e-discovery 2.0

After more than ten years of IT experience and over a year of experience as an attorney working exclusively with e-discovery, I am delighted to join the E-Discovery 2.0 team.  I am a member of the South Carolina Bar Association and the American Bar Association.  In this and future posts, I will try to bring a practical perspective or view from the trenches to this blog – a look at how to deal with some of the day-to-day problems facing e-discovery practitioners today.  I will begin with a discussion about how to approach the decision to move e-discovery in-house, and although the desire to build a solution “in a day” is tempting (and sometimes precipitated by necessity), a solution that will stand the test of time and provide the greatest ROI requires a bit more planning and care.

E-Discovery can sometimes be thought of as an ailment that requires a quick remedy in the form of software or services.  We continue to be reminded, however, that e-discovery is much more than a fleeting malady; it is an ongoing business problem that must be treated with the same diligence and meticulous execution as regulatory compliance or data security.

So where should the prudent practitioner begin?

Every good IT project manager I have ever worked with always had the same mantra when it came to solving a problem with technology – make sure the business problem has been well defined and establish detailed requirements before venturing into the marketplace.  So, why are so many companies sending out form RFPs containing canned text expecting to find a miracle “end-to-end” e-discovery solution in a relatively short period of time?  The answer, I believe, lies both in the abundance and availability of generic information about e-discovery and the fact that most companies looking to bring e-discovery in-house are already feeling the pain of rising costs and demands on existing staff.  They are, in short, trying to conquer their e-discovery problem in a day.  To truly conquer the problem, it should be attacked from the areas causing the greatest pain and expense first, and those areas should be thoroughly examined using proven project management techniques.

If e-discovery is indeed a significant business process, then companies must address that problem using the same proven methods that they have been using for years to solve other business problems.  For example, every company today, believe it or not, has an e-discovery solution in place.  If the company was sued tomorrow, and there was a significant e-discovery component to the matter, the company would likely react in a certain way based on a number of factors – hire outside consultants, work with a litigation support provider, rely on their outside counsel to coordinate e-discovery, etc.  So why not predict that reaction, analyze it, and determine where the greatest expense and pain lies in that process?  From that data, the company can decide which portions of the e-discovery workflow, if any, should be brought in-house, and it can seek out best-of-breed solutions rather than settling on the first end-to-end vendor that comes knocking.  The next step is to rely on those time-honored project management edicts – define the business problem and establish concrete requirements.  Then the company will be armed with the most powerful weapon in the marketplace – the power to distinguish.

The burning question, then, is how does the company decide which portions of the e-discovery workflow to bring in-house?  The answer is relatively simple: you follow the money (right out of the front door in many cases).  Where is the company spending most of its e-discovery budget, and are those portions of the workflow good candidates to bring in-house?  Typically, processing data and review are the most expensive phases of any e-discovery project.  The logic here is simple: if you send 100GB of ESI to outside counsel to review, it will be more expensive and time-consuming than sending only 20GB.  Thus, processing, analysis, and first-pass review are great candidates to be brought in-house from an ROI perspective, and bringing these phases in-house could facilitate a form of early case assessment given the right solution.

Now, suppose a company decides to bring processing, analysis, and first-pass review in-house, also leveraging their chosen technology solution for early case assessment.  Now what?  The process can simply be repeated.  Given the solution implemented, what happens if we get sued tomorrow?  What other portions of the e-discovery workflow will need to be outsourced and how will we do that?  What will that cost?  Is there a better way?  The company can continue this process until it determines that either all portions of its e-discovery workflow have been successfully brought in house or the ROI of bringing additional portions of the workflow in house does not justify additional projects at that time.  This analysis should then be repeated on a regular basis to ensure the current solution is still meeting the needs of the organization and that market or industry shifts have not created additional opportunities for cost savings.

Although an effective and defensible in-house e-discovery solution likely cannot be built in a day, a carefully crafted plan of attack and a thorough understanding of the organization’s particular needs can strategically position it for long term success.

As a long-time reader of The Economist, I was excited to find that this week’s edition writes at length about the exponential growth in electronically stored information (ESI), and how people are using technology to manage it.  I believe this is one of the most significant “mega-trends” impacting our economy, and I was thrilled to see it recognized by a mainstream publication. But when I read the 14-page special report, I was disappointed to find that its analysis of the legal and regulatory implications of “the data deluge” is really weak.

