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Posts Tagged ‘FRCP’

Moving Data to the Cloud? Top 5 Tips for Corporate Legal Departments

Monday, September 30th, 2013

One of the hottest information technology (IT) trends is to move data once stored within the corporate firewall into a hosted cloud environment managed by third-party providers. In 2013 alone, the public cloud services market is forecast to grow an astonishing 18.5 percent to $131 billion worldwide, up from $111 billion in 2012. The trend is driven largely by the fact that labor, infrastructure, and software costs can be reduced by sending email and other data to third-party providers for off-site hosting. Although the benefits of cloud computing are real, many organizations make the decision to move to the cloud without thoroughly weighing all the risks and benefits first.

A common problem is that many corporate IT departments fail to consult with their legal department before making the decision to move company data into the cloud even though the decision may have legal consequences. For example, retrieving information from the cloud in response to eDiscovery requests presents unique challenges that could cause delay and increase costs. Similarly, problems related to data access and even ownership could also arise if the cloud provider merges with another company, goes bankrupt, or decides to change their terms of service.

The bad news is that the list of possible challenges is long when data is stored in the cloud. The good news is that many of the risks of moving important company data to the cloud are foreseeable and can be mitigated by negotiating terms with prospective cloud providers in advance. Although not comprehensive, the following highlights some of the key areas attorneys should consider before agreeing to store company data with third-party cloud providers.

1.      Who Owns the Data?

The cloud market is hot right now with no immediate end in sight. That means competition is likely for years to come and counsel must be prepared for some market volatility. At a high level, delineating the “customer” as the “data owner” in agreements with cloud service providers is a must. More specifically, terms that address what happens in the event of a merger, bankruptcy, divestiture or any event that leads to the termination or alteration of the relationship should be clearly outlined. Identifying the customer as the data owner and preserving the right to retrieve data within a reasonable time and for a reasonable price will help prevent company data from being used as a bargaining chip if there is a disagreement or change in ownership.

2.      eDiscovery Response Times and Capabilities

Many businesses know first-hand that the costs and burdens of complying with eDiscovery requests are significant. In fact, a recent RAND study estimates that every gigabyte of data reviewed costs approximately $18,000. Surprisingly, many businesses do not realize that storing data in the cloud with the wrong provider could increase the risks and costs of eDiscovery significantly. Risks include the possibility of sanctions for overlooking information that should have been produced or failing to produce information in a timely fashion. Costs could be exacerbated by storing data with a cloud provider that lacks the resources or technology to respond to eDiscovery requests efficiently.

That means counsel must understand whether or not the provider has the technology to preserve, collect, and produce copies of data stored in the cloud. If so, is the search technology accurate and thorough? What are the time frames for responding to requests and are there surcharges for expedited versus non-expedited requests for data? Also, is data collected in a forensically sound manner and is the chain of custody recorded to validate the integrity and reasonableness of the process in the event of legal challenges? More than one cloud customer has encountered excessive fees, unacceptable timelines, and mass confusion when relying on cloud providers to help respond to eDiscovery requests. Avoid surprises by negotiating acceptable terms before, not after, moving company data to the cloud.

3.      Where is Data Physically Located?

Knowing where your data is physically located is important because there could be legal consequences. For example, several jurisdictions have their own unique privacy laws that may impact where employee data can be physically located, how it must be stored, and how it can be used. This can result in conflicts where data stored in the cloud is subject to discovery in one jurisdiction, but disclosure is prohibited by the laws of the jurisdiction where the data is stored. Failure to comply with these local foreign laws, sometimes known as blocking statutes, could result in penalties and challenges that might not be circumvented by choice of law provisions. That means knowing where your data will be stored and understanding the applicable laws governing data privacy in that jurisdiction is critical.

4.      Retention, Backup, & Security

Part of any good data retention program requires systematically deleting information that the business does not have a legal or business need to retain. Keeping information longer than necessary increases long-term storage costs and increases the amount of information the organization must search in the event of future litigation. The cloud provider should have the ability to automate the archiving, retention, and disposition of information in accordance with the customer’s preferred policies as well as the ability to suspend any automated deletion policies during litigation.

Similarly, where and how information is backed up and secured is critical. For many organizations, merely losing access to email for a few hours brings productivity to a screeching halt. Actually losing the company email due to technical problems and/or as the result of insufficient backup technology could cripple some companies indefinitely. Likewise, losing confidential customer data, research and development plans, or other sensitive information due to the lack of adequate data security and encryption technology could result in legal penalties and/or the loss of important intellectual property. Understanding how your data is backed up and secured is critical to choosing a cloud provider. Equally important is determining the consequences of and the process for handling data breaches, losses, and downtime if something goes wrong.

5.      Responding to Subpoenas and Third-party Data Requests

Sometimes it’s not just criminals who try to take your data out of the cloud; litigants and investigators might also request information directly from cloud providers without your knowledge or consent. Obviously companies have a vested interest in vetting the reasonableness and legality of any data requests coming from third parties. That interest does not change when data is stored in the cloud. Knowing how your cloud provider will respond to third-party requests for data and obtaining written assurances that you will be notified of requests as appropriate is critical to protecting intellectual property and defending against bogus claims. Furthermore, making sure data in the cloud is encrypted may provide an added safeguard if data somehow slips through the cracks without your permission.

Conclusion

Today’s era of technological innovation moves at lightning speed and cloud computing technology is no exception. This fast-paced environment sometime results in organizations making the important decision to move data to the cloud without properly assessing all the potential risks. In order to minimize these risks, organizations should consider The Top 5 Tips for Corporate Legal Departments and consult with legal counsel before moving data to the cloud.

