Borderline Disorders

July 5, 2009

 

Other countries have not tailored their laws to suit the convenience of American trial lawyers.  How inconsiderate.

Don't expect to just dance right in to collect the data either.

Don't expect to just dance right in to collect the data either.

I know this is a hard concept for Americans to grasp, but the force of U.S. law does not extend outside the U.S. If you’re litigating a case where discoverable information sits in other countries, don’t think that you can swagger in there John Wayne-style, collect it, and bring it back to the U.S. for a look-see — not even if the data is located on servers belonging to a European subsidiary or parent of your corporate client.  It’s not theirs to give and it’s not yours to take, at least not without first jumping through a few legal and cultural hoops. 

Privacy laws outside the U.S. make what is otherwise routine and procedural here illegal over there.  Lawyers representing U.S. companies have been prosecuted in Europe for collecting electronic data for U.S. legal proceedings.   

You can either comply with the law here or you can comply with the law there, but you can’t easily do both.  It’s not that you can’t take electronic data outside of countries with privacy protection laws —  you can, but only if you do it the right way.  And sometimes it’s just easier to work with it there instead of trying to get it out. 

 On day two of LegalTech West Coast in Los Angeles June 25, one of the morning presentations was titled Globalization and International E-Discovery, moderated by George Rudoy, with Browning

Not wanting to scare you or anything, but you really won't like it if you're arrested over there.

Not wanting to scare you or anything, but you really won't like it if you're arrested over there.

Marean and Michael R. Polin as panelists.  I’m glad I chose this session, and I am sure the rest of the audience feels likewise.  If the materials and audio become available online, I recommend them.  Another recent presentation I recommend is a FIOS webcast presented April 21, 2009 titled The Sedona Conference® Update: Addressing the Challenges of Cross- Border e-Discovery, presented by FIOS and the The Sedona Conference.  This is available online at the FIOS website.

For a country that traditionally prizes the rights of the individual, the United States does a poor job of protecting personal privacy.  Other countries have comprehensive privacy protection laws.  Other than a patchwork of topic-specific protections, such as medical information under HIPAA (the Health Insurance Portability and Accountability Act of 1996, P.L. 104-191), we do not have privacy legislation. 

Privacy protection in the U.S. is mostly about protection against governmental infringement, such as the Fourth Amendment to the Constitution prohibiting unreasonable search and seizure.  We don’t seem to care much about nosy intrusions by non-governmental entities.  Privacy protection in Europe is about protection not only from state-sponsored abuses – Europe’s twentieth century experiences of these are truly horrific [Note 1] —  but also against abuses by corporate and other private interests.  For example, individual credit reporting is much more restricted in Europe, limited for the most part to a registry warning of persons who have defaulted on consumer debt. 

In the U.S. you have to actively opt-out of receiving telemarketing calls.  In Europe, they don’t have your information in the first place, so they can’t bother you.  While it’s been quite a few years since I’ve had dinner at a friend’s home in Europe, I have a hunch that their dinnertimes are interrupted by annoying telemarketing calls a lot less than ours are.  

Most other industrialized countries, civil code jurisdictions in particular, have a much more restricted scope of discovery in their civil litigation.  However that is not what prevents data from other countries from entering the US.  It’s a combination of Directive 95/46/EC of the European Parliament, part one here , part two here, and the privacy legislation of each of the member states that prevents such transfer.  For a table of links to all the EU member privacy protection statutes, go to http://ec.europa.eu/justice_home/fsj/privacy/law/implementation_en.htm.  Not all of them have English translations available.  

EU Directive 95/46 sets the minimum standard for privacy legislation of the member countries.  Some, like Germany’s, go quite a bit beyond the directive’s requirements.  However, provided another member country’s legislation meets the minimum requirements of the directive, and they all do, then data can be transferred from one member country to another.  

Outside of the European Union and the European Free Trade Area, only two non-European countries have fulfilled the EU’s requirements.  The United States is most definitely not one of them.  These two countries are Canada and Argentina.   For the EU’s certification that Canada is compliant, go to http://ec.europa.eu/justice_home/fsj/privacy/docs/adequacy/canada_st15644_06_en.pdf

In the case of Canada, this is somewhat ironic.  All of Canada’s provinces except Quebec are common blame-canadalaw jurisdictions with broad discovery like the U.S. (see Ontario’s Rule 30 here) , but that doesn’t mean data can be freely gathered there and brought into the U.S. for the purposes of civil litigation.  Canada, like the 27 member countries of the European Union, has comprehensive privacy legislation, the Personal Information Protection and Electronic Documents Act, S.C. 2000, c.5. (known as “PIPEDA”.)  You’ll need to engage local counsel in Canada to assist you with this legislation and any other relevant provincial or federal laws in Canada before gathering any electronic data there and bringing it south of the border. 