The survey does a good job of teeing up the issue:

The world contains an unimaginably vast amount of digital information which is getting ever vaster ever more rapidly. This makes it possible to do many things that previously could not be done: spot business trends, prevent diseases, combat crime and so on. Managed well, the data can be used to unlock new sources of economic value, provide fresh insights into science and hold governments to account.

It goes on to talk about how companies like Walmart, which has 2.5 petabytes of point-of-sale transaction data, is using business intelligence software to analyze the 1 million transactions it does every hour. By doing so, Walmart is able to improve the efficiency of its supply chain and the effectiveness of its marketing. The article also describes how companies like Amazon and Google use web analytics software on click stream data to improve their services.

What’s missing is an equally intelligent analysis of the legal and regulatory implications of all this data. The move from paper to ESI (email and files) has created a user-generated, written record of everything that happens in a company. That’s incredibly helpful when, after the fact, questions or disputes arise. Rather than relying on incomplete recollections, courts and regulators can now consult a written record – one where every document is time-stamped and very often attached to a person’s name via email. That enables judges and regulators to get better information which, in turn, leads to better decisions. It’s hard to quantify the value of that, but there’s no doubt it’s substantial.

There is, however, a catch. Because the volume of ESI is so great, it’s really expensive to gather, sift through, and then produce information. Add the requirement that the process needs to be defensible (i.e., easily explained in court), and the whole thing gets really expensive really fast. Hence the need for electronic discovery software: it’s the only cost-effective way for companies to manage their ESI from a legal and regulatory perspective.

That’s why I believe e-discovery software will be as big a category as web analytics software or business intelligence software – it’s a different side to the same coin. Or, more specifically, a different dimension to managing digital information stores which, as The Economist points out, are growing tenfold every five years.

Update: Nick Patience at The 451 Group has also posted on this topic, at almost exactly the same time as me.

Judge Shira Scheindlin is famous for a number of things in her electronic data discovery opinions, but one notable aspect is her use of quotes to set the tone for her landmark decisions.  In Zubulake she quoted Cool Hand Luke (“What we’ve got here is a failure to communicate.”) and in her latest opinion she quotes George Santayana (”[t]hose who cannot remember the past are condemned to repeat it.”).

Pension Committee of the Univ. of Montreal Pension Plan, et al., v. Banc of America Securities, LLC, et al. (“Pension Committee”) is generating a lot of buzz and reminds me of the Yogi Berra quote: “this is like déjà vu all over again” … particularly when thinking back to her landmark Zubulake decisions.  In this opinion, Judge Scheindlin of the Southern District of New York pens another potential electronic discovery classic, while simultaneously paying homage to her past opus.

Before we get into the “how” and “what” of the 85 page opinion, it’s probably reasonable to posit the “why” question, particularly when Judge Scheindlin and her team spent 300 hours on the mammoth undertaking.

“I, together with two of my law clerks, have spent an inordinate amount of time on this motion. We estimate that collectively we have spent close to three hundred hours resolving this motion. I note, in passing, that our blended hourly rate is approximately thirty dollars per hour (!) well below that of the most inexperienced paralegal, let alone lawyer, appearing in this case. My point is only that sanctions motions, and the behavior that caused them to be made, divert court time from other important duties-namely deciding cases on the merits.”

So, why was this fact pattern worthy of the inordinate amount of briefing time (regardless of the inconceivably low $9,000 fee)?  A skeptic might postulate that Judge Scheindlin has been out of the limelight lately, often being eclipsed by Judges Peck and Grimm.  It’s also been a year since her Securities and Exchange Commission v. Collins & Aikman Corp., opinion and it’s likely that she wanted to hearken back to the good ole Zubulake days, where she had the ear of the entire electronic discovery world.  Her tribute is less than subtle, as she even subtitles Pension Committee: “Zubulake Revisited: Six Years Later.”

Less skeptically, however, she likely sees a host of matters rife with electronic data discovery disputes caused by the bar’s lack of e-discovery savvy.  It seems plausible that Pension Committee is a way for her to coalesce leanings from Zubulake (and beyond) into one, clear expression of legal duties.

