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Archive for the ‘corporate counsel’ Category

One of the persistent puzzles surrounding mergers and acquisitions (“M&A”) activity is its propensity for failure. In fact, hundreds of studies suggest that fifty to eighty percent ofmergers and acquisitions are failures. Thus, while the goal of an M&A deal is that the whole is worth more than the party, the converse is frequently true. An important determinant of any M&A transaction’s post integration success is data due diligence. In today’s M&A environment, where transaction experience substantial scrutiny and technology plays a crucial role, data due diligence is tantamount.

Nonetheless, merging or acquiring companies often fail to perform adequate data due diligence and fail to consider the electronically stored information (“ESI”) and data storage systems of the target company or merging counterpart. This oversight presents substantial risks and can cause substantial post-integration problem and, in turn, increase the likelihood of M&A failure.

Creating an E-Discovery Checklist

One of the crucial ways that in-house and outside counsel can fail to conduct proper data due diligence is by ignoring potential eDiscovery issues as part of the M&A deal.

Why is this important?

eDiscovery issues may well affect the value of the company being acquired, the cost and difficulty of merging the two companies, or heighten litigation risk going forward. Corporations and law firms have fine-tuned due diligence checklists to account for various traditional business risks such as legal, contractual, regulatory, securities, financial and undisclosed liabilities, yet eDiscovery is noticeably absent.

This failure of counsel to conduct data due diligence on a target company’s e-discovery issues, e.g. preservation and cost obligations regarding its ESI, can cause substantial losses for the acquiring company, impacting the expected return.

An e-discovery checklist could have many elements and would vary with respect to the industry and company, but regardless, it should account for:

  1. The state of the target company’s ESI, ensuring that it has been thoroughly identified, categorized, and sourced;
  2. Existing preservation and litigation holds;
  3. The cost of preserving data for existing or anticipated legal holds;
  4. and Both structured and unstructured data

I would like to hear your comments on this checklist, including additions. More thoughts on M&A coming in future posts.

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In the realm of electronic discovery, technology teams often confront resource gaps that exacerbate the discovery issues that legal teams are confronting. The right toolset, one that proactively prepares the enterprise for discovery, can benefit both the legal and technology teams on several fronts, so the investment delivers value across the enterprise.

One benefit of deploying a proactive eDiscovery solution, one that provides legal easy access to the documents and data they need, is that it can remove the high dependency of the legal team on the IT department. This decoupling helps IT avoid being at the beck and call of the legal team. And the legal team is able to avoid spending valuable hours (theirs and ITs) trying to get access to the data they need. Another important benefit of tools that proactively manage a company’s data–to the extent that they know what they have and where it is–is that it can assist lawyers with the increasingly complicated keyword paradigm. Let’s be honest, a lawyer’s enthusiasm about and/or knowledge of math, statistics, algorithms, linguistics, or technology has its limits, so the right tool can assist them substantially and provide additional assurance that corporate information is being accounted for when engaged in discovery.

Another key benefit of proactive ediscovery, for some companies, is substantial cost savings. While there exists a great deal of marketing literature around the cost savings, this is one of those cases when there can be substantial value in managing data in documents, email, PDF files, etc so that you can bring discovery in-house. Obviously, each company needs to quantify the tangible and intangible cost savings realized from the deployment of an internally-deployed or externally-managed data management and discovery solution, but it is likely worth the time and effort if it has the potential to dramatically reduce eDiscovery costs. Specifically, a company should be able to quantify the cost benefits tied to performing e-discovery internally (e.g., search, preserve, produce, and etc.). When computing this value it is important to be mindful that whenever you need something quickly, at a specific time and location, it tends to be more costly– litigation driven e-discovery certainly fits that bill. Proactive eDiscovery can eliminate some of the last minute rush, because getting your hands on relevant case data is easier when you already know what you have and where it is. The right tools can also increase legal and technology efficiency and productivity.