Conversely, while its discovery and other rules of civil procedure are substantially the same as the U.S. and significantly more expansive than continental Europe, data from continental Europe that cannot be transferred into the U.S. can be transferred into Canada.  Again, a caveat – get the advice of local counsel in Europe or Canada – ideally both — to make doubly sure that it will be all right to move data from continental Europe to Canada for hosting on a server for your reviewers to log in to from California.  

What constitutes transfer of data outside the EU?  Is it copying it from its source and then loading it onto a server, and if that server is within an EU member state, all is well?  Or does transfer constitute ability to access online – so even if the data reside on a server on European soil, does a review room in New York with access to that database on that server in Europe violate that European country’s privacy laws and the EU’s directive?

The answer depends on the specific country’s legislation.  Some of them are so strict that the review room itself has to be on European soil.  Others are fine with access from anywhere, as long as the digital files themselves remain housed on media located within Europe, or within a country that is certified by the EU as compliant with its privacy directive.  Quick quiz, what did we just say those two countries

Don't cry for me or your data.

Don't cry for me or your data.

are?  Once again, Canada and Argentina.   

Another question:  is it simply the fact that the data is electronic, or the fact that the data collection may contain items within it that are personal in nature, that runs afoul of European privacy laws? 

Asking that question betrays my American frame of reference and way of thinking.  We’re now into a discussion not just of differences in law, but of differences in culture.

Here in the U.S. an employee has no expectation of privacy when he or she uses employer-provided equipment and infrastructure to shop online or to send an e-mail to a spouse reminding him or her to pick up the dog from the veterinarian or the kids from day-care, whereas in Europe an employer has no right to those personal communications and transactions notwithstanding they were done on company time and equipment.  Different societal priorities. 

But it goes further than that.  The splitting of a person into a “company self” and a “personal self”, while normal to our way of thinking, seems to be an unknown concept in Europe.  An e-mail sent or received by an employee entirely in his or her corporate capacity is still “personal” in the laws of European countries because it has that employee’s name on it.  A person is a person is a person, even when he’s working for The Man.  In other words, merely removing what we in the U.S would regard as the “really” personal contents of an individual’s corporate e-mail box (the messages to friends and family, the receipts for online purchases, etc.) does not render the rest of it all right to transfer from Europe to the U.S. 

So, when is it all right to transfer European data to the U.S? 

 First, maybe consent will suffice.  If consent to the transfer is given by the person identified as the “data subject”, then that takes you a long way toward being all right with bringing it in.  Note that you’re not home safe yet.  In some source countries, that consent might be sufficient; others with more restrictive legislation may still have a problem with what happens downstream with data in U.S. discovery, because it may have to leave the control of the company initially collecting it.  Another point to remember is that in some countries, a consent given by an employee at the request of an employer is presumed not to be voluntary, in other words, no consent at all. 

Second, you might consider getting official authorization.  All EU countries have a privacy commissioner (Canada seems to have dozens), and their respective privacy statutes all provide for a procedure to seek the approval of this official for the transfer of data out of the country to the U.S. Make a good case that the removal of the data falls within one of the enumerated reasons to permit it, and you’re good to go.  Of course, the wheels of European bureaucracy can grind even more slowly than the wheels of U.S. justice.

Third, there’s the “Safe Harbor” route.  These two words should not be confused with the safe harbor concept in Fed. R. Civ. P. 37(e).  We’re talking about totally different harbors here.  The United States Department of Commerce maintains a list of companies that are certified as compliant with the EU privacy directives.  Data can be transferred from Europe to the U.S. if it is going into the hands of one of these companies. 

Safe Harbor certification is self-certification.  It has to be.  The Department does not have and should not be expected to have the resources to inspect the data handling practices of hundreds or thousands of companies.  Companies have to re-certify themselves each year, and they are subject to a of Department of Commerce audit, which may be triggered by a complaint, and if they fail that audit, they’re off the list and potentially subject to other penalties for having inaccurately certified themselves. 