Given the length of her opus, we won’t dissect the entire opinion as Ralph Losey did (chockablock with flying gerbils), but will instead focus in on the enduring and potentially controversial sections.  As way of background, the dispute at hand focused on claims by a group of investors who brought an action to recover losses of 550 million dollars stemming from the liquidation of two British Virgin Islands based hedge funds.  Unlike many typical e-discovery disputes, this instant action focused on the conduct of the plaintiffs as they attempted to deal with the often murky landscape of ESI preservation, collection and production.  Fortunately, Judge Scheindlin provided much needed foreshadowing to both readers and bloggers alike in her opening comments:

“Because this is a long and complicated opinion, it may be helpful to provide a brief summary up front. I begin with a discussion of how to define negligence, gross negligence, and willfulness in the discovery context and what conduct falls in each of these categories. I then review the law governing the imposition of sanctions for a party’s failure to produce relevant information during discovery. This is followed by factual summaries regarding the discovery efforts–or lack thereof–undertaken by each of the thirteen plaintiffs against whom sanctions are sought, and then by an application of the law to those facts. Based on my review of the evidence, I conclude that all of these plaintiffs were either negligent or grossly negligent in meeting their discovery obligations. As a result, sanctions are required.”

The finding of sanctions aside, Judge Scheindlin goes out of her way to crystallize duties and identify the type of conduct can cause an e-discovery breach.  Despite significant caveats about the fact intensive nature of each discovery dispute, she nevertheless proffers the following synthesis, which has caused no shortage of consternation amongst electronic discovery practitioners and commentators:

“After a discovery duty is well established, the failure to adhere to contemporary standards can be considered gross negligence. Thus, after the final relevant Zubulake opinion in July, 2004, the following failures support a finding of gross negligence, when the duty to preserve has attached:

• to issue a written litigation hold;
• to identify all of the key players and to ensure that their electronic and paper records are preserved;
• to cease the deletion of email or to preserve the records of former employees that are in a party’s possession, custody, or control;
• and to preserve backup tapes when they are the sole source of relevant information or when they relate to key players, if the relevant information maintained by those players is not obtainable from readily accessible sources.

[bullets added]

Assuming Pension Committee is followed beyond the bounds of the Southern District of New York, which is still speculative at this stage, it certainly means sleepless nights for corporate legal departments with litigation hold and preservation processes that are less than “contemporary.” While it’s hard to argue with the theoretical appropriateness of the above items, it’s questionable how practical these steps are, particularly for large enterprises that may have dozens (or hundreds) of litigation holds in place at any one point in time.  Multiply the numbers of holds times the disparate types of ESI and the complexities of the IT infrastructures and Judge Scheindlin’s seemly innocuous mandate can quickly become a tactical minefield, rife with sanctions possibilities.  Unfortunately, with the rapid proliferation of social media usage and cloud computing, this already complex paradigm is only going to become more vexing in the near term.

Given that the number of struggling enterprises is legion, it does certainly beg the question whether more folks than not can live up to this new “reasonableness” standard.  If not, this articulation may materially raise the bar and result in a demonstrable increase in spoliation motions, if that were possible.  Already, spoliation charges are often referred to as a “case within the case” by many, something which Judge Scheindlin reluctantly acknowledges.

“Finally, I note the risk that sanctions motions, which are very, very time consuming, distracting, and expensive for the parties and the court, will be increasingly sought by litigants. This, too, is not a good thing. For this reason alone, the most careful consideration should be given before a court finds that a party has violated its duty to comply with discovery obligations and deserves to be sanctioned. Likewise, parties need to anticipate and undertake document preservation with the most serious and thorough care, if for no other reason than to avoid the detour of sanctions.”

[Footnotes omitted]

Perhaps ratcheting up of the e-discovery standard of care can be rationalized as aspiration in nature.  Yet, it is hard to see how it reflects the actual business practices of many in corporate legal departments, particularly when the actions/inactions occurred (as in this case) several years ago when nascent notions about best practices were still evolving.

