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The eDiscovery Paradigm Shift

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Wednesday, May 28, 2008

Proactive eDiscovery should be at the top of Enterprise Hierarchy of Needs

It appears that the debate over the importance of proactive eDiscovery isn't going to linger in perpetuity like the 60 year debate over how Maslow's Hierarchy of Needs pertains to the Enterprise or the other well know corporate decision about whether to stock Coke or Pepsi.

According to The Radicati Group, the total email archiving market (including both on-premises archiving solutions and hosted archiving services) reached almost $1.3 billion by the end of 2007, and should grow to over $6 billion by 2010. Other analysts such as Gartner and Forrester show similar trends.

However, there are still some in the industry that are contending that the enterprise still has time to investigate and move forward at a more measured approach based upon the potential risks (e.g. sanctions and potential losses due to the costs associated with reactive eDiscovery).

As an example, in an article titled "Driving Toward Cost-Effective E-Discovery", by Jeffrey Beard, published in the May 2008 issue of InsideTech, Mr. Beard contends that well thought out processes and procedures may be a sufficient remedy in the short term. And, although I agree 100% that top down driven enterprise wide process and procedure are a necessary component for success, proactive eDiscovery technology needs to be at the top of every enterprise list for implementation in the 2008-2009 time frame. With costs plummeting and sophistication increasing at an accelerating rate for email archiving, enterprise wide Electronically Stored Information ("ESI") achieving, off-site/online storage and all of the associated Litigation Readiness eDiscovery infrastructure, there is no longer any financial justification for any enterprise at any level to not have some type of proactive solution already implemented.

And, in light of the afforable proactive eDiscovery options, I am beginning to see the courts and juries less and less tolerant of enterprises contending that the costs of reactive eDiscovery is prohibitively high or too complex. As an example, Medtronics, having already invested millions just to retrieve and review documents, including vast amounts stored on backup tape, was stunned by a jury verdict of $570 million and learned a hard lesson about retaining too much electronic information. Morgan Stanley was ordered to pay $604 million in damages to an investor after it failed to produce e-mails in a fraud case, and Phillip Morris was ordered to pay court-imposed sanctions of $2.9 million for failing to comply with its own document retention policy.

Proactive eDiscovery is obviously not going to create the same debate as Maslow's Hierarchy of Needs. Nevertheless, it is always interesting to watch the enterprise drag its feet or reluctantly "Cross the Chasm" even in the face of overwhelming evidence that it must do so to just keep pace with the pack or worse yet face financial ruin.

The full content of Mr. Beard's thought provoking article titled "Driving Toward Cost-Effective E-Discovery" is as follows:

In the first 18 months after the enactment of the amended Federal Rules of Civil Procedure (FRCP), companies tend to be at various stages in their internal initiatives and overall litigation readiness. Some litigation-heavy industries have felt the sting more strongly, including pharma, health care, energy, insurance and financial, so many of the larger players in these markets have already established in-house litigation readiness programs, processes and procedures. Others have experienced several substantial matters involving electronically stored information, not as a routine, but more akin to intermittent fire drills upon which to test their readiness mettle.

When everything is added up, though, reactionary measures often cost more than proactive ones. Why? Because reactionary processes are at best ad hoc, generated on-the-fly as the need and urgency compels decision-makers at all levels, from the GC and CIO down to the paralegals and IT personnel charged with their execution. As we’ve seen in various reported cases, they introduce huge inefficiencies and costly mistakes, particularly in the areas of preservation, collection, and the timely and effective imposition of an internal legal hold. Also, not having a smoothly practiced and executed preservation/collection plan causes additional and very substantial costs to be incurred downstream, particularly during the most costly phase—review.

Those looking to more proactively increase their readiness have increasingly begun to turn to e-mail, content and records management. However, unless it’s a bet-the-company or other high-profile case, a floodgate-opening precedent or the promise of a stinging sanction, it often doesn’t make sense to write a blank check on e-discovery. The new rules introduced the concept of proportionality, balancing the costs of discovery with the potential monetary amount at issue. Indeed FRCP Rule 1, sometimes referred to as the mission statement of the new rules, tells us they “should be construed and administered to secure the just, speedy, and inexpensive determination of every action and proceeding.”

Inexpensive? The harsh reality is that the legal market isn’t there yet, not by a long shot. So where does it make sense to invest in litigation readiness and ultimately reduce your risks and associated costs? Naturally, it depends on your litigation and e-discovery risk, your company’s tolerance for those risks and the financial and human resources that can be applied. In-house legal departments tend to lack in one or both of the latter due to the regular push of business and financial pressures to keep head count reasonable.

Many companies already have defined processes in varying stages of development and execution, so the next logical step is to assess their inherent strengths and weaknesses—what has worked well and what hasn’t. From that analysis, you can determine your ongoing inherent risk as well as areas for improvement and additional investment. However, it can be challenging for in-house groups to have a truly objective perspective of their internal processes. Sometimes they are simply too close to the problem or, worse, are part of it, whether they realize it or not.

For example, where are the “black holes” in your internal collection efforts? Sometimes key things get overlooked when the professionals tasked with these efforts have conflicting priorities and workloads. These problems are further compounded by miscommunication and changing expectations due to the matrix nature of cross-functional groups.

This is where it often pays dividends to bring in the broader perspective of an outside litigation readiness consultant who will take a more objective and comprehensive approach. Organizations can then use their recommendations to address the highest risk areas first, coupled with best practices derived from working with similarly situated organizations.

E-mail still remains one of the highest risk areas, and worthy of further efforts. While tools exist to help with collection, review and early assessment, those tools are most effective when you have implemented effective processes and procedures within your organization. For instance, do you have policies which allow the creation of separate e-mail archives on each user’s local computer hard drive? These are often referred to as PSTs for Microsoft Outlook and NSFs for Lotus Notes. Having these additional custodian repositories can vastly drive up the cost and complexity of your litigation readiness and response to requests, with additional preservation, collection, deduplication, search and review requirements. Do you have consistent auto-deletion periods for all custodians or defined classes of custodians? As e-mails can also become business records, are your e-mail system policies tied to your records management policies? The more consistency you have across your systems and policies, including in their execution by users and administrators alike, generally the better your overall defensibility.

Recent case law addressing e-discovery-related issues suggests that among the greatest risk areas are the timely and effective imposition of a litigation hold and the resulting successful identification, preservation and collection of all relevant e-mail and other data. A number of organizations are still doing legal hold notices the “old fashioned way”—e-mailing notices to identified or potential custodians.

While leading e-mail systems allow for sending delivery and/or read receipts from the intended recipients, further automation support is likely required to consistently address tasks such as custodian follow-up and tracking, auditing and reporting the statuses for interviews, collections and ongoing preservation efforts. There are a growing number of third-party systems which address some or all of these needs, while some companies have turned to their internal technology professionals to build them instead. This is a key area in which to involve a qualified litigation readiness consultant, who can help identify your specific needs, assimilate the requirements for inclusion in RFIs and RFPs and work with outside system providers and your IT professionals to select the solution best matched to those needs.

For organizations looking for better ways to achieve their goals with limited resources, these are key steps that can lead to meaningful improvements and substantial reductions in their overall risk and cost. The important thing to keep in mind is that the solution is not a product, but a well-designed and defined process supported by good documentation, engaged and motivated people, and training, practice and automation where needed.

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