eDiscovery Isn't for Rookies or Amateurs

The courts are starting to weigh in with mini "landmark" decisions and as a result, the financial stakes in eDiscovery are really ramping up.  A recent decision from the U.S. Court of Appeals for the District of Columbia Circuit affirms an order requiring a nonparty to spend $6 million (In re Fannie Mae Securities Litigation, 552 F.3d 814 (2009)) to comply with an eDiscovery subpoena even though it is obviously overly burdensome (in this case 9% of the parties operating budget) and way outside the principles set forth by the The Sedona Principles Addressing Electronic Document Production, Second Edition (June, 2007).

In some respects this case doesn't seem at all fair (an interesting and elusive term in litigation) but in other respects it "draws a line in the sand" indicating that eDiscovery isn't for rookies or amateurs, mistakes cannot be always be taken back and that there are consequences for your actions (sounds like a lecture that I would give to my 8 year old son). 

It will be interesting to see how this all unfolds.

My favorite Blog posting on this topic comes from Ralph Losey in a posting in early January 2009, titled, "D.C. Appeals Court Affirms Order Requiring a Non-Party to Spend $6 Million, 9% of its Total Annual Budget, to Comply with an e-Discovery Subpoena",  on his always entertaining and informative Blog eDiscovery Team.

Mr. Losey does a great job of explaining why this case goes too far and punishes the wrong people.

The full text of Mr. Losey's post is as follows:

Appellate courts do not often weigh in on e-discovery issues, but when they do, it is a big deal. The United States Court of Appeals for the District of Columbia did so on January 6, 2009, when it issued an opinion on e-discovery and sanctions. In re Fannie Mae Securities Litigation, _ F.3d _, 2009 WL 215282009, U.S. App. LEXIS 9 (D.C. App. Jan. 6, 2009). Typically, I would be glad to have a Circuit Court opinion on e-discovery. Not so here.

Unfortunately, In re: Fannie Mae Securities Litigation sets a troubling precedent in favor of enforcing exorbitant e-discovery costs. In this case, the Office of Federal Housing Enterprise Oversight (”OFHEO”), was required to spend six million dollars, representing nine percent of its total annual budget, just to comply with a subpoena for electronic documents. Although OFHEO clearly had relevant information to the multidistrict litigation against the Federal National Mortgage Assn. (”Fannie Mae”) and the Federal Home Loan Mortgage Corp. (”Freddie Mac”), they were not a party to the litigation. This fact, coupled with the high expense involved in an over-broad e-discovery request, did not seem to concern the court, which is why this decision is troubling.

Why Fannie Mae Is Dangerous Precedent
The Appellate Court in the opinion written by Circuit Judge David S. Tatel rejected with little discussion the argument that the respondent should not have been compelled to comply with the subpoenas without considering the costs of compliance, cost shifting, narrowing the scope of production, or showing good cause to retrieve inaccessible data. Id. at *7. The Circuit Court did not even address the merits of these arguments, but, instead, basically said it was too late, you “agreed” to it, so now you are stuck with it regardless of the costs and consequences. For this reason, Fannie Mae should be strictly limited to situations where the parties have knowingly consented to an order they later fail to follow.  Here is the language of the Court:
Federal Rule of Civil Procedure 45 requires courts to safeguard non-party subpoena recipients from significant expense resulting from compliance. See Watts v. SEC, 482 F.3d 501, 509 (D.C. Cir. 2007). According to OFHEO, the district court violated Rule 45 by compelling compliance without considering cost-shifting, narrowing the scope of the requests, or “find[ing] that defendants demonstrated good cause for forcing OFHEO to retrieve its inaccessible data.” Appellant’s Opening Br. 31-32.

