e-discovery 2.0

Fulbright & Jaworski has conducted their Litigation Trends survey for nearly the past decade and the results are always interesting since they tend to capture the mindset of inside counsel and litigators as they anticipate the upcoming year.  In their 8th Annual Litigation Trends Survey, Fulbright noted that 92% of U.S. respondents predict that litigation will either increase or stay the same in the upcoming year.  This trend bodes well for players in the litigation services and eDiscovery sectors, and confirms the counter cyclical nature of the industry.  Breaking down the perceived increases across industry verticals, the Survey noted that the biggest anticipated jumps were in the technology, financial services, healthcare and insurance sectors.  Meanwhile energy (the leading sector from the prior year) was one of the few that predicted a decrease.

Going behind the scenes, there were a number of factors that caused respondents to predict litigation increases.  First and foremost, respondents indicated that “stricter regulation was the number one reason” for the increases, particularly with insurance, financial services, health care and retail sectors.  These concerns around regulatory compliance have been increasingly keeping GCs and corporate boards awake as the governance climate continues to heat up.  This regulation driver showed a demonstrable increase with 46% of all respondents having retained outside counsel to assist with regulatory proceedings, up from 37% in the prior year.  The Survey noted that U.S. companies facing a regulatory investigation were most likely to be under pressure from the DOJ (27%), State Attorney General (24%), OSHA (18%), the EPA (16%) and U.S. Attorney (13%).  Also on the regulatory front, U.S. respondents have increasingly begun to recognize the potential jurisdictional reach of the U.K. Bribery Act, with 25% of U.S. companies stating that they have already conducted a review of existing procedures in preparation for implementation.

In addition to managing risk, most in-house counsel are keenly concerned with controlling litigation costs.  The good news here is that associated costs are predicted to be generally flat.  Yet, eDiscovery remained the largest category targeted for increased spending, with 18% of respondents making this their top priority.  Interestingly, though, large enterprises seem to have been doing a good job of getting eDiscovery expenses under control (likely by taking expensive elements of the EDRM in-house), with these expenses declining among the largest companies, from 42% last year to 24% this year.

The Survey noted that the use of cloud computing has gained speed, with 34% of all public companies using the cloud.  And yet, only 40% of those companies using cloud computing have had “to preserve and/or collect data from the cloud in connection with actual or threatened litigation, disputes or investigations.”  This number appears curiously light, and it should definitely rise during the upcoming year as the plaintiff’s bar gets more savvy about this relatively new source of responsive electronically stored information (ESI).

On the narrower eDiscovery front, the Survey honed in on newer issues like cooperation.  Here, the Survey noted that this Sedona-sponsored concept still hasn’t completely taken hold, with nearly 40% of all respondents claiming that “their company has not made the effort to be more transparent or cooperative” due to a litigation strategy of “defending on all fronts.”  This area appears particularly muddled, with one third saying their previous attempts haven’t been reciprocated and another quarter feeling that their company was already transparent.

All in all,  the 2011 Fulbright Litigation Trends Survey notes trends that appear to be largely in line with the primary drivers of (1) managing risk and (2) lowering litigation costs.  On the risk side, compliance with an increasingly complex regulatory environment is offsetting any potential lull in the litigation environment.  And, on the cost side, eDiscovery continues to be a hot button issue, particularly with the relatively new challenges associated with ESI distributed on social media, cloud computing and mobile sources.

Plenty has been written on both sides of the preserve-in-place debate.  The preservation duty in e-discovery, though, continues to be a root cause of sanctions and other trouble for litigants when ESI is involved.  In its 7^th Annual Litigation Trends Survey, Fulbright & Jaworski reported that 55% of responding companies still rely on custodians to identify and preserve their own information as the method used most frequently to preserve potentially relevant information in litigation or an investigation.  Also, 68% of respondents thought that the scope of the preservation duty needed further clarification.

One thing that does not seem to require much clarification is that the spoliation, whether inadvertent or intentional, can lead to serious consequences.  Leaving ESI “in the wild” is a gamble at best, and just like Vegas, the odds are stacked against us.

