Lessons for Wall Street litigation — from a Casino

May 27, 2009

Ever since I began working at the intersect of Electronic Discovery and Subprime/Credit Crisis Securities Litigation, I’ve found several sites to be absolutely invaluable sources of insight and information.  High among these is Kevin LaCroix’s D&O Diary, www.dandodiary.com.  How Kevin finds the time to write as prolifically as he does, I don’t know, but hardly a day goes by that there isn’t something new, useful, and important on his blog. 

 Two of the most popular ongoing features of Kevin’s blog are the list of subprime lawsuits, currently standing at 191 in various federal district courts throughout the US (mostly in New York and California), here, and a separate list tracking the settlements, dismissals, and denials of dismissal motions, here.   

In any securites class action, after the housekeeping step of selecting a lead plaintiff and counsel, the first event is the Motion to Dismiss under Rule 12(b)(6) and the specially high bar that a plaintiffs’ case must get over to survive that motion pursuant to the Private Securities Litigation Reform Act at 15 U.S.C § 78u-4(b).

It’s now been 18 months since the first motion to dismiss, and there have been 23 other motions decided since then.  That’s long enough to discern a trend.  The earlier decisions had favored the defendants – dismissals were common.  Now the trend favors the plaintiffs.  While there are still cases being dismissed, the net score stands in the plaintiffs’ favor.   

                                                                                                      21-movie-interna%3B        To ascertain this trend, I worked from Kevin’s Dismissals Granted (Table II) and Dismissals Denied (Table III), by merging them and then sorting by date. 

I then assigned a numeric value to the outcome of each motion, using a system similar to card counting in Blackjack — not that I have any personal experience doing that, of course.  

  • A dismissal with prejudice is a high (10-A) card; in Blackjack card counting, when you see a high card you count it as Minus One. 
  • A denial of a motion to dismiss is a low (2-6) card: Plus One. 
  • Originally I had thought that a dismissal with leave to amend the Complaint should be a neutral (7-8-9) card: value Zero.  But a dismissal with leave to amend is still a better outcome for the defendant than the plaintiff, so I decided to give it a provisional minus 0.5.  However, when it gets decided finally one way or the other, that minus 0.5 goes away and is replaced further down the list by either the full Minus One if the case is finally dismissed with prejudice, or by the full Plus One if the next motion to dismiss is denied.  One exception is the recent WaMu decision in the Western District of Washington, where the result was mixed, so I gave it a score of minus 0.25.
Some have a gift for this.

Some have a gift for this.

So, as with counting cards in Blackjack, you arrive at a running count by adding together all the  plus ones, minus ones, minus zero point fives, and zeroes. 

At the beginning, in November 2007 and the twelve  months following, the running count started out in the negative numbers, favorable to defendants, but by late December 2008, the line crossed into positive numbers and has stayed there ever since.  With the Moneygram decision May 20, 2009, the running count is now at 2.75.  When the count is this positive in Blackjack, it’s better to be the player than the house,  or so I’ve been told.  If you think of the player as the plaintiffs and the house as defendants, the deck is running in the plaintiffs’ favor right now.

GraphMay2709The graph appears at the left, and more legibly, here, and a link to a pdf of the spreadsheet from which it was derived, here.  As you can see, the trendline is moving upward in favor of dismissals being denied. 

Obviously, the weight to be given to dismissals with leave to amend is subjective.  If you call them zero, the trendline in favor of the plaintiffs is even sharper.  If you call them minus one, same as outright dismissals with prejudice, then the trendline, while still moving in a favorable direction for the plaintiffs, still doesn’t get out of negative numbers.  My justification for giving dismissals with leave to amend a minus 0.5 rather than a full minus 1.0 is partly based on the fact that the three cases that have gone to second motions have gone 2-1 in favor of the plaintiffs.  In other words, we’re not seeing any signs that a dismissal with leave to amend is merely a delay of ultimate final dismissal.

Why is an e-discovery consultant blogging about securities class actions?  First of all, because it’s train-wreckinteresting.  This is the arena in which we may achieve some understanding and resolution of what happened to our economy. 