“The age of this case requires a dual analysis of culpability–plaintiffs’ conduct before and after 2005. The Citco Defendants contend that plaintiffs acted willfully or with reckless disregard, such that the sanction of dismissal is warranted.  Plaintiffs admit that they failed to institute written litigation holds until 2007 when they returned their attention to discovery after a four year hiatus. Plaintiffs should have done so no later than 2005, when the action was transferred to this District. This requirement was clearly established in this District by mid2004, after the last relevant Zubulake opinion was issued. Thus, the failure to do so as of that date was, at a minimum, grossly negligent.”

[Footnotes omitted]

Perhaps my biggest issue with this decision is that it (perhaps myopically) places an inordinate level of importance and awareness of the Zubulake decisions, particularly for those outside Judge Scheindlin’s district.  This lawsuit was initially brought in Florida and “[w]hile a duty to preserve existed in the Southern District of Florida at the time this action was filed, no court in the Eleventh Circuit articulated a ‘litigation hold’ requirement until 2007.”  In my mind, it hardly seems fair to retroactively imbue the Plaintiffs with this type of comprehension and duty.

At the end of the day, and despite quibbling with the equities involved, Judge Scheindlin has largely succeeded in moving the e-discovery ball forward.  The opinion will likely be one of the most widely read cases in 2010 and deservedly so since it describes with precision and clarity the burdens and penalties in the evolving area of ESI spoliation.  The main question will be to what extent will other jurisdictions adopt the same culpability framework and extend the reach of Pension Committee just as happened with the Zubulake line of cases.

Certainly, it could be “déjà vu all over again.”

Yesterday, I explained what I think Iron Mountain’s acquisition of Mimosa says about valuations in the archiving / e-discovery industry. Today, I will address the other questions that people commonly ask about the deal – why did Iron Mountain (Stratify) do it, and what does it mean for the electronic discovery industry?

In their letter to customers announcing the deal, Ramana Venkata (President of Iron Mountain Digital) and TM Ravi (CEO of Mimosa) point to two main benefits from combining the companies. On the archiving side, Iron Mountain can now offer Mimosa as an on-premise solution in addition to its existing hosted service. If it can integrate the two, then it can offer “location-independent” archiving which “will help you transparently and seamlessly move data between the on-premises data center and the cloud.” One additional benefit to Iron Mountain, which is not mentioned in the letter, is that it could even leverage Mimosa’s technology for its hosted offering, and replace Mimecast who it currently pays to provide this service.

On the e-discovery front, Iron Mountain now has a suite of 2 products and 1 service: Mimosa NearPoint for collection and preservation; the Stratify eVantage appliance for ECA (Early Case Assessment); and, Stratify Legal Discovery Services for review and production. This makes Iron Mountain a competitor to Autonomy, Clearwell, EMC/Kazeon, and everyone else listed in Gartner’s recent MarketScope covering e-discovery software companies. I’m sure the hope is that there’s synergy between the different products so that, for example, Mimosa’s experience in on-premise software will help Iron Mountain drive adoption of its new Stratify eVantage appliance behind the firewall.

Will the combination work? As Barry Murphy (a former Mimosa employee) points out in his excellent post on this topic, a lot depends on execution. But there are at least 2 reasons to be doubtful. First, the competition is far ahead, and will be hard to catch. As Barry, points out: “Iron Mountain will have a tough road ahead to compete with the likes of Autonomy, which bought successful archiving company Zantaz and has now had almost two years of development time for its hybrid on-premise/SaaS archiving offering.” The same is true on the e-discovery side, where companies like Clearwell have hundreds of corporate customers for on-premise ECA and review.

The second reason to doubt why the combined company will be any more successful than either were before the acquisition is that Mimosa and Iron Mountain Digital serve very different markets. Most of Mimosa’s customers are small to medium sized companies; most of Iron Mountain Digital (ie., Stratify)’s revenue comes from law firms. So it’s not obvious that by combining them you create a company well-suited to serving large corporations, which is the sweet spot for e-discovery and archiving.

It will be interesting to watch events unfold.

Part I of this series on reducing e-discovery costs discussed a number of approaches for managing e-discovery costs.  The third approach suggested in the original article is to bring e-discovery in-house.  This means taking some e-discovery tasks that were previously conducted by external organizations, such as e-discovery service providers or outside law firms, and performing them using in-house enterprise e-discovery software, and/or people.