Judge Scheindlin Blasts Proposed FRCP Amendments in Unconventional Style

Thursday, August 29th, 2013

A prominent federal judge wasted little time to air her dissatisfaction with the proposed amendments to the Federal Rules of Civil Procedure (Rules) the exact day the period for public comment on the Rules opened. In lieu of following the formal process of submitting written comments to the proposed amendments the Honorable Shira Scheindlin, Federal District Court Judge for the Southern District of New York, provided her feedback in more dramatic fashion. She went out of her way to blast newly proposed Federal Rule 37(e) in a footnote to a recent court order in a case where she sanctioned a party for spoliation of evidence. The order, dated August 15, 2013, conspicuously coincides with the opening day for public comment to the newly proposed amendments to the Rules and likely riled some attorneys who have lobbied hard for this particular Rule change for years.

The facts relayed in Sekisui American Corporation v. Hart are not uncommon. In fact, most have likely heard this story repeat itself for a decade despite the passage of amendments to the Rules in 2006 and myriad case law guiding against such conduct. The short version of the story is that a group of employees leave their company, the company sues the former employees, discovery ensues, and emails are missing. Why? Because emails were deleted long after the duty to preserve electronically stored information (ESI) was triggered and now those emails are lost. The question then turns to whether and how the judge should rectify the missing email problem. Those familiar with some of Judge Scheindlin’s prior decisions know the answer to that question – sanctions.

Judge Scheindlin is not a renegade who issues sanctions regardless of the facts of the case. However, some believe her attempts to provide clarity for litigants in her courtroom sometimes go too far which stirs debate. Whether you agree with her decisions or not, Judge Scheindlin takes special care to meticulously articulate the facts of the case, identify the relevant legal authority, present the legal analysis, and then nail the offending party with sanctions when they screw up discovery.

That is exactly what happened in Sekisui and the order is worth a read. People new to eDiscovery will learn the basics of when to apply a legal hold, while more seasoned eDiscovery veterans will be treated to a stroll down “case law memory lane” that includes stories of eDiscovery train wrecks past like the Zubulake and Pension Committee decisions. If you don’t have the stomach to read the entire thirty-two page opinion, then read the nice article written by Law Technology News aptly titled: Scheindlin Not Charmed When Visiting Spoliation a Third Time for further background on the case.

What is striking about the case is that Scheindlin used the case and issues at hand as an opportunity to articulate her displeasure with the proposed amendments to the Rules. In particular, she calls out proposed Rule 37(e) in footnote 51 of the opinion where she explains:

“the proposed rule would permit sanctions only if the destruction of evidence (1) caused substantial prejudice and was willful or in bad faith or (2) irreparably deprived a party of any meaningful opportunity to present or defend its claims…. The Advisory Committee Note to the proposed rule would require the innocent party to prove that ‘it has been substantially prejudiced by the loss’ of relevant information, even where the spoliating party destroyed information willfully or in bad faith. 5/8/2013 Report of the Advisory Committee on Civil Rules at 47. I do not agree that the burden to prove prejudice from missing evidence lost as a result of willful or intentional misconduct should fall on the innocent party. Furthermore, imposing sanctions only where evidence is destroyed willfully or in bad faith creates perverse incentives and encourages sloppy behavior. Under the proposed rule, parties who destroy evidence cannot be sanctioned (although they can be subject to “remedial curative measures”) even if they were negligent, grossly negligent, or reckless in doing so.”

Judge Scheindlin’s “Footnote 51” is almost certain to become a focal point of debate as the dialogue about the Rules continue. Not only did Judge Scheindlin ignite much of the early eDiscovery debate with her Zubulake line of decisions, she has also served on the  Federal Rules of Civil Procedure Advisory Committee from 1998 to 2005. The fact that she is known as the Godmother of eDiscovery in some circles illustrates that her influence over the rule making process is undeniable.  The time for public comment on the Rules closes on February 15, 2014 and the Godmother of eDiscovery has thrown down the gauntlet once again. Let the games begin.

The Need for a More Active Judiciary in eDiscovery

Wednesday, July 24th, 2013

Various theories have been advanced over the years to determine why the digital age has caused the discovery process to spiral out of control. Many believe that the sheer volume of ESI has led to the increased costs and delays that now characterize eDiscovery. Others place the blame on the quixotic advocacy of certain lawyers who seek “any and all documents” in their quest for the proverbial smoking gun. While these factors have undoubtedly contributed to the current eDiscovery frenzy, there is still another key reason that many cognoscenti believe has impacted discovery: a lack of judicial involvement. Indeed, in a recent article published by the University of Kansas Law Review, Professor Steven Gensler and Judge Lee Rosenthal argue that many of the eDiscovery challenges facing lawyers and litigants could be addressed in a more efficient and cost-effective manner through “active case management” by judges. According to Professor Gensler and Judge Rosenthal, a meaningful Rule 16 conference with counsel can enable “the court to ensure that the lawyers and parties have paid appropriate attention to planning for electronic discovery.”

To facilitate this vision of a more active judiciary in the discovery process, the Advisory Committee has proposed a series of changes to the Federal Rules of Civil Procedure. Most of these changes are designed to improve the effectiveness of the Rule 26(f) discovery conference and to encourage courts to provide input on key discovery issues at the outset of a case.

Rules 26 and 34 – Improving the Effectiveness of the Rule 26(f) Discovery Conference

One way the Committee felt that it could enable greater judicial involvement in case management was to have the parties conduct a more meaningful Rule 26(f) discovery conference. Such a step is significant since courts generally believe that a successful conference is the lynchpin for conducting discovery in a proportional manner.

To enhance the usefulness of the conference, the Committee recommended that Rule 26(f) be amended to specifically require the parties to discuss any pertinent issues surrounding the preservation of ESI. This provision is calculated to get the parties thinking proactively about preservation problems that could arise later in discovery. It is also designed to work in conjunction with the proposed amendments to Rule 16(b)(3) and Rule 37(e). Changes to the former would expressly empower the court to issue a scheduling order addressing ESI preservation issues. Under the latter, the extent to which preservation issues were addressed at a discovery conference or in a scheduling order could very well affect any subsequent motion for sanctions relating to a failure to preserve relevant ESI.