Counsel for both sides of the cases that do go to trial will be carrying much more than their own clients’ interests on their shoulders.  Trials will become showpiece inquiries into the financial sector. 

I’ve also come to the conclusion that to do the best they can for their clients, e-discovery consultants have to know their substantive area nearly as well as their clients do.  The substantive area that grabs my interest the most right now is securities litigation arising out of the subprime/credit crisis.  For the present, this is where it’s at.   More of these cases are surviving dismissal and going on to discovery.  Discovery had better be done right.  Blind cookie-cutter e-discovery processing and a dumb “let’s throw some keywords at it” approach will be completely inadequate for efficient discovery in this highly-specialized area. 

Those who forget the past are condemned to repeat it, and our recent economic past is something none of us ever want to repeat.

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What part of No don’t you understand?

May 19, 2009

April hasn’t been easy for securities class action defendants seeking second bites at the apple.  Twice in the same month a federal judge has “re-denied” a motion to dismiss brought by the defendants in a subprime/credit crisis securities class action.  

Los Angeles, April 6:  Justice Mariana Pfaelzer (C.D. Cal.) denies the defendants’ motion to reconsider her earlier (Dec. 3, 2008)  denial of their motion to dismiss in the Countrywide litigation.   (Alison Frankel’s article about this in the AmLaw litigation daily is available here.)  

What the plaintiffs got in February

What the plaintiffs got in February

Then New York, April 29:  Judge Shirley Wohl Kram  (S.D.N.Y.) denies the defendants’ motion to reconsider her earlier (Feb. 18, 2009) denial of their motion to dismiss in the Moody’s litigation.   A copy of the February decision is available here and a copy of her honor’s order reconfirming that decision is here.

What the plaintiffs got in April

What the plaintiffs got in April

Moody’s is one of a handful of agencies that assign ratings to securities and other debt instruments including bonds.  The other two major rating agencies are Standard & Poor and Fitch.  Ratings permit the investing community to assess the riskiness of a bond offering.  The complaint alleges that Moody’s assigned unjustifiably high ratings to collateralized debt obligations — bonds —  that were in fact quite risky due to their underlying security containing an excessive amount of subprime mortgages.  The plaintiffs who had acquired these bonds during the specified class period suffered losses as a result.  The claims are that by these misrepresentations, Moody’s and the individual defendants violated § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78(j) and SEC Rule 10b-5, 17 C.F.R. 240.10b-5.

The first event — which is sometimes the main event — in a securities class action is a motion to dismiss under Feb. R. Civ. P. 12(b)(6).   This is no ordinary motion to dismiss.    The Private Securities Litigation Reform Act of 1995 sets the bar especially high for securities class actions to survive.    

  • First, plaintiffs have to plead the alleged misleading statements with particularity. 15 U.S.C. § 78u-4(b)(1). 
  • Second, plaintiffs must show in their pleading that the false statement was made knowingly or recklessly, in other words, that the defendants acted with scienter.  15 U.S.C. § 78u-4(b)(2).  Not only that, the Supreme Court ruled that the pleading has to show a “cogent inference” of scienter.  Tellabs Inc. v. Makor Issues & Rights, 551 U.S. 308 (2007).  
  • Third, because the plaintiff must prove causation of its loss by these misrepresentations under 15 U.S.C. 78u-4(b)(4), the complaint must clearly allege loss causation. 

Judge Kram decided in February that the plaintiffs fulfilled those requirements.   The defendants moved for reconsideration and didn’t get very far; her only concession was to declare that part of one paragraph of her earlier decision was to be removed, characterizing it as a mere clerical error.  In her earlier order, the judge included this passage at page 45:  

Plaintiffs also cite an instant message conversation as evidence of the Company’s scienter.  In that exchange, Moody’s executives commented that their “model def [sic.] does not capture half the risk,” and joke that an issuance could be “structured by cows and [they] would rate it.” (Hume Decl. Ex. H.) The conversation ends with one Committee member saying that he or she “personally doesn’t feel comfortable signing off” on that issuance. (Hume Decl. Ex. H.)