How does bringing e-discovery in-house reduce costs?  The way in-sourcing e-discovery reduces costs is fairly straightforward.  It simply is a way to take variable costs and convert them into fixed costs.  If the variable costs are incurred frequently enough, then the sum of the variable costs will at some point become higher than the fixed costs.  In this case, a company bringing e-discovery in-house reduces costs by investing in fixed cost in-house software and/or people and using these to reduce the amount of variable e-discovery legal and service provider fees.  Over time, the savings from these reduced fees outstrip the cost of the original investment.

Cost is, of course, not the only factor that must be considered when a corporation, or law firm, decides to bring e-discovery in-house.  There are additional benefits as well as additional challenges.  Some of the additional benefits include:

• Increased visibility into costs and schedule: you’ll have a better idea about the specific costs and duration of e-discovery and how they relate to the overall management of the matter.
• Increased control of process and data: better visibility and in-house tools and/or people give you greater control over the conduct of e-discovery, so there’s less finger-pointing.  In-sourcing also allows you to keep control of your data avoiding the risk of entrusting it to third parties.
• Greater efficiencies: over time, in-sourcing allows you to build up data, processes and experience that will reduce costs further over time.  Instead of potentially training new people or adapting new software to your company’s business and processes every case, you’ll build an expertise that will lead to greater efficiency.  It also be easier to retain your work product and reduce the times when, for example, a document is inadvertently re-collected, processed, analyzed, reviewed and produce when it already from produced for a different matter.

Some of the challenges of bringing e-discovery in-house include:

• Risk: Risk is often the biggest concern when a company considers in-sourcing.  Many corporations feel that in-sourcing could increase their liability and risk of sanctions because if something goes wrong, they are more responsible.  The reality, of course, is that if something goes wrong the corporation often bears much of the liability even if e-discovery is out-sourced.  There are also ways to mitigate risks, which is typically more related to people in-sourcing not software.
• Expertise: how do you find the right people and software to perform e-discovery in-house?  This can be challenge but there are now many good options.  The first is to hire expertise from service providers or law firms.  The second is in-source only the software and continue to use outside people.  This is an approach worth discussing in more detail.
• Overhead: many corporations are concerned that bringing in software will require a large investment in people and an increase in operational costs, potentially out-weighing the variable cost savings.  Fortunately, e-discovery software has improved such that the best software does not result in a significant increase in overhead, and the savings from reduced service costs more than offset any additional overhead.

In recent months, a large number of organizations have analyzed all of the benefits and challenges of bringing e-discovery in-house.  The results have been both unsurprising and somewhat surprising.  Unsurprisingly, what most of these companies have found is that bringing parts of the e-discovery process in-house makes a lot of sense if the company has a fairly consistent case load from litigation and/or internal investigations.  More surprisingly, many companies have also determined that bringing e-discovery software in-house can often pay for itself with just one large case.  The first finding suggests that, as one might suspect, most Fortune 500 companies and large government organizations, should be taking a look at bringing e-discovery in-house.  The second finding though suggests that it’s not just the Fortune 500 that should be taking a hard look at in-sourcing.  If bringing parts of e-discovery in-house can pay for itself on one large case, then many organizations, not just the Fortune 500 should be taking a hard look at e-discovery in-sourcing.  When they do, one of the big questions that each organization needs to answer is what part of the e-discovery process do I want to in-source?  That will be the subject of my next post.

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.

We’ve devoted a number of posts to the topic of ECA, ranging from a quest to define the acronym, all the way to the cost savings benefits of the ECA approach.  And, while there seems to be relative unanimity around the beneficial aspects of ECA, there still seem to be a number of myths and misconceptions.  So, ala the Mythbusters, we’ll run these myths through the gauntlet to see which survive scrutiny.

Myth #1: ECA Is Only Valuable if Performed “Early”

Certainly, ECA is best leveraged and will be most valuable when performed at the outset of litigation.  As has been stated before, it has value on two primary fronts, the first being the ability to scope electronic discovery (both in terms of cost and timelines).  The next is the more traditional value proposition where ECA is used to get an understanding of the case facts to enable the strategic decision making process.

As such, there are scenarios where an ECA methodology would still generate value even if performed “later” in the mater.  For instance, with bifurcated, class action litigation initial discovery about the class may occur months before discovery on the merits.  In this instance using a later ECA approach would still make sense since discovery about the case facts may not have been possible earlier on.  Similarly, “late” ECA may still hold value when new parties or claims are added to an existing lawsuit, or when there’s a substantial change in case direction, data, or custodians.