Another amendment to Rule 26(f) would require the parties to discuss the need for a “clawback” order under Federal Rule of Evidence 502. Though underused, Rule 502(d) orders generally reduce the expense and hassle of litigating issues surrounding the inadvertent disclosure of ESI protected by the lawyer-client privilege. To ensure this overlooked provision receives attention from litigants, the Committee has drafted a corresponding amendment to Rule 16(b)(3) that would enable the court to weigh in on Rule 502 related issues in a scheduling order.

The final step the Committee has proposed for increasing the effectiveness of the Rule 26(f) conference is to amend Rule 26(d) and Rule 34(b)(2) to enable parties to serve Rule 34 document requests prior to that conference. These “early” requests, which are not deemed served until the conference, are “designed to facilitate focused discussion during the Rule 26(f) conference.” This, the Committee hopes, will enable the parties to subsequently prepare document requests that are more targeted and proportional to the issues in play.

Rule 16 – Greater Judicial Input on Key Discovery Issues

As mentioned above, the Committee has suggested adding provisions to Rule 16(b)(3) that track those in Rule 26(f) so as to provide the opportunity for greater judicial input on certain eDiscovery issues at the outset of a case. In addition to these changes, Rule 16(b)(3) would also allow a court to require that the parties caucus with the court before filing a discovery-related motion. The purpose of this provision is to encourage judges to informally resolve discovery disputes before the parties incur the expense of fully engaging in motion practice. According to the Committee, various courts have used similar arrangements under their local rules that have “proven highly effective in reducing cost and delay.”

Conclusion

Whether or not these changes are successful depends on how committed the courts are to using the proposed case management tools. Without more active involvement from the courts, the newly proposed initiatives regarding cooperation and proportionality may very well fall by the wayside and remain noble, but unmet expectations. Compliance with the draft rules is likely the only method to ensure that these amendments (if enacted) are to be successful.

The Proportionality Amendments to the Federal Rules Spotlight the Importance of Efficient, Cost-Effective eDiscovery

Tuesday, July 16th, 2013

One of the most compelling objectives for amending the Federal Rules of Civil Procedure is to make civil discovery more efficient and cost effective. The proposed amendment to Federal Rule 1 – featured in our introductory post on this series that provides a comprehensive overview of the proposed amendments – is only one of several measures found in the amendment package that are designed to decrease the costs and delays associated with eDiscovery. Perhaps the most important of those measures are those that emphasize proportionality standards.

Proportionality standards, which require that the benefits of discovery be commensurate with its burdens, have been extant in the Federal Rules since 1983. Nevertheless, they have been invoked too infrequently over the past 30 years to address the problems of over-discovery and gamesmanship that permeate the discovery process. In an effort to spotlight this “highly valued” yet “missing in action” doctrine, the Civil Rules Advisory Committee has proposed numerous changes to the current Rules regime. Judicial Conference of the United States, Report of the Advisory Committee on Civil Rules 4 (May 8, 2013) (Report). The most significant of these changes are found in Rules 26(b)(1) and 34(b).

Rule 26(b)(1) – Tightening the Scope of Permissible Discovery

The Committee has proposed that the permissible scope of discovery under Rule 26(b)(1) be modified to spotlight the limitations that proportionality imposes on discovery. Those limitations are presently found in Rule 26(b)(2)(C) and are not readily apparent to many lawyers or judges. The proposed modification (in italics) would address this problem by making clear that discovery must satisfy proportionality standards:

Parties may obtain discovery regarding any non privileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case considering the amount in controversy, the importance of the issues at stake in the action, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.

Report, at 19-20. By moving the proportionality rule directly into the scope of discovery, counsel and the courts should gain a better understanding of the restraints that this concept places on discovery.

Rule 26(b)(1) has additionally been modified to enforce the notion that discovery is confined to those matters that are relevant to the claims or defenses at issue in a particular case. Even though discovery has been limited in this regard for many years, the Committee felt that this limitation was being “swallowed” by the “reasonably calculated” provision in Rule 26(b)(1). That provision currently provides for the discovery of relevant evidence that is inadmissible so long as it is “reasonably calculated to lead to the discovery of admissible evidence.” Despite the narrow purpose of this provision, the Committee found that many judges and lawyers unwittingly extrapolated the “reasonably calculated” wording to broaden discovery beyond the benchmark of relevance. To disabuse courts and counsel of this practice, the “reasonably calculated” phrase has been removed and replaced with the following sentence: “Information within this scope of discovery need not be admissible in evidence to be discoverable.” Report, at 11.

Similarly, the Committee has recommended eliminating the provision in Rule 26(b)(1) that presently allows the court – on a showing of good cause – to order “discovery of any matter relevant to the subject matter.” In its proposed “Committee Note,” the Committee justified this suggested change by reiterating its mantra about the proper scope of discovery: “Proportional discovery relevant to any party’s claim or defense suffices.” Report, at 10-11.

Rule 34(b) – Eliminating Gamesmanship with Document Productions

The three key modifications the Committee has proposed for Rule 34 are designed to eliminate some of the gamesmanship associated with written discovery responses. The first such change is a requirement in Rule 34(b)(2)(B) that any objection made in response to a document request must be stated with specificity. This recommended change is supposed to do away with the assertion of general objections. While such objections have almost universally been rejected in federal discovery practice, they still appear in Rule 34 responses. By including an explicit requirement for specific objections and coupling it with the threat of sanctions for non-compliance under Rule 26(g), the Committee may finally eradicate this practice from discovery.