Collateralized Debt Obligations are complex and require teamwork

Collateralized Debt Obligations are complex and require teamwork

This is a reference to the “structured-by-cows” passage that was read aloud at a congressional grilling of ratings agency executives on Capitol Hill last October.  The New York Times account of that exchange can be read here.  By including it in her decision, the judge added color, like the cherry on top of a sundae.  The only problem?  This was an instant message exchange between two analysts at Standard & Poor, not Moody’s.  This may have been the plaintiff’s error, as the judge cites an exhibit filed by the plaintiff as the source.  In any event, in her reconsideration decision, the judge treats this passage as not in any way critical to her finding that the plaintiff had sufficiently pleaded that the defendants acted with scienter, and simply declared at page 10 of her April 29 order that it should be removed from her February 18 order: 

Rule 60(a) permits the Court to correct a “clerical mistake or mistake arising from oversight or omission whenever one is found in a judgment, order, or other part of the record.” Fed. R. Civ. P. 60(a). Based upon the record, the sentence beginning “Plaintiffs also cite . . . .” at  [p.45 of the February order]  through the sentence beginning “The conversation ends . . . .” should be deleted from the Court’s Opinion.

The defendants wanted her honor to take the entire sundae away from the plaintiffs.  Instead all she did was remove the cherry on top.  

As this was already in the plaintiffs’ “win” column in the tally of outcomes on motions to dismiss, nothing on the scorecard has changed.  I’ll be analyzing that scorecard and the way it has trended over time in an upcoming post.  

I have to comment that I find motions to reconsider one of the more bizarre features of federal practice in the US.    You go back to the same judge who made an order you don’t like, asking to overturn it?  Another topic for another day, maybe.


Wrong for the wrong reasons

May 15, 2009

In a post dated April 27, 2009, the Technolawyer blog tells a document review horror story that should never have happened, but not for the reasons the players think.

 Here’s the URL: http://blog.technolawyer.com/2009/04/biglaw-clawback-privileged.html

A big West Coast law firm defending a medical devices case found itself overwhelmed in a large document review that mushroomed into something much larger than anticipated.  The firm assigned more reviewers, including an inexperienced younger associate named Marc.  Sadly, Marc failed to flag as privileged a document that clearly was.  Even worse, Marc was undersupervised because of ridiculous internal firm politics.   The cartoon below might be Marc arriving at work.  Get the picture?

richie_rich2The document Marc failed to flag privileged of course got produced.  (The documents in this part of the review appear to have been paper-source, because they are described as having been OCR’d, and some had marginal handwritten notes.)

“The document in question was a chart of notable events in the history of the litigation prepared by in-house counsel. In addition to its fundamentally privileged content, it contained the attorney’s marginalia — the sort of thing that most of us scrawl on a document when we are certain that it will never fall into the hands of, say, the plaintiff’s attorney.

“The document was so clearly privileged… that each of the eight other reviewers assigned to the case had recognized and tagged its duplicates as such. Marc, however, decided that the document should be produced.”  [STOP RIGHT HERE.  HOW DID NINE COPIES OF THE SAME DOCUMENT MAKE IT INTO THE REVIEW STREAM SEPARATELY?]  And so it made its way, unnoticed, into the batch of documents (which numbered in the tens of thousands) produced for opposing counsel….”

The blog quotes a firm partner explaining how the reviewer missed this: 

” ’An experienced reviewer would have recognized that the document was, without a doubt, privileged,’ the partner said. ‘But there was no name on it, and Marc didn’t know to look at the OCR coding[i], which would have told him that it was authored by an in-house attorney. Moreover, he didn’t realize that it was a duplicate of documents that had been tagged as privileged by other people. Maybe the OCR coding failed because of the marginalia; maybe he just didn’t have the experience to de-duplicate [INTERRUPTING AGAIN:  IT SHOULD NOT BE THE REVIEWER’S RESPONSIBILITY TO DE-DUPLICATE!] . Either way, he made a bad call.’ ”

According to the Technolawyer posting, the firm partner said the lessons to be learned from this are: 

  • supervise the reviewers,
  • immediately claw back privileged documents (and if necessary fight about it later), rather than pretend nothing went wrong, and
  • “not only be aware of duplicates, but remain mindful of the limitations of even the best eDiscovery tools. OCR is not a perfect technology.”