Because of the arguably subjective and transitory nature of Safe Harbor certification (companies on the

This place might be safe.

This place might be safe.

list one year can be gone the next), one Canadian e-discovery vendor distributed fliers at New York LegalTech a couple of years ago with a photograph of the Toronto waterfront with the caption “Your safest safe harbor.” 

 Aside from comprehensive privacy acts passed since 1995 by various member states to comply with EU directive 95/46, there are also “blocking statutes”.   Some of these have been around for a longer time.  These are laws that may be quite specific in prohibiting the removal of data from a country. 

As Browning Marean told the audience at LegalTech in L.A., even a nice you don’t look foreign country like Canada can get unpleasant this way.  Two decades ago, well before Canada’s PIPEDA legislation, Browning had a trial in U.S. District Court in New Mexico.  A Canadian blocking statute prohibited the removal of certain industry-specific information from Canada.  This had prevented his client from being able to fulfill its discovery obligations. 

Too bad.  The judge entered default judgment against Browning’s client for 2.4 billion dollars.  Back then, that was a lot of money. 

Sometimes there's a little sibling rivalry

Sometimes there's a little sibling rivalry

That judge’s imperious ruling seems to imply that Browning and his client should have ignored Canada’s law; this fits completely with the stereotypical American who can’t quite grasp the idea that the reach of U.S. law ends at the border.  How dare some other country presume to interfere with our discovery processes even if it is on their soil?  Think of Ann Coulter’s diatribe in 2007 on Fox News (where else?) that Canada “better hope the United States doesn’t roll over one night and crush them”.   (You can watch this, if you really must, at http://www.youtube.com/watch?v=LmcZG87Fmxc.) 

As I mentioned earlier, if the materials from the West Coast LegalTech presentation by George Rudoy, Browning Marean, and Michael Polin do become available online, I recommend them.  Most of this post has been about Europe and Canada, and this was mainly Browning’s to speak about, but the session gave equal time to the rest of the world.  George had some interesting information about Russia and other former Soviet bloc countries.  Did you know that Russians will never sign anything?  You could have a hundred Russian employees of a multinational company, all perfectly agreeable to their data being removed from the country to the U.S., but ask them to sign their name to paper consenting to this?  Forget it.  They’ll never do it.  Memories of the KGB and the gulags die hard. Michael Polin has an international law practice that specializes in China.  If you think the stuff about Europe was complicated, try navigating your way around the laws in Beijing. 

The key take-away from all speakers regarding all countries – you will need to work with local counsel. 


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If you don’t know, just ask!

June 11, 2009

 

Luckily the LAPD excels in crowd control.

Luckily the LAPD excels in crowd control.

“The Rule of Law in the Wild Wild West:  Ethics and E-Discovery.”  This is the title of the keynote address on the second day of LegalTech West Coast in Los Angeles Thursday June 25, less than two weeks from now.  My prediction:  it will attract a standing room only audience.    The mailing describes this session as “essential and timely”.  It sure is.  I can visualize an overflow crowd of anxious lawyers, all seeking advice on how to avoid punishment from the courts for e-discovery errors, spilling out of the convention center and onto Figueroa Street.

 The law of electronic discovery has taken a sharp turn into the scary realm of sanctions against lawyers.  First, the Qualcomm[i]  decision in January 2008.  In that case the company Qualcomm was sanctioned $8.5 Million for withholding 46,000 relevant e-mails, and several of its lawyers were referred to the California State Bar for discipline for having turned a blind eye to the obvious red flags that their client wasn’t making full disclosure. 

Now we’ve got a case where it’s the lawyers only who are getting sanctioned:  Bray & Gillespie Management et al v Lexington Insurance Company, 2009 WL 546429, United States District Court, Middle District of Florida, March 4, 2009.  For the full decision, click here.

Magistrate Judge Karla Spaulding had harsh words for two individual lawyers and their law firm, Reed Smith, representing the plaintiff Bray & Gillespie (B&G). 

 A little history:  The action had been commenced in February 2007.  B&G had originally been represented by Anderson Kill & Olick (AKO), and the partner there having carriage of the action, “Partner E”,  moved from AKO to Reed Smith in January 2008, taking this case with him.  In March 2008 Reed Smith officially filed as the law firm of record for the plaintiff.  Another lawyer at Reed Smith, “Partner B” began working on this matter by May 2008.