The second change is calculated to address another longstanding discovery dodge: making a party’s response “subject to” a particular set of objections. Whether such objections are specific or general, the Committee concluded that such a conditional response leaves the party who requested the materials unsure as to whether anything was withheld and if so, on what grounds. To remedy this practice, the Committee added the following provision to Rule 34(b)(2)(C): “An objection must state whether any responsive materials are being withheld on the basis of that objection.” Report, at 15-16. If enforced, such a requirement could make Rule 34 responses more straightforward and less evasive.

The third change is intended to clarify the uncertainty surrounding the responding party’s timeframe for producing documents. As it now stands, Rule 34 does not expressly mandate when the responding party must complete its production of documents. That omission has led to open-ended productions, which can unreasonably lengthen the discovery process and increase litigation expenses. To correct this oversight, the Committee proposed that the responding party complete its production “no later than the time for inspection stated in the request or [at] a later reasonable time stated in the response.” Report, at 26. For so-called “rolling productions,” the responding party “should specify the beginning and end dates of the production.” Id. Such a provision should ultimately provide greater clarity and increased understanding surrounding productions of ESI.

Other Changes – Cost Shifting in Rule 26(c), Reductions in Discovery under Rules 30, 31, 33, 36

There were several additional changes the Committee recommended that are grounded in the concept of proportionality. While space does not allow for a detailed review of all of these changes, practitioners should take note of the new cost shifting provision in Rule 26(c). That change would expressly enable courts to allocate the expenses of discovery among the parties. See Report, at 12, 20-21, 23.

The Committee has also suggested reductions in the number of depositions, interrogatories, and requests for admission. Under the draft amendments, the number of depositions is reduced from 10 to 5. Oral deposition time has also been cut from seven hours to six. As for written discovery, the number of interrogatories would decrease from 25 to 15 and a numerical limit of 25 has been introduced for requests for admission. That limit of 25, however, does not apply to requests that seek to ascertain the genuineness of a particular document. See Report, at 12-15.

The effect of these proportionality amendments on the eDiscovery process could be far-reaching, but their impact remains to be seen. If lawyers continue to ignore proportionality standards and should courts fail to counter such non-compliance with sanctions under Federal Rule 26(g), the depressing duo of unreasonable eDiscovery costs and delays will continue unabated. For those who truly wish to reverse this trend, strict enforcement of these proportionality standards must be the rule of the day.

Defensible Deletion and The A-Team: I Love It When An Information Governance Plan Comes Together

Wednesday, May 15th, 2013

One of the clear eDiscovery trends that has taken root during the past year is defensible deletion. Indeed, there are any number of news stories reporting that more organizations are taking steps to eliminate electronically stored information (ESI) that has little to any business value. This is further confirmed by industry surveys whose empirical data suggests that a tipping point has been reached on the issue of defensible deletion. For example, in a recent survey conducted by the eDJ Group, over 96% of the respondents recognized that “defensible deletion of information is necessary in order to manage growing volumes of digital information.” The report accompanying the eDJ Group survey succinctly summarized the new-found urgency surrounding defensible deletion: “Deletion isn’t just a nice corporate “housekeeping” idea; it is now a necessity…”

Nevertheless, many organizations remain on the defensible deletion sidelines. While they see the potential value in getting rid of useless ESI, they are often hesitant to do so for a variety of reasons. As described in a recent Inside Counsel webinar, those reasons include any or some combination of the following:

  1. The Lack of an Organized Process
  2. Ineffective Technology
  3. Budget Constraints
  4. Fear of Repercussions Stemming from Data Destruction

While these reasons are understandable given the challenges associated with developing a defensible deletion strategy, they can be addressed with an effective information governance plan.

This fact was recently spotlighted by United States Magistrate Judge Paul Grewal, Anne Kershaw, Founder and Principal of A.Kershaw, PC // Attorneys & Consultants, and Eric Lieber, the Director of Legal Technology at Toyota Motor Sales, at the Legal Tech conference in New York. What is most evident and important from the various video excerpts of their discussion is the panelists’ general agreement that the judiciary has recognized that companies may destroy ESI in many instances without adverse consequences. That the judiciary is leaving the door open for organizations to defensibly delete ESI in a reasonable fashion belies the myth that all data must be kept forever. This is consistent with other industry voices, which have observed that the risk of eDiscovery sanctions is dropping. And as the panelists confirmed, this risk could decrease even further if the proposed amendments to Federal Rule of Civil Procedure 37(e) are implemented.

With the threat of sanctions reduced, there are now fewer obstacles outside the organization to get in the way of developing an effective information governance plan. Such a plan, which includes an organized process with sufficient budget to engage necessary personnel and acquire effective technologies, is not mission impossible. Instead, companies whose personnel work cooperatively to find a solution that decreases the massive amounts of stored ESI will likely echo the sentiments of John “Hannibal” Smith from the 1980s television series the A-Team: “I love it when a plan comes together!”

ADR Offers Unique Solutions to Address Common eDiscovery Challenges

Friday, May 3rd, 2013

Much of the writing in the eDiscovery community focuses on the consequences of a party failing to adequately accomplish one of the nine boxes of the Electronic Discovery Reference Model. Breaking news posts frequently report on how spoliation and sanctions are typically issued for failure to suspend auto-deletion or to properly circulate a written litigation hold notices. This begs the question, aside from becoming perfectly adept in all nine boxes of the EDRM, how else can an organization protect themselves from discovery wars and sanctions?

One way is explore the possibilities Alternative Dispute Resolution (ADR) has to offer. While there is no substitute for the proper implementation of information governance processes, technology, and the people who manage them; there are alternative and creative ways to minimize exposure. This is not to say that ESI is less discoverable in ADR, but it is to say with the proper agreements in place, the way ESI is handled in the event of a dispute can be addressed proactively.  That is because although parties are free to use the Federal Rules of Civil Procedure in ADR proceedings, they are not constricted by them. In other words, ADR proceedings can provide parties with the flexibility to negotiate and tailor their own discovery rules to address the specific matter and issues at hand.