Here’s where I have a big problem — not with Technolawyer, but with the Big Law Firm.  Unless the variation in OCR quality was right off the Richter scale, there is no excuse for nine versions of the same document, even those with handwritten marginal notes, to have gone into review separately.  None. 

Any e-discovery consultant or vendor with even moderate sophistication knows about software that performs near-duplicate detection.  One of the best-known is Equivio. 

Near-duplicate detection software will catch different variations of what is essentially the same e-mail or electronic document, just different revisions.  It will catch the same document both in its Word format and in PDF format, clearly an instance where the hash value would be completely dissimilar.  And it is very commonly used to catch multiple copies of the same paper document that inevitably come out slightly different when OCR’d.  I’ve known litigation support vendors who have used it for this purpose for several years now, and their clients appreciate its benefits. 

_1716577_penguin2Near-dupe detection software can be calibrated to group documents together based on a percentage degree of similarity.  If you have a batch with wide variability in OCR quality, you’d set the percentage lower than if you’re confident the OCR quality is consistently high. 

I don’t know if near-duplicate detection was used in this case, or whether it was considered but a good reason existed not to use it.  From the way this story is told, it does not sound like it was used. 

So, Big Law Firm,  you shouldn’t be so quick to blame the smart-ass young associate.  This document shouldn’t have gotten to him in the first place.  It should have been bundled together with its other eight near-duplicates, and reviewed by someone with more seniority.   The cost of near-dupe detection is a lot less than the cost of reviewing the same document nine times.  Even without the error, your client should have fired you for that alone.   (This paragraph assumes near-duplicate detection was not used or considered.  If it was, never mind. )

 


 

[i] As written in the Technolawyer blog, which in turn is a direct quote.  I am not certain of the meaning of “OCR coding”.   In my lexicon, something is either OCR’d or it is coded.


Candy or Jagged Glass? Part Two.

May 14, 2009

My last post (below) introduced the report issued in March by the Institute for the Advancement of the American Legal System, in collaboration with the American College of Trial Lawyers. 

Sedona

Sedona

As I said, most of the 29 recommendations (they call them Principles, but unlike Sedona, they are not numbered) in the IAALS / ACTL Report are well-taken.  The ones I mentioned previously mostly restate what others such as Sedona or the Rules Committee have said before, but that’s not a criticism. 

A couple that I didn’t mention yesterday are quite innovative.  These are, at page 10, fact-based instead of notice-based pleading, and at page 11, a new summary form of action by which parties can submit applications for say, interpretation of a contract, without triggering a right to discovery or trial.  This worldly outlook and and openness to the way things are done in other countries is refreshing. 

Now the two or three Principles that are either the best candy in the bag, or jagged glass.  Please forgive the lengthy direct quotations. 

First, the Report’s Principle on automatic initial disclosure, at page 7:

  • Shortly after the commencement of litigation, each party should produce all reasonably available nonprivileged, non-work product documents and things that may be used to support that party’s claims, counterclaims or defenses.

 The narrative says that this automatic initial disclosure goes further than the current Rule 26(a)(1)(ii), though let’s be fair, reading them on paper, not by a whole lot.   Taken alone, this recommendation is indisputably sensible.  But not if this is all a party has to produce, which may be the effect of the next two bullets. 

 The next bullet appears at page 8.

  •  “Discovery in general and document discovery in particular should be limited to documents or information that would enable a party to prove or disprove a claim or defense or enable a party to impeach a witness.”

 And then, at page 9:

  •  “After the initial disclosures are made, only limited additional discovery should be permitted. Once that limited discovery is completed, no more should be allowed absent agreement or a court order, which should be made only upon a showing of good cause and proportionality.”