Myth #2: ECA Is Only Performed With Technology

Sure, enterprise grade ECA products  are an important part of the mix, but the products won’t perform an ECA by themselves.  There’s just too much subjective decision making involved in the assessment process.   Therefore, the right people are critically important — not only in terms of experience performing this analytical work, but also in their ability to capably testify about the underlying decision making process.  It’s also important to be able to follow a repeatable and defensible processes to show that the “recipe” used was aligned with industry best practices and wasn’t ginned up for a particular engagement.

Myth #3: ECA Only Works With Large ESI Volumes

Yes, ECA methodologies makes a lot of sense for large, bet-the-company matters because even modest savings when processing, analyzing and reviewing terabytes will easily approach six to seven figures.  However, smaller matters will still benefit from better budgetary insights that facilitate informed matter management.  And, in a way there’s almost more benefit from being able to quickly evaluate (fight/settle) smaller suits since the transactional costs are so high relative to the amount in controversy.  In both scenarios it’s important to view objective case data to prepare for meet & confer conferences.

Myth #4: Clients Don’t Want To Pay for ECAs

Many end clients (corporate counsel typically) have a similar litigation mindset:  i.e., the desire to avoid costs for as long as possible.  While avoiding early costs makes some sense on its face, the fact is that spending a small amount of money early on (for budgetary and case assessment purposes) will in most instances reduce the overall litigation budget.  It’s the classic, “you can pay me now, or pay me later” situation.

Counsel must understand that while some costs are incurred early in the process the benefits are crystal clear: i.e., determining customized case strategies early in the matter to decide whether to fight or settle.  Similarly, corporate clients must recognize that the benefits outweigh the costs and require their litigation counsel to include this process in every significant matter.

This illustration highlights how an initial ECA investment actually pays for itself over the life of the litigation.

Myth #5: ECAs Begin when the Complaint is Filed

Many newbie ECA practitioners may think that the timing for an ECA approach would start when the complaint is filed.  And, while this isn’t patently ridiculous, I think the better approach is to begin the clock at the time litigation becomes “reasonably likely” — versus later dates such as when the complaint is filed or when discovery is propounded.  This trigger is also the same for trigger preservation obligations and a host of interrelated activities such as ESI “identification,” which makes the matter kick-off more synchronized.

For more information about ECA, watch a recording of our recent webinar — E-Discovery MythBusters: Debunking Common Myths About Early Case Assessment.

It’s not just in New Jersey that corruption is in the news. It feels like everywhere you go, the authorities are investigating white collar crime and thus have an increasing need for electronic discovery technology.

Earlier this month, as those of you who follow my Twitter feed will know, I was visiting customers and partners in Germany. In virtually every meeting, data privacy and corruption investigations were top of mind, and with good reason. Following the Siemens case last year, German investigators have become much more active and it was easy for my hosts to list example after example of recent cases. There was the Deutsche Bahn case of management spying on its own employees, in violation of German privacy laws; the Deutsche Bank case of management spying on its own board; and, the Deutsche Telecom case of management phone tapping employees to find leaks. There were stories of price collusion among cable car companies in the Alps, and corruption investigations into the activities of German companies in Eastern Europe.

A similar focus on anti-corruption exists closer to home. I have written before about the increase in FCPA investigations and that’s been reflected in recent headlines. As the Wall Street Journal reports, Sun and Shell have recently come under the microscope, according to their public filings. And Frederic Bourke, a founder of the accessories firm Dooney & Bourke, was recently found guilty of conspiracy to violate the Foreign Corrupt Practices Act, which may result in jail time.

All indications are that the U.S. Department of Justice and its counterparts overseas are just warming up. It’s not a good time for white collar crime, wherever you are in the world.

The bashing of our judicial system seems to have reached a fevered pitch.  Groups like the American College of Trial Lawyers (”ACTL”) have proclaimed in a recent report that while the “civil justice system is not broken, it is in serious need of repair.”  The blame game seems to have judges and attorneys alike pointing fingers.  The Fellows of the ACTL (perhaps not surprisingly) seems to pin some of the blame on the judiciary:

“Judges should have a more active role at the beginning of a case in designing the scope of discovery and the direction and timing of the case all the way to trial. Where abuses occur, judges are perceived not to enforce the rules effectively.”