Arbitration is a practical and preferred way to resolve disputes because it is quick, relatively inexpensive and commonly binding. With enough foresight, parties can preemptively limit the scope of discovery in their agreements to ensure the just and speedy resolution of a matter. Practitioners who are well versed in electronic discovery will be the best positioned to counsel clients in the formation of their agreements upfront, obviating protracted discovery. While a similar type of agreement can be reached and protection can be achieved with the Meet and Confer Conference in civil litigation, ADR offers a more private forum giving the parties more contractual power and less unwanted surprises.

For example, JAMS includes this phrase in one of their model recommendations:

JAMS recognizes that there is significant potential for dealing with time and other limitations on discovery in the arbitration clauses of commercial contracts. An advantage of such drafting is that it is much easier for parties to agree on such limitations before a dispute has arisen. A drawback, however, is the difficulty of rationally providing for how best to arbitrate a dispute that has not yet surfaced. Thus, the use of such clauses may be most productive in circumstances in which parties have a good idea from the outset as to the nature and scope of disputes that might thereafter arise.

Thus, arbitration is an attractive option for symmetrical litigation where the merits of the case are high stakes and neither party wants to delve into a discovery war. A fair amount of early case assessment would be necessary as well, so parties have a full appreciation about what they are agreeing to include or not include in the way of ESI.  Absent a provision to use specific rules (American Arbitration Association or Federal Arbitration Act), the agreement between parties is the determining factor as to how extensive the scope of discovery will be.

In Mitsubishi Motors v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625 (1985), the U.S. Supreme Court has explained that the “liberal federal policy favoring arbitration agreements’…is at bottom a policy guaranteeing the enforcement of private contractual agreements. As such, assuming an equal bargaining position or, at least an informed judgment, courts will enforce stipulations regarding discovery, given the policy of enforcing arbitration agreements by their terms.” Please also see an excellent explanation of Discovery in Arbitration by Joseph L. Forstadt for more information.

Cooperation amongst litigants in discovery has long been a principle of the revered Sedona Conference. ADR practitioners facing complex discovery questions are looking to Sedona’s Cooperation Proclamation for guidance with an eye toward negotiation by educating themselves on ways to further minimize distractions and costs in discovery.  An example of one such event is at The Center for Negotiation and Dispute Resolution at UC Hastings, where they are conducting a mock Meet and Confer on May 16, 2013. The event highlights the need for all practitioners, whether it be the 26 (f) conference for litigation or the preliminary hearing in the case of arbitration, to assess electronic discovery issues with the same weight they do claims and damages early on in the dispute.

It is also very important that arbitrators, especially given the power they have over a matter, to understand the consequences of their rulings. Discovery is typically under the sole control of the arbitrator in a dispute, and only in very select circumstances can relief be granted by the court. An arbitrator that knows nothing about eDiscovery could miss something material and affect the entire outcome adversely. For parties that have identified and addressed these issues proactively, there is more protection and certainty in arbitration. Typically, the primary focus of an arbitrator is enforcing the contract between parties, not to be an eDiscovery expert.

It is also important to caution against revoking rights to discovery by entering into mutual agreements to unreasonably limit discovery.  This approach is somewhat reminiscent of the days when lawyers would agree not to conduct discovery, because neither knew how. Now, while efficiency and cost savings are a priority, we must guard against a potential similar paradigm emerging as we may know too much about how to shield relevant ESI.

As we look to the future, especially for serial litigants, one can imagine a perfect world in arbitration for predictive coding. In the Federal courts, we have seen over the past two years or so an emergence of the use of predictive coding technologies. However, even when the parties agree, which they don’t always, they still struggle with achieving a meeting of the minds on the protocol. These disputes have at times overshadowed the advantage of using predictive coding because discovery disputes and attorney’s fees have overtaken any savings. In ADR there is a real opportunity for similarly situated parties to agree via contract, upfront on tools, methodologies and scope. Once these contracts are in place, both parties are bound to the same rules and a just and speedy resolution of a matter can take place.

The “Sedona Bubble” and the Top 3 TAR Trends of 2013

Tuesday, April 23rd, 2013

 

References to the “Sedona Bubble” are overheard more and more commonly at conferences dealing with cutting edge topics like the use of predictive coding technology in eDiscovery. The “Sedona Bubble” refers to a small number of lawyers and judges (most of whom are members of The Sedona Conference) that are fully engaged in discussions about issues that influence the evolution of modern discovery practice. Let’s face it. The fact that only a small percentage of judges and lawyers drive important eDiscovery policy decisions is more than just a belief, it is reality.

This reality stems largely from the fact that litigators are a busy lot. So busy in fact, that they are often forced to operate reactively instead of proactively because putting out unexpected fires comes with the territory in litigation practice. As a result, the Sedona Bubble has a tremendous impact on cutting edge eDiscovery issues that include topics spanning everything from cross-border litigation and cloud computing, to social media and bring your own device to work (BYOD) issues. Recognizing the heavy time demands facing most litigators is what compelled me to provide more insight into the Sedona Bubble. That is why I am sharing my top three observations about the current state of predictive coding – one of the hottest eDiscovery topics on the planet.

#1 – Plenty of confusion about TAR still exists

Technology-assisted review (TAR) is a term that often means different things to different people. Adding further confusion to the discussion is the fact that the acronym TAR is commonly used interchangeably with other terms like computer-assisted review (CAR) and predictive coding. Many believe confusion about TAR is largely the result of misinformation spread by eDiscovery providers eager to capitalize on current marketplace momentum. Regardless of the reason, many in the industry remain confused about the key differences between predictive coding and other kinds of TAR tools.