Whatever the merits of these claims, OFHEO abandoned them by entering into the stipulated order. Indeed, OFHEO’s trial counsel agreed to the stipulation in the middle of a hearing scheduled for the very purpose of considering OFHEO’s objections to the subpoenas. Had OFHEO wanted review of the district court’s initial order to compel compliance with the subpoenas, it could have completed the hearing and attempted to convince the court to re-consider. Failing that, it could have defied the adverse ruling and appealed any ensuing contempt finding. See U.S. Catholic Conference, 487 U.S. at 76. Instead, it chose to sign the stipulated order, which ended the hearing and unquestionably settled the discovery dispute. Having stipulated to a schedule for complying with the subpoenas, OFHEO can hardly complain now about being held to its agreement.

The opinion should be limited to the “unusual” facts of the case. But, since the decision itself did not take pains to do so, the door is open for Fannie Mae to be exploited and cited to try to require parties and non-parties alike to incur excessive e-discovery expenses. I do not think that is what the appeals court had in mind, they were obviously just trying to uphold the lower court’s discretion, but that is the net result. As a consequence, other courts will have to deal with this precedent for years. I expect they will do so by carefully distinguishing and limiting the holding to the facts of the case.

Electronic discovery costs are a runaway train that must be stopped. This new opinion sets dangerous precedent making that task even more difficult than it was before. Certainly courts will distinguish and limit the case, but it is still a problem because many parties requesting e-discovery may try to inflate its importance to support outrageous demands.

Fannie Mae Shows Zero Tolerance For Common “Rookie” e-Discovery Errors
Even when limited to its facts, Fannie Mae is still dangerous because, like it or not, the facts presented are not all that unusual. When it comes to e-discovery, most lawyers are still struggling beyond their depth. It is not that uncommon for trial counsel to enter into agreements for search and production of electronic documents without first understanding its possible costs and burden. They also rarely understand how long it takes to review and produce gigabytes of data, nor do they know much if anything about modern search technologies. It is also not uncommon for generalist litigators to later make things worse with an “old-school” type fight-everything attitude and a series of  too little, too late, productions.

This is just what happened here. In the midst of a hearing, trial counsel agreed to restore backup tapes, search them using plaintiffs’ terms, and then produce all email and attachments that were not privileged. Obviously the attorney did not intend by this agreement to assume a $6 Million Dollar burden, nor did the client authorize their attorney to do so. How can you have a six million dollar agreement without a “meeting of the minds?” Yet, the district court keeps coming back to that agreement, made in the midst of a hearing, as the justification for requiring a non-party to spend 9% of their total annual budget to comply with a subpoena. The Circuit Court then upheld the decision as within the very broad discretion allowed to a district court to manage discovery. They did so without any comment or reaction as to the injustice of imposing this kind of e-discovery cost and burden.

This case sends a very strong message to the Trial Bar to be very careful about what they agree to in a midst of a hearing. It shows that they should never agree to anything concerning e-discovery without first consulting with an e-discovery specialist, preferably one who is part of a larger tech/law e-discovery team. In fact, this case clearly demonstrates that an e-discovery lawyer (if you can find one) should attend every discovery hearing.

Trial lawyers, no matter how smart and skilled they may be, are not qualified to swim in these waters alone. Fannie Mae shows just how dangerous these waters can be. You may think something can be done fairly easily and inexpensively, and later be shocked to learn that it will cost millions, and take months, or even years to do. Apparently the trial judge did not understand how common a mistake this is. I am confident that if the government lawyers for OFHEO had had an experienced e-discovery lawyer with them at the first hearing, they would not have stipulated to the order they did, and all of the disasters that followed could have been avoided. But they did not, and as a result, they were bushwhacked.

The requesting parties here were allowed to specify 400 keywords, which, not too surprisingly (to us anyway), returned over 660,000 emails and attachments. By the way, does anyone seriously think that the plaintiffs suing Fannie Mae and Freddie Mac will now actually review all of these emails? No way! They will cull it down and only review a small percentage, which is exactly what the government should have done. I am willing to bet that most of the 660,000 emails produced will have little or no probative value. Like most cases, it will probably come down to a few hundred key documents, and maybe a few thousand more of some interest (to the attorneys). At the end of the trial, the jury will only remember four or five. This kind of forced production of 660,000 emails is irresponsible over-kill on a vast scale. It is infuriating because we, the American taxpayers, are forced to underwrite this fiasco.