In September 2007 plantiff’s counsel (Partner E, then still at AKO) received a Request for Production from the defendant Lexington’s law firm (Carlton Fields) requesting electronically stored information in native format with metadata.  Counsel for the plaintiff did not object to the requested form of production

  • neither within the 30 day limit after receiving the RFP imposed by Rule 34(b)(2)(A) ;
  • nor in response to a motion to compel in January 2008 – we’re now at the time that Partner E moved from AKO to Reed Smith;
  • nor at a discovery conference in March 2008,
  • nor in a response to a renewed motion to compel in March 2008 – we’re now in the month that Reed Smith became official attorneys of record for the plaintiff;
  • nor any time up to their delivery of discs purporting to contain responsive electronically stored information on April 30, 2008. 

Rule 34(b)(1)(C) provides that the requesting party may specify the form in which it wishes to receive production of electronically stored information, and under Rule 34(b)(2)(D) the responding party may within 30 days object to the requested form, stating the form it intends to use instead.  Rule 34(b)(2)(E) provides that in the absence of any specification of a form of production in the request, the producing party must produce it in the form in which it is ordinarily maintained or in a reasonably usable form. 

The committee notes to this rule state:

And don't try converting it into this form either.

And don't try converting it into this form either.

“The rule does not require a party to produce electronically stored information in the form in which it is ordinarily maintained, as long as it is produced in reasonably useable form.  But the option to produce in a reasonably useable form does not mean that a responding party is free to convert electronically stored information from the form in which it is ordinarily maintained to a different form that makes it more difficult or burdensome for the requesting party to use the information efficiently in the litigation.  If the responding party ordinarily maintains the information it is producing in a way that makes it searchable by electronic means, the information should not be produced in a form that removes or significantly degrades this feature.”

As Craig Ball commented six months before the amendments to the Rules became effective, “That means no more “naked” .tif or PDF files stripped of searchable data layers.”[ii]  (Forget about searching the internet for a photo to go with this phrase.)

And what did the defendant’s attorneys receive from the plaintiffs’ law firm?  TIFF images with no searchable data whatsoever, approximately 100,000 e-mails and roughly an equal number of other electronic files that may or may not have been attachments to the e-mails; there was no way to affiliate any e-mails to any attachments.  In other words, exactly what Rule 34(b), the Rules Commentary, other commentators, and the flood of CLE’s on the rules amendments, had been all saying since early 2006 would no longer be acceptable. 

After objecting to this form of production in mid-May, Lexington filed a motion for sanctions against B&G, and the hearing was set for June 25, 2008.  At that hearing, Judge Spaulding heard testimony from, among others, Daryl Teshima, a California lawyer and well-known electronic discovery consultant. 

 

samsung-pn63a650-reviewDaryl “testified that the discs contained ESI that had been converted to TIFF images, not scanned copies of paper documents.”  Anyone with even one-tenth the knowledge that Daryl has can spot at a glance the difference between TIFF images created directly from ESI using an e-discovery processing program and TIFF images created from scanned paper.  It’s the difference between high-definition and regular TV. 

 

At the conclusion of the hearing on June 25, 2008, Judge Spaulding found that the plaintiff, through its 10017163~Courtroom-Scene-Posterscounsel “deliberately manipulated the electronically stored information in such a way as to withhold from the defendants the information that had been requested, specifically metadata,” and further found that the problems with the ESI production were caused by the plaintiff and its agents, and therefore “they will be the ones to bear the burden of whatever cost it takes to get” the ESI produced in a usable format.  They were given until July 11, 2008 to produce native files with metadata or equivalent.  The plaintiff appealed to the District Judge, but to no avail. 

That wasn’t the end of it.  In early October 2008 Judge Spaulding – apparently on her own motion — issued two notices:  one re-opening the sanctions hearing, and the other directed at Reed Smith and the individual attorneys to afford them “an opportunity to file a supplemental response to the sanctions motion addressing why sanctions should not be imposed against any or all of them as the attorney(s) responsible for the allegedly sanctionable conduct.” 

No lawyer wants to be on the receiving end of a notice like that. 