What is important to remember is that most people are referring to predictive coding technology when they use any of the aforementioned terms. Predictive coding is a type of supervised machine learning technology that relies on human input to “train” a computer to classify documents. That does not mean attorneys are abdicating their responsibility to review and classify documents during discovery. t means that attorneys can review a fraction of the documents at a fraction of the cost by training the computer system.

In recent months, more litigators and judges are beginning to understand that there are many kinds of TAR tools to choose from in the litigator’s toolbelt.™ Predictive coding is one of the tools that falls underneath the broader TAR umbrella and is arguably the most important tool in the toolbelt™ if used properly. All the tools can be helpful, however, TAR tools such as keyword searching, concept searching, clustering, email threading, and de-duplication are not supervised machine learning tools and therefore are not predictive coding tools. The rule of thumb for those being courted by predictive coding is caveat emptor.  Make sure the providers clarify what they mean when they use terms like TAR, CAR, or predictive coding.

#2 – Momentum is building

In 2013, more and more attorneys and judges are dipping their toes into predictive coding waters – waters that were largely perceived as too frigid to enter only last year. One explanation for the increased usage of predictive coding technologies is the corresponding increase in judicial guidance. In the beginning of 2012, there were no known cases addressing the use of predictive coding technology. Since then, at least six different judges have addressed the use of predictive coding technology. (Moore v. Publicis Group; Kleen Products v. Packaging Corporation of America; Global Aerospace v. Landow Aviation; In re: Actos Product Liability Litigation; EOHRB v. HOA Holdings; Gabriel Technologies v. Qualcomm). Taken as whole, the court decisions are either supportive of the technology or remain neutral on the issue. In fact, an order in a new case named In Re Biomet was reported only a few days ago and continues the general trend toward judicial awareness and support of the technology.

In addition to the growing number of judicial opinions, conference attendees are sharing experiences related to the use of these technologies far more than was the case at conferences in 2012. This data point suggests that usage far exceeds the number of reported predictive coding cases. Further evidence of this momentum, and possibly even greater momentum to come, are discussions about adding comments to the proposed FRCP amendments that would encourage the use of predictive coding technology. Newly proposed amendments to the Federal Rules of Civil Procedure are expected to be published for comment in August, and predictive coding will almost certainly be part of the discussion.

#3 – Skeptics remain

Despite a significant uptick in predictive coding usage since early 2012, the technology is not without skeptics. Those less bullish cite concerns about the multitude of new predictive coding offerings that have recently come onto the market. Most realize that all predictive coding technologies are not created equally and the vast majority of tools on the market lack transparency. A key concern on this front is the lack of visibility into the underlying statistical methodology that many tools and their providers apply. Since statistics are the backbone of a viable predictive coding process, a lack of transparency into statistical methodologies by most providers has left some to perceive all predictive coding tools as “black boxes.” In reality, different tools provide different levels of transparency, but a general lack of transparency in the industry has perpetuated a “throw the baby out with the bathwater” mentality in some circles. Rumblings about the applicability of Daubert and/or Rule 702 in vetting these tools and the methodologies they rely upon are likely to gain steam.

The issue of transparency is also a common area of debate in the context of an issue known as the “discard pile.” The discard pile generally refers to documents classified as non-responsive that are used to train the predictive coding solution. The protocol established in Da Silva Moore and other cases requires the producing party to reveal the discard pile to the propounding party as part of the predictive coding training process. Proponents argue that this additional level of cooperation invites scrutiny by both parties that will help insure that training documents are properly classified. The rationale in support of this approach is that predictive coding tools are garbage-in garbage-out devices so improperly classifying training documents will lead to erroneous downstream results. The pushback by producing parties varies, but one common theme is predominant and can be summarized as follows: “I will share my non-responsive documents to the other side when they are pried from my cold, dead fingers.”

Conclusion

Although some barriers to widespread predictive coding adoption remain, it is clear that the future of predictive coding is now. Eventually best practices for using these technologies will rise to the surface and the tools themselves will improve. For example, most tools today require complex statistical calculations to be made manually. That means hiring consultants and/or statisticians to crunch the numbers in order to ensure a defensible process which increases costs. The tools themselves can also be costly because most providers charge a premium to use predictive coding solutions. However, price pressure is already afoot and some providers offer their predictive coding technology at no additional cost. In short, despite some early challenges, most of those within the Sedona Bubble believe predictive coding is here to stay.   

 

Falling Off The Cliff: Parties Are Still Failing The Proportionality Test

Thursday, March 28th, 2013

One of the great questions that the legal profession and the eDiscovery cognoscenti are grappling with is how to best address the unreasonable costs and burdens associated with the discovery process. This is not a new phenomenon. While accentuated by the information explosion, the courts and rules makers have been struggling for years with a solution to this perpetual dilemma.

Proportionality As The Solution

Over the past three decades, the answer to this persistent problem has generally focused on emphasizing proportionality standards. Proportionality – requiring that the benefits of discovery be commensurate with the corresponding burdens – has the potential to be a game-changing concept. If proportionality standards are followed by counsel, clients and the courts, there is a strong possibility that discovery costs and burdens could be made more reasonable. That is perhaps why various courts (at the circuit, district and state levels) throughout the U.S. have implemented rules to highlight proportionality as the touchstone of discovery practice.

These issues were recently spotlighted by United States Magistrate Judge Frank Maas, Lockheed Martin Associate General Counsel Shawn Cheadle and Milberg partner Ariana Tadler at the LegalTech conference in New York City. What is most evident and important from the various video excerpts of their discussion is the panelists’ general agreement that proportionality standards – if followed – can keep a lawsuit from veering off the eDiscovery cliff. These experts, who represent vastly different and conflicting constituencies, emphasized how proportionality and the related concepts of reasonableness and cooperation can lead to quicker and ostensibly cheaper results in litigation.  As Judge Maas makes clear, however, that will only happen with a “change in paradigm and a change in thinking on both sides” of a lawsuit.