It gets worse. The obviously over-broad search terms retrieved approximately 80% of all of the agencies email. Yet, this did not seem to trouble the district court, nor the appeals court, who actually stated that the 80% return “figure may simply indicate that most of the emails actually bear some relevance, or at least include language captured by reasonable search terms.” Id. at *6.  Do they really think that 80% of the agency’s total email is relevant to the case? Obviously they have never read a large email collection before. The statement is incredible. As to the later explanation - “or at least include language captured by reasonable search terms” - the logic is meaningless and circular. Of course all of the emails retrieved contained one or more of the 400 search terms. That is why they were retrieved! How does that make them “reasonable” search terms?

In re: Fannie Mae Securities Litigation arguably stands for the proposition that if you agree to an e-discovery production, you may well be bound to your agreement, even if the agreement later proves to make no sense and the client has to go broke in the process. This is dangerous precedent. No one should be required to spend outrageous sums of money to comply with a subpoena, no matter what their lawyer may have said or done. Six Million Dollars, representing 9% of a governmental agency’s budget, is too high a burden to place on a party to litigation, much less a non-party. The principles of proportionality and Rule 26(b)(2)(C) should trump and prevail over any agreements inadvertently made by legal counsel.  No wonder the government is going broke, just like many of the homeowners that Fannie Mae and OFHEO were supposed to protect. 

Six Million Dollars
The district court later interpreted the stipulation that OFHEO’s attorney had made  in the middle of a hearing to allow the requesting parties to specify any search terms they wanted; so they did. They specified 400 keyword terms which returned over 660,000 documents. Even though the government lawyers clearly did not understand what they had agreed to, they went ahead with the search and spent $6,000,000 in the process. Another big mistake. They should have tried to get relief first before spending the money. If that was refused, they still should have refused to spend $6,000,000. Instead, as the appellate court later recommended, they should have “defied the adverse ruling and appealed any ensuing contempt finding.” The bottom line is, once you spend the money on e-discovery, it is very hard to get it back. Unless you have specifically reserved the right for cost shifting, and sometimes even when you do, there is no money back guarantee.

You may well wonder how they managed to spend $6,000,000 to comply with a subpoena. As is typical, the main costs were for privilege review. Here is the language of the appellate court:
OFHEO undertook extensive efforts to comply with the stipulated order, hiring 50 contract attorneys solely for that purpose. The total amount OFHEO spent on the individual defendants’ discovery requests eventually reached over $6 million, more than 9 percent of the agency’s entire annual budget.

One would think at that point the courts would give the agency a break. But no, the government lawyers had made a series of promises to the court that they did not keep, mainly as to when the review would be completed and the emails produced. There are consequences for such failures. Unless you have done big projects like this before, it is unbelievable how long review can take and how many things can, and do, go wrong. Delays are inevitable and should be anticipated. They should enter into the calculus as to when a project can be completed and production made.

Clearly the government lawyers were once again making promises and representations to the court without the assistance of an experienced e-discovery lawyer. They made promises they could not keep and did not give adequate explanations for the delays. They also failed to cooperate and make rolling productions. Instead, they produced nothing at all while the contract lawyer review expenses kept going through the roof. To the district court judge, who almost certainly was never involved in a large e-discovery project before appointment to the bench, it looks like a series of broken promises and downright contempt. I do not know what happened here, but it was probably a series of mistakes and miscalculations, not intentional defiance of the court.

Regardless of the true cause, some of the the courts in Washington have obviously grown tired of lawyers making promises and commitments that they do not keep. They wanted to send a message that their actions would not be tolerated, and that is exactly what they did. Here is the language of the district court explaining the situation at *3:

*3 On November 29, 2007, the day before an interim deadline for production of several categories of material, OFHEO informed the district court that it would be unable to meet that deadline and moved for an extension until December 21, assuring the court that it could meet that extended deadline. The court granted the motion, but two days before the extended deadline, OFHEO informed the court not only that its previous assurances had been based on insufficient data, but also that it had only recently hired the necessary number of contract attorneys. OFHEO told the court that it would be unable to comply with the extended interim deadline, and that although it could produce all non-privileged documents by the ultimate January 4, 2008 deadline, it would be unable to produce all the required privilege logs until February 29.