Preserving ESI in place sounds like a great idea at first, especially to the IT team – index all of the ESI in place and then search and collect what is actually needed for review and production – if and when that is required.  It may even seem to make better sense from a budgeting perspective given the fact that while preservation is required in all cases, the degree of production varies widely from case to case.  Frequently overlooked, however, are the many pitfalls that can lead to the inadvertent destruction or failure to produce relevant ESI — all resulting in serious sanctions from the court that the Legal team wants to avoid. These pitfalls include:

• the volatility of storage media and ESI
• disruption to business continuity if ESI is locked down in place (preventing the end user from modifying the files while being preserved) or if users are instructed not to modify existing relevant documents
• the expense of collecting, processing, reviewing, and producing larger datasets because the relevant ESI was not collected using a more targeted method
• overbroad preservation that could lead to irrelevant documents being preserved beyond their useful life or scheduled destruction date and then becoming subject to a preservation obligation in a subsequent matter

The general lack of control over the ESI as it resides on multiple systems and in multiple storage locations complicates preservation and makes it very difficult for large corporations to effectively and defensibly manage litigation holds.

Volatile Media

In a recent opinion out of the Southern District of New York, Judge Frank Maas held that failure to copy relevant ESI from a portable USB flash drive constituted a violation of the duty to preserve.  In Wilson v. Thorn Energy, LLC, 2010 WL 1712236 (S.D.N.Y. 2010), the defendant corporation identified a flash drive that contained relevant ESI, but rather than copying that data safely to a centralized evidence repository, the defendant’s employee chose to hold on to the drive, putting it instead into a desk drawer.  When the files were requested for review and production, the files could not be read from the drive.  The defendant’s employee attempted to repair the drive or recover the ESI contained on it, but those efforts failed.  This is a classic example of just how delicate some storage media is and how the failure to preserve relevant ESI on more reliable and robust media can lead to findings of culpability with respect to sanctions.  The notion of preserve in place can be baffling if you consider that the systems on which counsel or custodians would preserve their relevant ESI were not designed with e-discovery in mind, and many of these systems were designed using a pre-determined matrix that rates storage based on reliability, cost, and speed.  These determinations were based on business requirements, not litigation requirements, and custodians did not, at the time they created relevant ESI, necessarily choose to save those documents or emails on the highest quality storage system in the corporation.  In fact, unstructured data is everywhere – on file servers, on laptops, desktops, external hard drives, and mobile devices.  All of these systems vary in storage quality and redundancy, and they are subject to different risks such as theft, user abuse, carelessness, and even brief cases of amnesia (“What litigation hold?”).

Disruption of Business Continuity

Further complicating the equation are shared data sources where many employees are storing, editing, and collaborating on files in a shared environment.  Portal technologies and even good old file servers (the infamous “public” share) cannot effectively be put on litigation hold using a preserve in place strategy unless all files are immediately made read-only.  This would cause chaos and put an extreme strain on the business if done on a widespread basis.  Users who are not connected to the litigation at all would effectively be shut out, and all users would be less productive without the collaboration tools they have come to rely on.  Some would suggest instructing users to simply create a new copy of a protected document if they need to make changes.  However, this would quickly become burdensome as the universe of potentially relevant documents would grow each day.  Also, because users would not be able to clearly identify which documents were truly responsive, even irrelevant documents would be copied, causing an ongoing information management challenge.

Expense and Overbroad Preservation

As noted above, preserve in place strategies could lead to massive inflation of ESI, and without a more targeted approach, greater volumes of ESI would likely need to be collected, processed, analyzed, and reviewed.  While costs are on all of our minds, expense should not be the greatest of our fears.  With preserve in place invariably comes overbroad preservation.  A records retention policy has no effect if documents are being preserved that are profoundly irrelevant to the litigation, and these very documents may be the relevant documents in the next litigation.  Make no mistake – preservation must be fairly broad given that the Federal notice pleading requirement does not require plaintiffs to provide great insight into their claims.  However, a targeted collection can still be broad while defensibly limiting the scope of preservation.