Failing The Proportionality Test

Unfortunately, far too many litigants often still neglect to follow basic proportionality standards. This troubling trend is confirmed by various court opinions that are seemingly issued every month in which discovery costs and burdens are increased due to litigants’ failures to engage in proportional discovery. The failure to engage in proportional discovery follows a familiar pattern. Overly broad discovery requests are typically met with general objections and evasive responses that unreasonably limit the scope of responsive information. Such requests and responses generally run contrary to the spirit of proportionality.

The “bible” on proportionality law, Mancia v. Mayflower Textile Services Co., provides that discovery requests and their corresponding responses must be reasonable and proportional. To achieve such an objective, the Mancia court urged counsel and clients to “stop and think” about their discovery conduct as mandated by Federal Rule 26(g):

Rule 26(g) imposes an affirmative duty to engage in pretrial discovery in a responsible manner that is consistent with the spirit and purposes of Rules 26 through 37. In addition, Rule 26(g) is designed to curb discovery abuse by explicitly encouraging the imposition of sanctions. The subdivision provides a deterrent to both excessive discovery and evasion by imposing a certification requirement that obliges each attorney to stop and think about the legitimacy of a discovery request, a response thereto, or an objection.

The clear lesson from this example is the negative impact that discovery conduct can have on a case. Instead of engaging in a proportional approach in which the parties cooperatively hammer out (with court assistance, if necessary) the parameters and limitations of discovery, parties frequently adopt a unilateral, “take no prisoners” strategy. Such an approach generally affects the cost and pace of litigation. Instead of addressing the merits of a dispute through dispositive motion practice, the parties and the court are often thrown into distracting and costly collateral eDiscovery litigation. And as the LegalTech panelists made clear, the resulting situation benefits nobody.

Falling Off The Cliff?

The current discovery paradigm is particularly troubling given that many sophisticated litigants who are incentivized to engage in proportional discovery may not be doing so. If that is the case, how can courts realistically expect other less educated parties to do otherwise?

To deter such discovery conduct, courts may need to embark on a proportionality education campaign. However, any such efforts will likely need to include a promise to address noncompliance with sanctions under Federal Rule 26(g). As the courts have made clear, many counsel and clients will likely engage in proportional discovery only under the threat of some real consequence.

To better address these issues, the federal Civil Advisory Committee is now considering multiple amendments to the Federal Rules of Civil Procedure that would better emphasize proportionality standards. In a recent post, we discussed one such proposal, which would change Rule 37(e) to ensure that courts consider the role of proportionality in connection with parties’ preservation efforts. Another would modify Federal Rule 26(b)(1) to spotlight the limitations of proportionality on the permissible scope of discovery. Though still far from final, these proposed rule amendments could ultimately advance the objective of reducing the costs and burdens of discovery. Such efforts may very well be necessary if we are to keep the discovery process from falling off the cliff.

Gibson Dunn eDiscovery Report Hails Industry Advances

Thursday, March 7th, 2013

At eDiscovery 2.0, we have consistently followed the reports that Gibson Dunn has released on the state of eDiscovery. This is for good reason given its reputation as an excellent source of information on the trends affecting individual organizations and the industry as a whole.

The recently released 2012 annual report is no different, except that the overall tone is more positive. Instead of spotlighting the continuing problem of sanctions, the report showcases predictive coding and rules reform as the key eDiscovery trends leading into 2013. Describing these trends as being potential game-changers, the report also notes that “many questions remain” and warns that the impact of these trends may affect organizations in unanticipated and perhaps troubling ways.

Predictive Coding

In its report, Gibson Dunn happily indicates that unlike previous years, predictive coding technology appears to be ready for prime time. With several decisions from 2012 expressly or tacitly approving the use of predictive coding, the report speculates that many organizations and their counsel could become adopters of the technology. As the technology becomes more widespread and additional court decisions provide judicial imprimatur to the technology, the prospects increase that predictive coding could “drastically alter the way in which documents are reviewed for production.”

Nevertheless, challenges remain before this gradually increasing trend becomes a fully blown industry norm. While the promise of predictive coding is in its potential for rapid and cost effective document review, the report questions whether the technology will live up to that hype. Indeed, Gibson Dunn asks whether predictive coding is like any other review tool: “is it merely the latest review technology that, while useful, neither obtains widespread adoption nor revolutionizes the landscape?” Such questions are particularly legitimate given the substantial costs associated with most of the reported predictive coding cases. Indeed, the recent case of Gabriel Technologies v. Qualcomm exemplifies this predictive coding cost paradox.

Rules Changes

Another positive industry development that is fraught with questions concerns potential changes to the Federal Rules of Civil Procedure. As the report indicates, the federal Civil Rules Advisory Committee has made significant progress on a proposed draft amendment to Rule 37(e). Designed to broaden the existing protection against sanctions, the proposal would theoretically safeguard an organization’s pre-litigation destruction of information from sanctions in most circumstances. The lone exceptions would include destruction that was “willful or in bad faith and caused substantial prejudice in the litigation” or that “irreparably deprived a party of any meaningful opportunity to present a claim or defense.” While such a rule undoubtedly could reduce the costs and risks associated with ESI preservation, ambiguities in the draft language, together with statements in the draft advisory committee note, could ultimately water down the proposal’s intended protections.

Another encouraging rule change being considered by rules-makers includes an effort to better emphasize proportionality limitations on the Rule 26(b)(1) permissible scope of discovery. While characterized by the report as an “underused” though “increasingly important” doctrine, a proportionality amendment to Rule 26(b)(1) could do much to bring the problematic costs and delays of eDiscovery under control.