The individual defendants renewed their motions to hold OFHEO in contempt. On January 22, the district court granted the motions. The court recognized OFHEO’s efforts at compliance, but deemed them “not only legally insufficient, but too little too late,” stating:

[T]he Court is cognizant of the large number of attorneys, contract attorneys, and OFHEO personnel working to comply with the subpoenas and the resulting costs of this compliance. Nevertheless, OFHEO has treated its Court-ordered deadlines as movable goal posts and has repeatedly miscalculated the efforts required for compliance and sought thereafter to move them.

OFHEO was held in contempt of court, as punishment they would not only have to pay for everything, with no hope of cost-shifting, but they would be required to produce some 20,000 emails without advance privilege review. The production was to be made on an “attorneys-eyes-only” basis, and a chance to later assert the unique kind of government privilege at issue here, the “deliberative process” privilege, but still, opposing counsel will be allowed to see all.

Here is the appellate court’s explanation:
[T]he district court directed the office to provide the actual documents withheld on the basis of the deliberative process privilege and not logged by the deadline. The district court described the sanction as “designed to move the [d]iscovery process forward and to allow for [a] more targeted, and therefore more truncated, privilege litigation process.”Hr’g Tr. at 26 (Jan. 22, 2008). The district court therefore specified that the compulsory disclosure would not waive the privilege with respect to further disclosure; directed that the documents be provided only to individual defendants’ counsel; and created a mechanism for OFHEO to recover documents found to be privileged.

I am not troubled by the privilege sanction. It stops short of a waiver and it appears that OFHEO deserved this counter-measure to make up for its many prior delays.

The part of this decision that astounds and disturbs me is the affirmance of the propriety of requiring a non-party to spend 9% of its total budget to comply with a subpoena, simply because their attorneys blindly agreed to comply without considering the cost of compliance. Here is how the Appeals Court explains its holding at *8:

*8 District judges must have authority to manage their dockets, especially during massive litigation such as this, and we owe deference to their decisions whether and how to enforce the deadlines they impose. See Berry v. District of Columbia, 833 F .2d 1031, 1037 n. 24 (D.C.Cir.1987). Though we recognize OFHEO’s strenuous efforts to comply, the district court found them to be “too little too late,” Hr’g Tr. at 19 (Jan. 22, 2008), and determined that the office’s compliance was inadequate, id. at 21. In making this assessment, the court placed great weight on the long history of the discovery dispute and on OFHEO’s repeated requests for extensions, ultimately concluding that OFHEO had requested one extension too many and that strict enforcement of its deadline was warranted. Given the district court’s intimate familiarity with the details of the discovery dispute, the scale of the production requested, and the progress of the multidistrict litigation as a whole, we are ill-positioned to second-guess that assessment. Were we on this record to overturn the district court’s fact-bound conclusion that OFHEO dragged its feet until the eleventh hour, we would risk undermining the authority of district courts to enforce the deadlines they impose.

Conclusion
I understand the importance of district court discretion, enforcing deadlines, and not second-guessing discovery calls. I am in favor of that. Also, I have often called for judges to get tough and stop allowing all of the “hide the ball” games. On the whole, I think judges have been far too tolerant of attorney misconduct. But, this case goes too far and punishes the wrong people. A government agency has been unfairly punished for conduct of their legal counsel. In the process, the second of the fourteen Sedona Principles has clearly been breached:

2. When balancing the cost, burden, and need for electronically stored information, courts and parties should apply the proportionality standard embodied in Fed. R. Civ. P. 26(b)(2)(C) and its state equivalents, which require consideration of the technological feasibility and realistic costs of preserving, retrieving, reviewing, and producing electronically stored information, as well as the nature of the litigation and the amount in controversy.