Not a good day at the office

Not a good day at the office

The re-opened hearing took place on December 8, 2008.  Here it came out that after the defendant’s objection to the form in which it had received production, the parties had discussions between mid-May and mid-June 2008.  At page 14, the judge found that during those discussions, one of the Reed Smith attorneys, Partner B, had concocted a story about the process that B&G and AKO used to gather the discoverable documents. [Partner B] explained that  ‘B&G printed the documents from B&G’s electronic systems. B&G sent the printed documents to Anderson Kill. Anderson Kill scanned the documents to create TIFF images of them . . . , from which production was then made…’ ”

This convoluted process, if it was true, would explain why the production consisted only of TIFF images with no searchable text or meta-data.  Back in the mid-1990’s, this was actually the way electronically stored information was processed to get it into reviewable form: open the native files in their native application or in some print utility software, print to paper, scan the paper to TIFF images. 

Early e-discovery processing was like a "Rube Goldberg" contraption.  Except a lot more expensive.

Early e-discovery processing was like a "Rube Goldberg" contraption. Except a lot more expensive.

However, if you wanted them to be in any way useful for a review, you’d also OCR the text and have bibliographic coders capture the date, from, to, title, etc.  None of that was done here because it didn’t have to be, because the electronic data hadn’t been printed and scanned.  While the plaintiff’s case was still being handled by the previous law firm in 2007 it had in truth actually been processed in a perfectly normal up-to-date way:  using one of the now-numerous e-discovery conversion programs, in this case, Extractiva.  It was then loaded into an Introspect database, also quite normal and acceptable for 2007.  The Extractiva program created the TIFFs, populated the fields for date, from, to, title, etc., and captured the full text.    

Technology like Extractiva has been around since the late 1990’s.  Any law firm authorizing e-discovery the old inefficient print-then-scan way by the middle of this decade would be guilty of malpractice.  Anderson Kill didn’t do that in 2007, and had Reed Smith been in charge of the case then, there’s no way they would have done it either.  We’re talking about a couple of top-tier law firms here.

In any event, somehow the data produced to the defendants on April 30th consisted of the nice-looking TIFF images that would result from using a tool like Extractiva, but apart from a mere load file delineating the start and stop of each document, the images were accompanied by none of the searchable data that would make them useable.  How this happened is unclear; normally, exporting a production set from a program like Introspect requires conscious human intervention to select which fields of data get exported and which do not.  To the credit of the two partners, at least the associates and other lower-rung employees didn’t end up taking the fall for this.

The judge continued, at page 15: 

lawyerwithlaptoponhead_edited“In creating this false tale, [Partner B] ignored numerous facts known or readily available to him about the actual process that was used to collect ESI and produce it to Lexington.”

Among those numerous facts:   “Reed Smith attorneys had access to the Introspect database before and after AKO transferred it to Reed Smith. If he had reviewed the Introspect database, [Partner B] would have seen that it contained ESI metadata. Finally, [Partner B] could simply have contacted AKO to learn how the information was gathered. …   The false explanation [Partner B] gave regarding how ESI had been collected was based, at best, on willful blindness which unreasonably prolonged and multiplied the proceedings regarding the ESI discovery dispute.” 

At the December hearing, Partner B testified that he had erroneously assumed the plaintiff’s electronic data had been printed and scanned to TIFF because he had heard about summer interns standing in front of scanners, and he incorrectly leaped to this conclusion.  (There had been a paper-source component that would explain the scanning activity.) 

The result:  Reed Smith and the individual attorneys were ordered to pay the sanctions themselves, and the judge specifically excused their client B&G from any liability. 

 

You can start by asking the computer guy

You can start by asking the computer guy

I don’t wish to appear either too critical nor too defensive of Reed Smith and these two attorneys when I say this, but there’s a bit of a “perfect storm” element to this.  Reed Smith took this case over from another firm (AKO) just as discovery was heating up but after the client’s electronic data had been collected and processed, so they didn’t have their own institutional knowledge of how this had been done.  Admittedly, the lead partner was the same person, but let’s face it, lead partners on big cases usually don’t work on e-discovery at any level of detail.  Compounding this problem, the relationship with the former law firm appears to have been frosty, though when pressed, the Reed Smith attorneys admitted that AKO had not been uncooperative or obstructive. 