The report also sounded a note of caution on the proportionality front. Referring to the Sedona Conference’s recently updated Commentary on Proportionality in Electronic Discovery, the report observes that technology will be a key aspect in any proportionality analysis. With that background, Gibson Dunn cautions against misusing the efficiencies of cutting edge eDiscovery technologies to increase the scope of production under the guise that such discovery will comport with proportionality principles:

Litigants and courts will therefore need to be vigilant in preventing the use of such technologies from becoming a justification for expanding the scope of discovery beyond an appropriate focus on documents relevant to the issues in dispute, and thereby exacerbating the very problems that technologies seek to address.

Other Industry Trends

Gibson Dunn spotlighted several other key trends from 2012 in its 33-page report. Among them were developments in cross-border eDiscovery, the increasing importance of foreign data protection laws, congressional attempts to bolster domestic privacy regulations, the correlation between ESI preservation and courts sanctions, and discovery of information found on social networking sites. These and other industry trends confirm that “progress is being made in addressing e-discovery’s challenges[,] [t]he dense fog that often seems to surround e-discovery appears to have lifted somewhat, and the collective anxiety lowered a little.”

Despite such sanguine observations, risks remain for organizations and their lawyers. The report concludes by raising the specter of sanctions, which will likely continue to be an unpredictable hobgoblin unless meaningful rules reform takes place. Until that time, clients and counsel alike should be proactive in adopting industry best practices to better ensure compliance with existing rules and jurisprudence.

Breaking News: Over $12 million in Attorney Fees Awarded in Patent Case Involving Predictive Coding

Thursday, February 14th, 2013

A federal judge for the Southern District of California rang in the month of February by ordering plaintiffs in a patent related case to pay a whopping $12 million in attorney fees. The award included more than $2.8 million in “computer assisted” review fees and to add insult to injury, the judge tacked on an additional $64,316.50 in Rule 11 sanctions against defendants’ local counsel. Plaintiffs filed a notice of appeal on February 13th, but regardless of the final outcome, the case is chock-full of important lessons about patent litigation, eDiscovery and the use of predictive coding technology.

The Lawsuit

In Gabriel Technologies Corp. v. Qualcomm Inc., plaintiffs filed a lawsuit seeking over $1 billion in damages. Among its eleven causes of action were claims for patent infringement and misappropriation of trade secrets.  The Court eventually dismissed or granted summary judgment in defendants’ favor as to all of plaintiffs’ claims making defendants the prevailing party and prompting Defendants’ subsequent request for attorneys’ fees.

In response to defendants’ motion for attorney fees, U. S. District Judge Anthony J. Battaglia relied on plaintiffs’ repeated email references to “the utter lack of a case” and their inability to identify the alleged patent inventors to support his finding that their claims were brought in “subjective bad faith” and were “objectively baseless.” Given these findings, Judge Battaglia determined that an award of attorney fees was warranted.

The Attorney Fees Award

The judge then turned to the issue of whether or not defendants’ fee request for $13,465,331.01 was reasonable. He began by considering how defendants itemized their fees which were broken down as follows:

  • $10,244,053 for its outside counsel Cooley LLP (“Cooley”);
  • $391,928.91 for document review performed by Black Letter Discovery, Inc. (“Black Letter”); and
  • $2,829,349.10 for a document review algorithm generated by outside vendor H5.

The court also considered defendants’ request that plaintiffs’ local counsel be held jointly and severally liable for the entire fee award based on the premise that local counsel is required to certify that all pleadings are legally tenable and “well-grounded in fact” under Federal Rule of Civil Procedure 11.

Following a brief analysis, Judge Battaglia found the overall request “reasonable,” but reduced the fee award by $1 million. In lieu of holding local counsel jointly liable, the court chose to sanction local counsel in the amount of $64,316.50 (identical to the amount of local counsel’s fees) for failing to “undertake a reasonable investigation into the merits of the case.”

Three Lessons Learned

The case is important on many fronts. First, the decision makes clear that filing baseless patent claims can lead to financial consequences more severe than many lawyers might expect. If reviewed and upheld on appeal, counsel in the Ninth Circuit accustomed to fending off unsubstantiated patent or misappropriation claims will be armed with an important new tool to ward off would-be patent trolls.

Second, Judge Battaglia’s decision to order Rule 11 sanctions should serve as a wake-up call for local counsel. The ruling reinforces the fact that merely rubber-stamping filings and passively monitoring cases is a risky proposition. Gabriel Technologies illustrates the importance of properly monitoring lead counsel and the consequences of not complying with the mandate of Rule 11 whether serving as lead or local counsel.

The final lesson relates to curbing the costs of eDiscovery and the importance of understanding tools like predictive coding technology. The court left the barn door wide open for plaintiffs to attack defendants’ predictive coding and other fees as “unreasonable,” but plaintiffs didn’t bite. In evaluating H5’s costs, the court determined that Cooley’s review fees were reasonable because Cooley used H5’s “computer-assisted” review services to apparently cull down 12 million documents to a more reasonable number of documents prior to manual review. Although one would expect this approach to be less expensive than paying attorneys to review all 12 million documents, $2,829,349.10 is still an extremely high price to pay for technology that is expected to help cut traditional document review costs by as much as 90 percent.

Plaintiffs were well-positioned to argue that predictive coding technology should be far less expensive because the technology allows a fraction of documents to be reviewed at a fraction of the cost compared to traditional manual review. These savings are possible because a computer is used to evaluate how human reviewers categorize a small subset of documents in order to construct and apply an algorithm that ranks the remaining documents by degree of responsiveness automatically. There are many tools on the market that vary drastically in quality and price, but a price tag approaching $3 million is extravagant and should certainly raise a few eyebrows in today’s predictive coding market. Whether or not plaintiffs missed an opportunity to challenge the reasonableness of defendants’ document review approach may never be known. Stay tuned to see if these and other arguments surface on appeal.