Collect to Preserve – A Safer Alternative

There is a safer, more defensible solution that combines sound litigation hold procedures (such as written litigation hold notices with a custodian acknowledgement requirement) and suspension of automatic data purging for relevant sources with a targeted collection of potentially relevant ESI. This ensures that:

1. ESI is stored in a secure preservation location away from custodians, users, and the perils of daily business activity, and
2. The scope of preservation is defensibly managed.

Collections can be updated daily to include modified versions of existing documents as well as newly created documents within all identified sources.  Also, and perhaps most importantly, counsel is able to centrally manage the collection effort and thereby manage the preservation effort.  ESI is safe and custodians are not making decisions about what to keep and what to destroy.

Conclusion

As courts continue to offer guidance on what passes for adequate preservation, it’s clear that preserve in place is a gamble at best.  And as we saw in Wilson, the consequences can be disastrous when you lose.  I am sure that we have not seen the last preserve-in-place-gone-wrong story, but I am sure that for my money, I would rather take the safer bet.

Fulbright & Jaworski recently issued its “7^th Annual Litigation Trends Survey Report” and there were several interesting trends worth noting.   Not surprisingly, the general pace of litigation is forecast to increase upwards, relatively unabated, with more than 25% of respondents expecting their companies’ disputes to increase in the next 12 months.

Beyond this trend it’s clear that there’s also groundswell of support for a movement towards more e-discovery proportionality.  While also a big topic at Sedona’s annual conference (and discussed in the recent Moody case), a whopping 79% of US respondents think the “US Rules of Civil Procedure should be modified in some way to limit e-discovery in civil cases.”  While I haven’t heard of any specific proposals for a rules amendment, it’s clear that folks aren’t happy with the status quo, particularly with the increasing discovery burden facing enterprises dealing with unilateral disputes.   This discontent is likely tied to the fact that costs continue to escalate, with the survey indicating that more than 40% of the largest US companies (over $1B in Revenue) plan to “increase their spending on e-discovery in the next 12 months.”

Finally, the survey also focused on an area that’s getting an increasing level of scrutiny.   Fulbright asked “when preserving potentially relevant information in litigation or an investigation, what methods do you use most frequently for preserving electronically stored information?”  Leading the pack, with 55% of vote, was “rely on individual custodians to identify and preserve their own information.”  Custodian based collections have been discussed recently as being under fire in blogs and other recent cases such as Pension Committee and Ford Motor Co. v. Edgewood Properties Inc. The notion is that under- or un-supervised collection methodologies are dangerous because it’s relatively easy to paint the custodians at issue as either being motivated to hide responsive data or relatively unconcerned with compliance.  Nevertheless, it’s clear that (as of now) custodian-based collections are still somewhat “reasonable” given that more than 50% of the populous collects data this way.

On the other side of the spectrum from custodian based ESI collections, there are automated data collection tools and methods that can be considered too.  There are undoubtedly advantages (risk reduction, speed, audit trails, etc.)  to using “automated search software” for the collection of data (like 43% of the respondents did in the Fulbright survey).  Yet, it’s clear this isn’t a zero sum game – meaning there’s currently a place for both methodologies in the legal landscape.  For many organizations it becomes a risk management exercise as summarized in a recent  ARMA article entitled “Is ‘Manual’ Collection of ESI Defensible?”: “Companies may choose the manual collection of ESI to reduce costs, particularly if they have limited levels of litigation or lower risk levels posed by the litigation itself.”

In the end, like so many aspects of electronic discovery, almost any well thought out, well documented methodology *can* be defensible, but the onus is on the preserving/collecting party to buttress whatever poison they pick.  Defaulting into a method without preparation, auditing and follow-through is a recipe for disaster.

Without getting in Dutch with the key Sedona Conference principle that “what happens at Sedona, stays at Sedona” I thought I’d nevertheless write a post that focuses on the core topic at this year’s annual meeting, namely the case for cooperation in e-discovery.