Groups like the Sedona Conference chalk up many of the ills to the failure to cooperate, so much so that they’ve orchestrated a cooperation proclamation – which has picked up enough support by the bench to have garnered several cites in the case law (see e.g., Mancia).

The bench for its part seems to put some of the onus on litigators and their reticence to get with the times.  William A. Gross. Constr. Assocs., Inc. v. Am. Mfrs. Mut. Ins. Co., 2009 WL 724954 (S.D.N.Y. Mar. 19, 2009) is the latest example of such a proclamation.  In this construction defect case, Judge Peck (a Sedona devotee) issues what he hopes will be a “wake-up” call to the bar about the need for “careful thought, quality control, testing, and cooperation with opposing counsel in designing search terms or ‘keywords’ to be used to produce emails or other electronically stored information (‘ESI’).”  In Gross, the court had to mediate an e-discovery dispute where the requesting party propounded a blatantly over-inclusive search request crafted by the requesting parties.  Unfortunately, the responding entity was a non-party and they simply dig their heads in the sand.  In order to facilitate a resolution this left the Court in the “uncomfortable position” of having to craft a “keyword search methodology for the parties, without adequate information from the parties (and Hill).”

Judge Peck’s exasperation with these antics was palpable.  Summing up the problem by citing Judge Grimm and Victor Stanley he stated: “This case is just the latest example of lawyers designing keyword searches in the dark, by the seat of the pants, without adequate (indeed, here, apparently without any) discussion with those who wrote the emails.”  He further noted: “[w]hile this message has appeared in several cases from outside this Circuit, it appears that the message has not reached many members of our Bar.”

After noting both Sedona and Judge Facciola (of O’Keefe and Equity Analytics fame) Peck’s opinion reached a crescendo:

“Electronic discovery requires cooperation between opposing counsel and transparency in all aspects of preservation and production of ESI. Moreover, where counsel are using keyword searches for retrieval of ESI, they at a minimum must carefully craft the appropriate keywords, with input from the ESI’s custodians as to the words and abbreviations they use, and the proposed methodology must be quality control tested to assure accuracy in retrieval and elimination of ‘false positives.’ It is time that the Bar-even those lawyers who did not come of age in the computer era-understand this.”

While it’s easy to see who Peck blames in this brouhaha, it takes (at least) two to tango.  Meaning that litigants on both sides of the “v” must move beyond the typical “seat of the pants” electronic discovery wrangling.  And, judges need to be savvy enough to spot the issues to help/force the parties into such an enlightened/cooperative state.  Nothing short will get the job done.

In today’s economy, controlling electronic discovery costs has taken on a new urgency.  Because the financials of many companies have deteriorated so quickly, there is great interest in finding methods to reduce any costs in the short-term.  As  a result, anyone in a company’s IT or legal department that comes up with a plan to substantially reduce their company’s electronic discovery costs in the short-term is likely to become a hero in their company.  So, what’s the best way to reduce electronic discovery costs quickly?

A natural first step is to decide where to focus.  Which electronic discovery activities are the most costly today?  Which have the greatest room for cost reductions?  The EDRM model serves as a good guide for answering such questions by breaking electronic discovery activities into Information Management, Identification, Collection, Preservation, Processing, Analysis, Review, Production and Presentation.  One thing I have noticed when interacting with enterprises is that the IT and legal departments tend to focus on different stages within electronic discovery based on their perspective.  IT managers naturally concentrate on the information management, identification, collection and preservation activities because these are the activities in which they are most involved.  Similarly, legal managers naturally look to preservation, processing, production and review.

Given these different perspectives, it’s important to take an objective approach to calculating electronic discovery costs.  Doing so is not that easy.  Costs can vary significantly depending on each company, the nature of the case, nature of the data, which vendors/technologies that are used and a variety of other factors.  Costs also come in many different forms: direct hard dollar costs, such as spending on legal and electronic discovery fees delivered by third parties; indirect hard dollar costs, such as time spent by company employees; and soft dollar costs, such as increased risk that could lead to adverse judgments and sanctions.  Finally, electronic discovery costs are often buried across both legal operating budgets and IT budgets making it hard to separate these costs from the costs of other activities.