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Many people pontificate on keywords and search technologies and the need to grasp the fundamentals of how they operate. Others discuss cost savings or the destructive effect eDiscovery is having on corporate America. All of these present valid and key concepts to be discussed, but underlying all of them exists a larger issue: Communication. Most problems that arise from the electronic discovery abyss derive from poor communication.

To ensure that preservation is executed within an organization, it is imperative that key legal and litigation support stakeholders communicate with internal technology teams. This is especially true when it comes to the initial deployment of preservation-driven technology. Once installed, technology teams need to both train and communicate with the litigation support individuals so they know how to execute a preservation hold.

In the preservation arena, an effective solution will empower lawyers to be self-sufficient–without having to rely on technologists each and every time they seek to execute a court order preservation hold. Due to recession, most companies simply do not have sufficient assets to build their own in-house solution. However, the companies that do successfully empower the lawyers can realize substantial cost savings. The potential savings of empowering lawyers, by providing the correct technology tools for them to execute legal hold, saves companies people-hours, service fees as well as eliminating error.

The elimination of human communication errors may represent the largest savings. A slew of case law suggests that the execution of preservation is critical. For example:

Anadarko Petroleum Corp. v. Davis, 2006 U.S. Dist. LEXIS 93594 (S.D. Tex. Dec. 28, 2006); http://www.ca10.uscourts.gov/conference/downloads/ediscovery7.pdf

Best Buy Stores, L.P. v. Developers Diversified Realty Corp., 247 F.R.D. 567 (D.Minn. 2007); http://www.ca10.uscourts.gov/conference/downloads/ediscovery7.pdf

In re Intel Corp. Microprocessor Antitrust Litig., 2008 WL 2310288 (D. Del. June 4, 2008) http://www.ca10.uscourts.gov/conference/downloads/ediscovery7.pdf

Johnson v. Big Lots Stores, Inc., 2008 WL 2191357 (E.D. La. May 7, 2008) http://www.ca10.uscourts.gov/conference/downloads/ediscovery7.pdf

While these cases vary, in terms of outcome, regarding whether or not litigants execute preservation orders to the extent set-forth by the courts. The collective outcomes demonstrate the importance of being able to execute a defensible preservation order.

While the manual and laborious process of preservation sounds like a great way for one to spend weekends. It still leaves a company open to sizable human risk error. It might make sense for companies to consider empowering the lawyers to execute preservation holds. In other words, let the lawyers be lawyers and let the technologists be technologists.

In my experience, most preservation issues can be avoided if enterprise systems are configured so that lawyers can seamlessly implement a preservation hold and not have to use the technology 911 pager to effectuate a preservation order.

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The onset of electronic discovery was predictable and logical, but its effect on business has been disruptive and confusing. Fortunately, electronic discovery (eDiscovery) technologies have been evolving quickly, arguably quicker than the courts in some cases.

The discussions set forth in this blog intend to focus on the gamut of where business, law, and technology intersect. While I was studying for my Masters in Computer Science a professor imparted a key piece of knowledge, theory is distinctly different from practice. This wisdom served me well as I embarked down the technology road. Ironically, as I was being admitted to the New York Bar, a Judge shared the very same words, and again they were on-point. At this writing, the divide between technology and the law is still substantial, but when it comes to the reality gap between theory and practice, they are very much the same. And electronic discovery may be the perfect example.

Through this blog, I will share nuggets of practical information not available in the text books or in the CLE’s and encourage discussion of legal strategies and corollary technologies from the technology and legal camps. The point is not to force agreement on complicated legal or technology matters, but to share perspectives and learn from one another.

Just as it is not the job of the technologist to prepare themselves for a 30(b)(6) deposition a lawyer should not be expected to know the answers to the technology pieces. Collaboration between counsel and technology teams is really the most constructive way to answer these questions and address electronic discovery issues.

In the coming weeks, I’ll cover subjects such as eDiscovery , mergers and acquisitions, lessons learned from past eDiscovery cases and white collar criminal electronic discovery. I’d also like your feedback on subjects or issues you would like to me to cover.

I look forward to getting the conversation started.

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