon the balancing of need, technology, importance, spoliation, relevance, alternative sources and potential benefit against overbreadth, burden and cost.  So, if backup tapes are the only source available for important, relevant information because more accessible relevant sources have been spoliated, backup tapes will not be deemed inaccessible.  Without spoliation, if relevant ESI is available on active sources, backup tapes may not be discoverable.

Perhaps the main reason that categories of technology cannot be deemed per se accessible or inaccessible is that the technology is changing so fast.  Many search tasks that were expensive and difficult five years ago are much more doable now.

5. Finally, what do you think the future holds for these FRCP sections?

The inaccessibility rules will continue to be the main battleground where the great debates about the value and cost of electronic discovery will be fought, since these rules are specifically tailored to balance all of the interests in that debate.

Some groups are claiming that electronic discovery is wasteful and expensive, and that the new rules exacerbate the problem.  Of course, the federal rules ought always to be analyzed for problems and need for improvement, but I haven’t heard informed, thoughtful, helpful suggestions for improvements to the federal rules in the recent debate.  Overall, I see the adoption of the federal rules as having helped reduce the cost of electronic discovery, not increased the cost.

Learn More On: Fcrp electronic discovery

All Electronic Discovery Rhoads Lead to FRE 502 “Reasonableness”

Tuesday, December 9th, 2008

With the recent implementation of Federal Rules of Evidence (FRE) 502 litigants have been waiting to see what kind of impact this rule will have in practice – particularly with the anticipated reduction of attorney review costs during electronic discovery.  In Rhoads Indus., Inc. v. Bldg. Materials Corp. of Am., 2008 WL 4916026 (E.D. Pa. Nov. 14, 2008) we see an early indication that things aren’t quite as clear as people had hoped.

In this breach of contract and negligent misrepresentation action plaintiff Rhoads admittedly (yet inadvertently) produced over eight hundred privileged, electronic documents during eDiscovery.  After returning the documents, Defendants filed a motion claiming that Rhoads waived privilege because:

  • its production was careless,
  • its response in seeking the return of the documents was delayed, and
  • it failed to produce complete and accurate privilege logs.

The court began its analysis by focusing on FRE 502 which recently created a national standard (versus the previous split in jurisdictions) and now states a “middle ground” for the determining of inadvertent disclosure during eDiscovery.  The key provision being (b)(2) which provides protection if “the holder of the privilege or protection took reasonable steps to prevent disclosure.”

As the court began its legal analysis it quickly noted the similarity to Victor Stanley, Inc. v. Creative Pipe, Inc., which had “analogous facts” despite being decided pre-FRE 502.  Both Rhoads and Victor Stanley leveraged similarly the five-factor test stated in Fidelity which were:

  1. the reasonableness of the precautions taken to prevent inadvertent disclosure in view of the extent of the document production,
  2. the number of inadvertent disclosures,
  3. the extent of the disclosure,
  4. any delay in measures taken to rectify the disclosure, and
  5. whether the overriding interests of justice would be served by relieving the party of its errors.

The Rhoads court indicated its belief that “the most appropriate approach is to first determine whether the producing party has at least minimally complied with the three factors stated in Rule 502, i.e., that the waiver was inadvertent, the party took reasonable steps to prevent disclosure, and attempted to rectify the error.”  Acknowledging that the reasonableness of Rhoads’ review was the crux of the dispute, the court then concluded, “that once the producing party has shown at least minimal compliance with the three factors in Rule 502, but ‘reasonableness’ is in dispute, the court should proceed to the traditional five factor test.”

Factor 1 (the reasonableness of the precautions)

Despite the unfortunate results, Rhoads actually started out on the right foot.  First, they recognized that with extensive electronic discovery on the horizon they needed an IT consultant to research software for the in-house processing and searching effort.  The consultant tested and then purchased a tool to perform the necessary electronic data searches, although it wasn’t clear how they selected that product or whether they reviewed any other similar solutions.