 The report commentary continues: 

“This is a radical proposal. It is our most significant proposal. It challenges the current practice of broad, open-ended and ever-expanding discovery that was a hallmark of the federal rules as adopted in 1938 and that has become an integral part of our civil justice system. This Principle changes the default. Up to now, the default is that each party may take virtually unlimited discovery unless a court says otherwise. We would reverse the default….”

 “Efforts to limit discovery must begin with definition of the type of discovery that is permissible, but it is difficult, if not impossible, to write that definition in a way that will satisfy everyone or that will work in all cases….  Whatever the definition, broad, unlimited discovery is now the default notwithstanding that various bar and other groups have complained for years about the burden, expense and abuse of discovery.”

 “This Principle changes the default while still permitting a search, within reason, for the “smoking gun”. Today, the default is that there will be discovery unless it is blocked. This Principle permits limited discovery proportionately tied to the claims actually at issue, after which there will be no more. The limited discovery contemplated by this Principle would be in addition to the initial disclosures that the Principles also require. Whereas the initial disclosures would be of documents that may be used to support the producing party’s claims or defenses, the limited discovery described in this Principle would be of documents that support the requesting party’s claims or defenses. This Principle also applies to electronic discovery.”

Arc de TriompheNo kidding about calling this a radical proposal.  It’s essentially the continental European model, in which parties have to disclose only the documents on which they intend to rely, and whatever discovery there is after that is tightly limited.   Here’s Article 753 of France’s Nouveau Code de Procédure Civile:    “Pleadings shall set out expressly the claims of the parties as well as the issues of law and fact which are the basis of each claim. A memorandum listing the documents in support of these claims shall be annexed to the pleadings.”  (In the original French:     “Les conclusions doivent formuler expressément les prétentions des parties ainsi que les moyens en fait et en droit sur lesquels chacune de ces prétentions est fondée. Un bordereau énumérant les pièces justifiant ces prétentions est annexé aux conclusions.”)  You can search high and low through the rest of this Code and you won’t find any mention of any further right of discovery or obligation to produce.  C’est tout, mes amis.  Click here to get to the Legifrance site English translation.

 I’ve got three points about these three Principles in the IAALS Report. 

 1.  These three Principles make most of the other recommendations in the report unnecessary and academic.  If the scope of discovery is so drastically limited, then we really won’t need more proportionality, more cooperation, more frequent meet and confers, more  technical education of bench and bar about electronic discovery, etc.   Those are all sorely needed if we continue with our wide-discovery regime.  But if we’re tightening discovery’s scope so much by these three, none of the rest of the recommendations in the IAALS report are necessary.

 2.   What exactly are the mechanics of obtaining the additional limited discovery after the initial disclosures?  The report provides no guidance as to how a party is supposed to request from its opponents these documents that would support its claims or defenses. 

Clearly the drafters of the report intend something much more specific than document requests under the current practice.  But what could be more specific that would realistically be practical? 

Overly-broad discovery requests already find disfavor with the courts.  Mancia isn’t an isolated decision.  Mancia v. Mayflower Textile Servs. Co., 253 F.R.D. 354 (D. Md. 2008), discussed here.  

 Under the current practice parties request documents that fall within certain date ranges, from certain known individuals, pertaining to certain subject-matters.   So if the report’s writers are saying that the courts’ standards are still too loose, then this has to imply that the only way a litigant will be able to request documents that support its side is by identifying them specifically. In other words, already knowing exactly what they are. 

If you know this much about a document, you probably already have it, in which case, the request shouldn’t be for production, it should be a request to admit authenticity. 

3.    Nature abhors a vacuum.  As ridiculous as our broad lawyer-controlled discovery may seem, it may fulfill a function that in other countries might be the job of judicial officers or other bureaucracies we don’t have.  Delivering a guest lecture at Duke University in 2003, a German law professor remarked:

 “If a European lawyer looks at… the United States, he is impressed by the extent to which court litigation, rather than legislation and administrative action, is used as a means to cure defects in the structures and practices of important social institutions.”