According to the “Cooperation Proclamation” e-discovery is facing an unprecedented crisis:

“The costs associated with adversarial conduct in pre-trial discovery have become a serious burden to the American judicial system. This burden rises significantly in discovery of electronically stored information (“ESI”). In addition to rising monetary costs, courts have seen escalating motion practice, overreaching, obstruction, and extensive, but unproductive discovery disputes – in some cases precluding adjudication on the merits altogether – when parties treat the discovery process in an adversarial manner. Neither law nor logic compels these outcomes. With this Proclamation, The Sedona Conference launches a national drive to promote open and forthright information sharing, dialogue (internal and external), training, and the development of practical tools to facilitate cooperative, collaborative, transparent discovery.”

These sentiments about the “broken” nature of the discovery process echo in many ways the draft findings from the Interim Report & 2008 Litigation Survey from the Fellows of the American College of Trial Lawyers which stated:

“The joint study grew out of a concern that discovery is increasingly expensive and that the expense and burden of discovery are having substantial adverse effects on the civil justice system. There is a serious concern that the costs and burdens of discovery are driving litigation away from the court system and forcing settlements based on the costs, as opposed to the merits, of cases.”

In both instances, the core notion is that “we’ve met the enemy and the enemy is us” because it’s the participants in the process have collectively perverted the discovery process to the point it’s at today.

Sedona’s focus on this front has received at least some traction from the bench, as echoed in Mancia v. Mayflower Textile Servs. Co., 2008 WL 4595175 (D. Md. Oct. 15, 2008).  Mancia, written by leading e-discovery jurist Judge Grimm, was a fairly pedestrian employment litigation case where the parties had come to loggerheads over the e-discovery process.  Judge Grimm held that “[c]ourts repeatedly have noted the need for attorneys to work cooperatively to conduct discovery, and sanctioned lawyers and parties for failing to do so” citing both the Sedona Cooperation Proclamation and the Survey.

Judge Grimm also observed that the these recent lamentations about the costs of civil litigation aren’t terribly dissimilar to those voiced eighteen years ago when the Civil Justice Reform Act of 1990, 28 U.S.C. §§ 471 et seq., was passed:

“Perhaps the greatest driving force in litigation today is discovery. Discovery abuse is a principal cause of high litigation transaction costs. Indeed, in far too many cases, economics-and not the merits-govern discovery decisions. Litigants of moderate means are often deterred through discovery from vindicating claims or defenses, and the litigation process all too often becomes a war of attrition for all parties.”

Given the fundamentally adversarial nature of litigation, the Sedona initiative is either dramatically ambitious or simply tilting at windmills.  While generally a skeptic by nature, I think that the bench’s early participation and downstream behavior modification is the linchpin to reforming the litigating masses.  Given the long term “sales” cycle involved here, I doubt if we’ll know whether this effort will gain real traction for at least several years.

I was in Seattle this week for the annual Association of Corporate Counsel conference.  And, from all external perspectives it seems like the dour economic climate hasn’t dampened the spirits of the legal and litigation support communities.  There were lavish parties, including an extravaganza thrown by Womble, Carlysle at the Space Needle, along with no shortage of the usual tchochkies, giveaways and over-the-top promotions – even though the general consensus from exhibitors was that actual attendance was down from last year.

Maybe the legal community is in denial.  Or perhaps, the sentiment instead is that tough economic times will result in more litigation and governmental regulation.  While this is certainly the optimistic viewpoint, the recent Fulbright & Jaworski Litigation Trends Survey at least provides some foundation for this rosy notion.

In Fulbright & Jaworski’s fifth annual survey, corporate counsel stated that they anticipate a litigation spike next year in both lawsuits and regulatory proceedings.  Among U.S. respondents to the most recent survey, 34 percent expect an increase in lawsuits involving their company and 25 percent anticipate more regulatory proceedings.

Speaking on behalf of the glass half full contingent, Stephen C. Dillard, who chairs Fullbright’s global litigation practice, believes that the survey results illustrate the shift from a long period of prosperity to the start of “a period of serious economic challenge that is likely to fuel litigation over who is to blame and who should pay for the consequences.”

Whether this prediction comes to pass remains to be seen, but at least the participants at the ACC conference seem to drinking the same Kool-Aid.  Whether that sugary drink is actually good for you or not, will be the question.

Let me know what you think.  Do you think the financial crisis will force litigation to increase, decrease, or stay the same and why?