“The fact that Rhoads retained a consultant who recommended and used a fairly sophisticated screening device shows that Rhoads substantially complied with the following Explanatory Note to Rule 502: ‘A party that uses advanced analytical software applications and linguistic tools in screening for privilege and work product may be found to have taken “reasonable steps” to prevent inadvertent disclosure. The implementation of an efficient system of records management before litigation may also be relevant.’”

After picking out the software tool, the IT consultant identified a large volume of potentially responsive documents after consulting Rhoads’ attorneys to identify keyword searches intended to filter the privileged material and removed those documents from the group.  The search was run a second time to verify its accuracy.  Given the large volume of documents remaining even after removing materials hit by the privilege search, Rhoads’ counsel modified the original search terms and reduced the volume of potentially responsive documents to 78,000.   Rhoads’ counsel then manually reviewed a separate group of emails from specific accounts to identify and remove privileged documents, which were then added to separate privilege logs.

On the other side of the ledger, there were a number of things the court found lacking in Rhoads’ methodology, citing Victor Stanley, including a failure in crafting a viable search strategy: “Plaintiff produced documents that its limited search should have caught. Therefore Plaintiff not only failed to craft the right searches, but the searches it ran failed. Plaintiff has no explanation for this.  … Here there was no testing [read: no sampling] of the reliability or comprehensiveness of the keyword search. Plaintiff’s only testing of its search was to run the same search again.”

Factor 2 (The Number of Inadvertent Disclosures)

While 800 inadvertently produced documents was only 1-2% of the data set it still was a large number standing alone, especially compared to Victor Stanley, which had 165 at issue.  So, the court found that this issue favored the Defendants.

Factor 3 (The Extent of the Disclosure)

Read on.

Factor 4 (Any Delay in Measures Taken to Rectify the Disclosure)

The court skipped factor 3 and went instead to factor four, finding that this too favored Defendants.  Significantly the court found fault with the resources Plaintiff brought to bear on the issue and also noted that “Defendants had to bring Plaintiff’s error to its attention instead of Plaintiff catching its own mistake” (as in Victor Stanley).

Factor 5 (Fairness)

Now here’s where things get interesting.  Despite finding for the Defendants on the previous 4 (really 3) factors – meaning that they weren’t on balance “reasonable” – the court puts an unbalanced weighting on this final fairness factor:

“Although Rhoads took steps to prevent disclosure and to rectify the error, its efforts were, to some extent, not reasonable…. The most significant factor, …, is that Rhoads failed to prepare for the segregation and review of privileged documents sufficiently far in advance of the inevitable production of a large volume of documents.”

And yet, “I find that the fifth factor, the interest of justice, strongly favors Rhoads. Loss of the attorney-client privilege in a high-stakes, hard-fought litigation is a severe sanction and can lead to serious prejudice. … [D]enying these documents to Defendants is not prejudicial to Defendants because, in the first place, they have no right or expectation to any of Rhoads’ privileged communications.”

The judge went on to further shore up his over reliance on the “fairness” prong by taking a crack at Judge Grimm’s analysis in Victor Stanley: “I believe that Judge Grimm’s analysis reflects, to a more significant degree than I believe appropriate, application of hindsight, which should not carry much weight, if any, because no matter what methods an attorney employed, an after-the-fact critique can always conclude that a better job could have been done.”

Interesting….  It seems that Rhoads stands for a fairness weighted approach that effectively eviscerates the entire reasonableness analysis mandated by FRE 502 as applied in Victor Stanley and Fidelity.  It seems to me that waiver of privilege is always going to be a “severe sanction” leading to “serious prejudice.”  That’s why inadvertent disclosure is called the third rail of e-discovery.  But, if you want the newly articulated reasonableness standard to mean anything, the “fairness” prong can’t trump the rest of the analysis.

I’m sure this will play out in the near future, but it’s my guess that “reasonable” minds will prevail…

Federal Rule of Evidence 502: Help or Hype?