 “What surprises the European observer about American product liability litigation is the stupendous volume of litigation, the size of awards made to successful claimants, and the fact that it is not uncommon for many thousands of claims to be bundled together and dealt with in a single trial.  All developed legal systems must ensure the safety of products in the interest of the consumer.  It would seem, however, that Americans, with their traditional mistrust of governmental authority, rely not so much on the initiative of administrators or private prosecutors, but rather on private litigation as the chief regulator of corporate action in the product safety field.  If this analysis is correct, a strong case can be made for the view that to the extent to which private litigation serves the vindication of a public interest, the parties must be equipped with robust discovery procedures to ferret out the truth, even at the expense of business or personal privacy.”   Hein Kotz, Civil Justice Systems in Europe and the United States, 13 Duke J. of Comp. & Int’l L. 61, at 74 -75.

As societies, the United States and most other English common-law systems have made a choice:  that it is better to find the memo that recommends adding addictive substances to tobacco, or the one that calculates that a recall of tires will cost more than injury lawsuits, or as we will no doubt soon see, the directive that lowered the underwriting standards for mortgages to the point that a loan officer had to get authorization from higher up not to approve a mortgage. 

This is not a diatribe to protect the pool of work for e-discovery consultants and vendors.  Frankly, the e-discovery industry hasn’t served the legal profession and business as well as it could have.  And the legal profession, as the IAALS / ACTL report itself observes, has to do a better job of understanding electronically stored information. 

Fifth Avenue in the Rain.  Frederick Childe Hassam.  1917.

Fifth Avenue in the Rain. Frederick Childe Hassam. 1917.

Discovery is a means to an end and not an end in itself.  But it should not be viewed as an annoying roadblock on the way to trial.  Only two percent of all federal actions go to trial.  In other words, the dispositive stage of litigation is in most instances discovery.  While the cost of discovery should not be a reason that a case has to settle, the discovery stage properly conducted should be used as the opportunity to settle. 

If we do away with broad discovery, we  reduce that opportunity.  Remember, Qualcomm v Broadcom went to trial because Qualcomm had failed to fulfill its discovery obligations.  Had it not been for that discovery abuse — concealment of thousands of highly relevant e-mails that killed Qualcomm’s case on the merits–  the trial, which was long and expensive, would not have occurred because the case clearly would have settled.  (For my article on the Qualcomm decision, click here.)    

We just amended the rules two years ago.  It’s too early to declare them a failure.  It’s also too early to declare them a success.  Let’s redouble our efforts to make the best of them by controlling discovery, not by throwing it away.  We like our disputes resolved where there’s been an opportunity for a full disclosure of all relevant facts.

NOTE TO READER:  This post alone does not do this subject justice.   Both Mary Mack and Ralph Losey have thoughtful and entertaining posts about the IAALS / ACTL Report in their respective blogs, and I highly recommend them.  For Mary’s, click here, and for Ralph’s, click here.


Candy or Jagged Glass? Part One.

May 11, 2009

Posted May 11, 2009

The amendments to the Federal Rules of Civil Procedure pertaining to electronically stored information went into effect on December 1, 2006.  If you needed me to tell you this, you’ve stumbled into the wrong blog. 

This change marked only the seventh time since 1938 that the rules have been amended.  The mean time between amendments to the Federal Rules of Civil Procedure is just under ten years.  Amending the rules is not a step taken lightly.

Some things from the 1930's are very enduring

Some things from the 1930's are very enduring

The effort that went into these amendments is obvious from reading the Commentary that accompanies them.  It spanned six years; it consumed hundreds of hours of hearings, countless meetings, and submissions from the best and brightest of bench, bar, and think-tanks like The Sedona Conference; each of these submissions in turn represents tremendous devotion of time and thought by their respective presenters. 

My point?  That this was a tremendous collective effort by the body vested with the statutory authority to promulgate the rules (28 U.S.C. § 2073) and by the professional groups providing input to the committee. 