Still, it’s easy to envision Reed Smith not getting into this kind of trouble if they had managed this case from the start.  It doesn’t excuse what happened, but it does inject a certain “there but for the grace of God go I” element.  The change in law firms introduced a possible point of failure in communication and understanding that requires extra effort to overcome.  If you’re one of these lawyers, and you think you know the answer to how the ESI was processed, and don’t relish having to go back to the previous law firm to find out for sure, it’s easy to see how sticking with what you think you know would feel more comfortable; it also might look like the path of least resistance. 

On the other hand, the mere fact that the ESI was in an Introspect database necessarily implies that there’s something more than mere TIFF images there.  I know that, lots of litigators know that. However, lots of litigators don’t know this – but by now they should. 

What are the lessons to be learned from this?

One.  If you don’t know, ask.  In a large firm like Reed Smith, that doesn’t even require asking someone external who might charge fees.  This firm has a group of practice management and litigation support personnel who know this stuff cold.  If you’re in a firm that doesn’t have these internal resources, there are plenty of consultants out there to help you.

Two. If electronic discovery is not your forté, whatever you think you know may not be correct.  On top of which, you don’t know what you don’t know.  You may vaguely recall having heard that electronic data was made ready for review and production by printing it and then scanning it.  If your memory is anything like mine, you might think you heard this two years ago when it was really twelve years ago.  Technology changes dramatically in a matter of months, not years. 

Three.  Never make an assertion or representation to the court – or to opposing counsel – that turns out not to be true if you do not have a solid good faith reason for believing it to be true at the time you assert it.  Suppositions and assumptions are unacceptable. 

Four.  A little knowledge is a dangerous thing.  Too many lawyers only have a little knowledge.  This episode shows how all too many lawyers know just enough about electronic discovery, in snippets and disconnected fragments, to be dangerous – mostly to themselves.  What was the purpose of going through these gyrations of trying to produce images stripped of all metadata anyway?   There’s an urban myth among lawyers that if they produce native files with metadata, the other side’s going to find some nugget in there – whatever “there” is —  that’s going to set off a whole string of calamities starting with losing the case, then losing the client, then losing a malpractice lawsuit, then followed by hail, frogs, locusts, and so on.

The defendant had specified in its RFP that it wanted the plaintiff to produce “such information, without deletion or alteration of meta-data, in its native form.”  If you receive an RFP phrased like this and you’ve got a concern about it, find out from people who know what these words mean

  • what are legitimate concerns,
  • what are unfounded concerns,
  • what might be possible resolutions,

and then work it out in the meet and confer.  There’s the kind of metadata that is essential for meaningful review and production of data.  And there’s the kind of metadata that simply adds to the information overload that you don’t want to have to review prior to production and the other side doesn’t really want to have to look at if you do produce it to them. 

Can we not get over this metadata bogeyman, already? 

Some things aren't as frightening as they first seem

Some things aren't as frightening as they first seem

Discovery disputes are bad enough.  Discovery disputes arising from fear of the unknown are worse.  They’re worse because they’re totally avoidable with some real education, with some help from resources either inside the law firm or from the consulting community, and with some reasonable discussions with the other side.

Five.  About the words “some real education” just mentioned.  One-hour lunchtime CLE’s obviously haven’t gotten the job done.   Judge Shira Scheindlin, of Zubulake fame, has been quoted that e-discovery now just means discovery.  She exaggerates, though not by much, to make a serious point.  As Browning Marean, Tom O’Connor, and Ralph Losey discussed in Ralph’s recent “New Tonight Show” post on his blog (here), discovery of written material is now almost entirely e-discovery,  unless you’re litigating the Louisiana Purchase.   For a more detailed discussion of the ethical implications of e-discovery competence or lack thereof, and the need for much more lawyer education and training, go to these two other posts on Ralph’s blog, here and here.

Closing thought.  Three years ago, another judge from the same District Court got us laughing from coast to coast with his creative resolution to another discovery dispute.  He ordered counsel to settle it by “Rock, Paper, Scissors” on the steps of the federal courthouse in Tampa[iii]. 

That case: funny.  This case: not so funny.

 

 

 

 


[i] Discussed in my article rocks-and-hard-places-march-2008.

[ii] Craig Ball, The Train’s About to Depart, Law Technology News, June 2006, at 44.

[iii]  Avista Management v. Wausau, 05-cv-1430, June 6, 2006, Presnell, USDCJ.  Copy here.


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.


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.