Thursday, November 13th, 2008

There’s a lot of excitement (and corresponding uncertainty) about the recent passing of Federal Rule of Evidence 502 (FRE 502), which was signed into law on Sept 19th.  The main reason that the legal community is excited about FRE 502 is because of the potential for cost savings by reducing the amount of money associated with the e-discovery review process, which is routinely viewed as the most expensive area in the entire e-discovery process.

In combination with the codification of a national standard to determine when a privilege has been waived, FRE 502 is primarily designed to make the use of claw-back agreements a truly viable prospect when doing e-discovery privilege review.  It should provide some panacea (ideally) for rapidly escalating e-discovery costs.  Or, at least that was the impetus behind the rule’s creation – according to the Comments:

“The proposed new rule facilitates discovery and reduces privilege-review costs by limiting the circumstances under which the privilege or protection is forfeited, which may happen if the privileged or protected information or material is produced in discovery. The burden and cost of steps to preserve the privileged status of attorney-client information and trial preparation materials can be enormous. Under present practices, lawyers and firms must thoroughly review everything in a client’s possession before responding to discovery requests. Otherwise they risk waiving the privileged status not only of the individual item disclosed but of all other items dealing with the same subject matter. This burden is particularly onerous when the discovery consists of massive amounts of electronically stored information.”

In short, FRE 502 is designed to establish uniform, nationwide standards for waiver of attorney-client privilege and work product protection, with the main goal being to protect producing parties against the inadvertent disclosure of privileged materials or work product in either federal or state proceedings.  The salient section is subsection (b) which states that when a disclosure of privileged information is made in a federal proceeding or to a federal agency, the disclosure does not constitute a waiver if:

  1. the disclosure is inadvertent;
  2. the holder of the privilege or protection took reasonable steps to prevent disclosure; and
  3. the holder promptly took reasonable steps to rectify the error, including (if applicable) following Federal Rule of Civil Procedure 26(b)(5)(B).

The end game here is presumably to increasingly leverage automated review methodologies to save costs.  But, in order to facilitate this type of review methodology without taking on unhealthy levels of risk means that claw-back provisions must be as airtight at possible to prevent inadvertent electronically stored information (ESI) productions.  And yet, exactly how FRE 502 will work in practice is up to debate since there isn’t any case law interpreting it yet.

One area that’s top of mind is how this new Rule will impact the recent decisions on e-discovery search, including the Victor Stanley case authored by Chief Magistrate Judge Grimm.  Since FRE 502 contains a core “reasonableness” prong in section (b) it’s likely that Grimm’s proclamation about e-discovery search will still be controlling.  Grimm fundamentally had to evaluate whether the producing party’s search protocols and procedures were in fact reasonable.

“Defendants, who bear the burden of proving that their conduct was reasonable for purposes of assessing whether they waived attorney-client privilege by producing the 165 documents to the Plaintiff, have failed to provide the court with information regarding: the keywords used; the rationale for their selection; the qualifications of M. Pappas and his attorneys to design an effective and reliable search and information retrieval method; whether the search was a simple keyword search, or a more sophisticated one, such as one employing Boolean proximity operators; or whether they analyzed the results of the search to assess its reliability, appropriateness for the task, and the quality of its implementation.” (footnotes omitted).

In Victor Stanley, the producing party wasn’t able to demonstrate reasonableness because they didn’t strategically craft out their strategy nor conduct any sampling to make sure that the e-discovery search worked as designed.  This type of analysis would still seem to come into play under FRE 502 and so, as Grimm states, the use of either a best practices or collaborative approach to e-discovery would seem to be as important as ever.

Given that backdrop it’s just as important as ever that parties “show their work” when it comes to e-discovery search.   Whether FRE 502 will really make parties feel safe enough to use automated review processes (thereby reducing costs) will remain to be seen.  But, this first step which unifies standards and expectations is at least a very positive step.