Yet just past the two year mark, an organization that did not exist at the time the new rules were being debated is now calling for a radical overhaul of the Rules of Civil Procedure.  That organization is the Institute for the Advancement of the American Legal System (IAALS), founded in 2006.  It is affiliated with the University of Denver.

In March 2009 the IAALS issued its report titled:  “Final Report On The Joint Project Of The American College Of Trial Lawyers Task Force On Discovery and  The Institute For The Advancement Of The American Legal System.”  Click here to download a copy.

WitnessForProsecut38 Top billing in the title goes to the older organization, the American College of Trial Lawyers, founded in 1950.  To anyone who has practiced litigation in the United States or Canada, as I have, the ACTL is enormously prestigious.  Invitation to membership is a pinnacle in the career of any barrister in North America. 

 There are 29 boldface bullet points. (The authors did not number them).  If you think of this as a bag of candy, among these 29 candies there are two or three that are either the best candies of them all – or they are chunks of jagged glass.   

In general terms, the majority of the recommendations call for:

  • Proportionality as the governing principle for all discovery.  We have some provision for this in R. 26(b)(2)(C).
  • Broader initial automatic disclosures, meaning broader than currently required under Rule 26(a)(1).
  • Early meet and confer to discuss preservation and storage electronically-stored information.  This is the subject of Rule 26(f).
  • A good faith duty to preserve electronically stored information, but not to the unreasonable extent that parties must take every conceivable step to preserve all potentially relevant electronically stored information;  this is substantially Sedona Principle 5.
  • Absent a showing of need and relevance, a party should not be required to restore deleted or residual electronically-stored information, including backup tapes.  This is pretty much the “not reasonably accessible” provision of R. 26(b)(2)(B).
  • Sanctions should be imposed for failure to make electronic discovery only upon a showing of intent to destroy evidence or recklessness.  A higher misbehavior threshold than the current Rule 37(e), but no real cause for indignation on the plaintiff side of the bar.
  • The cost of preserving, collecting and reviewing electronically-stored material should generally be borne by the party producing it but courts should not hesitate to arrive at a different allocation of expenses in appropriate cases.  In other words, no change from what we have right now.  Although there is no specific cost-bearing provision in the present Federal Rules of Civil Procedure, courts in cases involving a range of issues… have recognized that Rule 26(b)(2)(C) provides the inherent authority to shift the costs of discovery to the requesting party or apply the concept of proportionality.”   Michael R. Arkfeld, Arkfeld on Electronic Discovery and Evidence, §7.4 at p. 7-75 (2nd Ed.)

As noted in blue above, some of these points are already addressed in the amended rules; others are are stated in the Sedona Principles, or in the Sedona Cooperation Proclamation, and some are even voiced in recent court decisions.  Nevertheless, they benefit greatly from a fresh restatement; all the better when that comes from an organization as respected as the ACTL or as energized as the IAALS. witnesssm

Few would argue against these points.  The IAALS and the ACTL feel compelled to sound these trumpets because we still have far too much discovery cost, delay, and gamesmanship. 

So now we get to the bullet points that are either the best bonbons in the bag, or they are chunks of jagged glass.  That’s the subject of the next post.


Electronic Discovery Consulting Services

May 2, 2009

Electronic Discovery Consulting Services

Electronically Stored Information is subject to Discovery.  It always has been.  Cases decided more than a decade ago made this clear, though not universally followed in practice.  Now, the amendments to the Federal Rules of Civil Procedure in the US, and practice guidelines issued in several Canadian provinces and in other English common-law jurisdictions, remove all doubt – and all excuses.

“The discovery of electronically stored information raises markedly different issues from conventional discovery of paper records.  Electronically stored information is characterized by exponentially greater volume than hard-copy documents…”

The source of the problem is the source of the solution.  Technology itself provides the key to working with these huge volumes of data, permitting rapid identification and collection of potentially relevant material, culling by keywords and concepts to the smaller volume of most likely relevant data, and processing this data into a format that renders it reviewable efficiently.

It is now possible to manage discoverable data volumes 100 times the size of a “big” paper case twenty years ago, and yet do it more cost-effectively.