Undertaking an internal analysis to understand your company’s electronic discovery costs is a valuable activity if you want to better control these costs.  However, while costs do vary between companies, most companies will find that the same activities contribute the most direct hard dollar costs and that these are the costs that are easiest to control in the short-term.  To demonstrate this, let’s walk through a generic cost analysis of a typical case.  Fortunately, we don’t have to start from scratch in doing this.  Leonard Deutchman, an author of several excellent electronic discovery articles, has already done most of the work in a May 2007 article, “Get Ready for the Rules Changes, Part VIII“.  In this article, Mr. Deutchman walks the reader through a hypothetical litigation between an Investor and a Venture Capital firm.  He describes the typical electronic discovery activities and calculates the direct hard dollar costs for these activities including:

• Collection: Mr. Deutchman calculates that it costs $10k to collect 400GB from 8 hard drives and the data of 8 custodians on file and email servers using an outside vendor (doing it in-house can be less expensive).  Note that this excludes any collection from back-up tapes, which can be more costly.
• Culling & Processing: it costs $4k to reduce the 400GB to 90GB by removing non-relevant file types prior to processing.  Processing 90GB costs $90k at $1000/GB.  De-duplication and the application of search terms reduce the data to 25GB.
• Production: it costs $4k to produce the 4GB of data that is deemed responsive and not privileged to produce to the other side.

Mr. Deutchman doesn’t identify direct hard dollar costs for Information Management, Identification or Preservation.  These activities are typically not associated with direct hard dollar costs on a per matter basis.  Rather, they involve indirect hard dollar costs such as employee time and software licenses.  Mr. Deutchman also does not provide an estimate for the costs of review.  However, since review does contribute significant direct hard dollar costs for every matter, this gap needs to be filled in order to get a complete sense of the direct hard dollar costs.  The two big buckets of cost in review are: attorney review costs and review software costs.  In Mr. Deutchman’s hypothetical litigation one might imagine the following scenario for these costs:

• 25GB translates into 195,000 documents using the low end of the documents per GB email (9,000/GB) and documents per GB files (7,000/GB). Industry survey data that is available from EDRM.  This example assumes that 40% of the 25 GBs is email.
• The attorneys reviewing the data charge $75/hour and make 100 document decisions per hour.  This translates to approximately $146,000.
• The hosted review service costs $50/GB/month and, in this case, let’s assume we host it for 6 paid months.  This costs $7,500.

If we tabulate these costs and calculate the direct hard dollar cost shares for each stage, the clear take-away is that Processing and Review costs comprise the vast majority of direct hard dollar costs.  Collection and Production direct hard dollar costs are significantly smaller in comparison.

Now, it’s possible to come up with many arguments for why Mr. Deutchman or my estimates could be high including different assumptions for attorney hourly review costs, higher document decision rates, cheaper vendor pricing, etc.  Similarly, it’s possible to come up with many arguments for why the estimates could be low including the need to perform multiple review passes, slower document decision rates, more expensive vendor charges, etc.  In addition, each company will have their own unique circumstances that will change this picture.  However, this generic analysis strongly suggests that more customized analyses would come to the same conclusion: if you want to reduce electronic discovery costs quickly, then you need to focus on processing and review costs.  One can also imagine that even if you were to use some form of activity-based costing to allocate indirect hard dollar costs on a per matter basis, it would likely not change the importance of Processing and Review costs.

What does this mean for IT and legal managers in Corporations?  These kinds of analyses make it pretty clear that, even though they are more involved in the Information Management, Identification, and Collection phase of electronic discovery, IT managers need to focus more on helping the legal team optimize Processing and Review activities.  You are not going to get the biggest bang for your buck in the short-term by trying to reduce costs in Information Management, Identification, Preservation, and Collection.  Similarly, legal managers need to work more closely with IT in order to focus on how to reduce processing and review costs.

So, the obvious question coming out of such an analysis is what’s the best way to reduce Processing and Review costs?  We’ll discuss this issue in a future post.

In the meantime, tell me what you think by participating in our first e-discovery 2.0 poll.  See the sidebar here: Which Phase of Electronic Discovery Do You Think is the Most Costly?