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Archive for the ‘legal discovery’ Category

Special thanks to Yoav Griver and Siddartha Rao for their contributions to this series.

ESI and technology issues relating to data storage and retrieval are often critical to litigation; there are many examples of high-stakes litigation that has turned on issues involving data management and e-discovery. See, e.g., United States v. Microsoft, 253 F.3d 34, 71–74 (D.C. Cir. 2001).  New legal frameworks have been created to deal with the reality of electronic data in litigation, and parties considering M&A deals should be aware of the potential litigation issues involving a merging counterparty or target company’s ESI and data management systems.

Data Storage and Potential Litigation Issues

Counsel must perform data due diligence that includes identification of existing legacy systems and the data stored within them.  Failure to do so may create integration issues, as well as data loss and data recovery issues that will create substantial costs and dangers in the event of future litigation.

For example, the ability to present data in multiple forms can raise the cost of discovery because courts can order litigants to convert discovery data into new formats.  This makes it all the more important that parties to M&A transactions conduct data due diligence to discover the location and formats of ESI in legacy data systems of M&A counterparties.  In the 1980 case of National Union Electric Corp. v. Matsushita Electric Industrial Co., 494 F. Supp. 1257 (E.D. Pa. 1980),  the defendants requested National Union to provide a “computer readable tape” copy of documents already produced in paper form. See National Union, 494 F. Supp. at 1258.   National Union resisted the motion on the grounds that under discovery rules National Union had an obligation to produce already existing documents, but had no such obligation to manufacture data in a new format. Id. at 1259.  The court acknowledged the distinction, but ultimately rejected the argument as inconsistent with the realities of data use and storage:

We now live in an era when much of the data our society desires to retain is stored in computer discs.  This process will escalate in years to come. We suspect that by the year 2000,  virtually all data will be stored in some form of computer memory.  To interpret the Federal Rules which, after all, are to be construed to “secure the just, speedy, and inexpensive determination of every action,” in a manner which would preclude the production of material such as is requested here, would eventually defeat their purpose. Id. at 1261–63

At the time of this opinion, the court could confidently state that it found “no case in which the court has ordered the programming of a computer to manufacture a computer tape not theretofore in physical existence.” Id. at 1261.  In contrast, today, “[t]he law is clear that data in computerized form is discoverable even if paper ‘hard copies’ of the information have been produced, and . . . the producing party can be required to design a computer program to extract the data from its computerized business records, subject to the Court’s discretion as to the allocation of the costs of designing such a computer program.” See Anti-Monopoly, Inc. v. Hasbro, Inc., 1995 U.S. Dist. LEXIS 16355, 1 (S.D.N.Y. Nov. 3, 1995).

When ordering the preservation or production of ESI, courts are sensitive to the relevance of the ESI to the litigation, the value of the ESI to the requesting party, and the cost to the producing party—courts will not foist irrational discovery requirements and costs upon litigants. See, Wright v. AmSouth Bancorp, 320 F.3d 1198 (11th Cir. 2003).

Nonetheless, where it is the producing party’s own document retention scheme which escalates the costs of production, courts may order the producing party to bear these costs.  For example, in In re Brand Name Prescription Drugs Antitrust Litigation, Brand, 1995 U.S. Dist. LEXIS 8281, defendant CIBA-Geigy Corporation argued that the class plaintiffs’ motion to compel the production of inter-corporate emails was overly broad, burdensome, and expensive and that the class plaintiff should bear the estimated $50,000–$70,000 costs of culling through over 30 million stored email documents. Id. At 2-4.  The court rejected this argument, noting that at least four other defendant manufacturers had produced emails without requesting payment of costs and succinctly stating that ”Class plaintiffs should not be forced to bear a burden caused by CIBA’s choice of electronic storage.” Id. at 6–7

Not surprisingly, the course of events has vindicated the predictions of the National Union court, and requests to produce data in specific formats are no longer unusual. See L.H. v. Schwarzenegger, 2008 U.S. Dist. LEXIS 86829 (E.D.Cal. May 14, 2008).

However, without proper data due diligence that accounts for document retention or legacy data management systems, such routine requests can create large litigation costs.  To the extent such costs are avoidable with proper data due diligence, the failure to conduct data due diligence on a counterparty’s legacy systems or ESI is tantamount to ignoring a potentially large liability when valuing a merging counterparty or target company.

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Trial lawyers of America, via the American College of Trial Lawyers, recognized that the trial system of America is too expensive and that resolving matters takes too much time.  Trial lawyers also recognize that expense exceeds the actual value in all but the most important matters.  Several organizations, including the ACTL and the Sedona, propagate to reformulate the litigator mindset from combative to cooperative.

The great trial litigators need to resist the temptation to “out cost” their opponents. However, the courts deliver the message via the application of the construct of “techno-legal proportionality”.  The axiom rests on the precept that the value of the information sought exceeds the cost of extraction, respective to the issue in dispute, accounting for the societal benefit catch all.  The success of this requires that attorneys and Judges be more informed about the technological side, so that informed common sense can be applied.

The electronic discovery problem is exacerbated by the high costs of identifying, collecting, preserving and reviewing information.  The questions are, “Why do organizations today have so much information?” and “Why shouldn’t an organization that preserves less information be rewarded?” Companies might be generating more information than ever before, but should the cost abdicate them from responsible and effective enterprise information management principles? It seems that the problem of electronic discovery might actually be a symptom of a larger problem of digital information responsibility.

Shouldn’t companies that have high discovery costs be forced to ante up? If they did, economics would dictate the evolution of new technologies and the adoption of a smarter information management infrastructure.    No lawyer enjoys mindless document review.  The money earned from review is nothing to sneeze at, but increased job satisfaction on the part of lawyers and substantially lower legal bills for clients might be compelling enough to drive lawyers to forgo the additional revenue.

Finally, it seems to me that companies adopting technologies that allow them to effectively manage their information so that there is less retained and that which is retained can be seamlessly collected, preserved, and reviewed would save millions and millions in legal and technology fees. Of course, selecting the right solution and synchronizing the solution with a company’s policies is critical, but it is certainly feasible that most lawsuit-prone organizations would show a fast ROI by selecting the right technology tools.

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Companies seeking to deploy electronic discovery (eDiscovery) solutions could benefit substantially by gaining visibility into the cost associated with the life of an email message–from an individual’s machine to the courthouse. This visibility into the cost can provide companies with concrete dollar values to quantify the specific value proposition respective to deploying eDiscovery technologies that address e-mail discovery, of course an organization can expand this calculation beyond email.

Recently, I presented at a CIO Round Table, hosted by Comport Consulting (http://www.comport.com). It was evident that enterprises have minimal visibility into the discovery legal-technology cost structure. No one in the attendee group was able to provide actual dollar costs of email from birth to trial. I wager that this is not unique.

Many vendors claim that their solution delivers substantial savings but, I think that the complexity of the people, process and technologies each company deploys makes these saving projections circumspect. Some vendors offer rudimentary cost assessments at no charge, but generally the models they deploy are simplistic. Arguably, these free assessments dilute the value of the complex mathematical models that calculate discovery cost metrics.

Organizations that acquire visibility into the cradle to court cost breakdown arm themselves with invaluable data with which they can measure the effectiveness and cost-benefit of technologies, which can then be used to assist IT, legal and business stakeholders to ascertain the business value of investment in technologies that support their internal eDiscovery.

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