A non-party should never be required to spend $6 Million to comply with a subpoena. Moreover, by requiring OFHEO to restore and search its disaster recovery backup tapes, the requesting plaintiffs and the courts also violated the eighth Sedona Principle:

8. The primary source of electronically stored information for production should be active data and information. Resort to disaster recovery backup tapes and other sources of electronically stored information that are not reasonably accessible requires the requesting party to demonstrate need and relevance that outweigh the costs and burdens of retrieving and processing the electronically stored information from such sources, including the disruption of business and information management activities.

This case demonstrates what can happen when these fundamental precepts are not followed. It cannot be fair and just to allow a lawyer’s actions to drain 9% of an agency’s total annual budget, a budget paid for by taxpayer funds. Congress did not approve OFHEO’s budget last year thinking that 9% of it would go to help a group of plaintiffs sue Fannie Mae. The appellate court, and the district court before it, should have made an economic analysis of the situation in reaching its decision and considered the gross inefficiencies of its ruling.

I understand the need to affirm trial court discretion, but the appeals court could have upheld the authority of the lower court and still mitigated the economic impact of this ruling in some way. For instance, it could have allowed for possible cost-shifting. At the very least, the appeals court should have carefully limited its holding and expressed some abhorrence of the burden imposed. It should have considered the possible impact of this ruling on the future jurisprudence of e-discovery. It did not. It went too far, just as the pendulum was beginning to swing the other way. The economy and fair minded judges everywhere will no longer tolerate this kind of excess. For this reason, I predict that Fannie Mae will come to be seen as the high-point of out-of-control e-discovery spending. It will be all downhill from here, especially if we can muster up the competence and cooperation needed to make it happen.


H. Christopher Boehning and Daniel J. Toal posted an outstanding overview of this case and the associated issues on the LAW.com Legal Technology site  in an article titled, "D.C. Circuit Delivers High-Cost EDD Lesson".  Mr. Boehning and Mr. Toal presented a message of caution indicating that agreements should be carefully negotiated and counsel should not agree to unmitigated keyword searches without reserving the right to negotiate search terms and without waiving the right to pursue cost shifting.  This is indeed sage advise as eDiscovery isn't for rookies or amateurs.
The full text of the article is as follows:

A recent decision from the U.S. Court of Appeals for the District of Columbia Circuit affirms an order requiring a nonparty to spend $6 million (9 percent of its annual operating budget) to comply with an e-discovery subpoena.

Litigators overseeing discovery know they must assess a client's documents, and particularly a client's electronic documents, at the outset of discovery. Estimating the resources necessary to collect and produce electronically stored information is a vital role of counsel today. Without such advance knowledge, lawyers may be blindsided by unexpected burdens and time pressure in the production process.

The D.C. Circuit's ruling in In re Fannie Mae Securities Litigation, 552 F.3d 814 (2009), highlights the importance of counsel understanding issues related to e-discovery, and the potential scope of that discovery, before entering into any type of agreement governing the future conduct of discovery in the case.
The circuit was unwilling to entertain an argument that the burden on a nonparty was too high to be reasonable once the nonparty had entered a stipulated discovery order. In particular, the court had little sympathy for the argument that the keyword search suggested by the requesting party resulted in an overwhelming number of documents, many of which surely would be of little probative value.[FOOTNOTE 1]

In re Fannie Mae upheld a district court order holding a third party in contempt and imposing sanctions for that party's failure to comply with a stipulated discovery order. The Office of Federal Housing Enterprise Oversight was the government agency charged with regulating the Federal National Mortgage Association (Fannie Mae).[FOOTNOTE 2]

In 2003, OFHEO opened a special review of Fannie Mae's accounting and financial practices, and concluded that the enterprise "had departed from generally accepted accounting principles in order to manipulate its reported earnings and inflate executive compensation."[FOOTNOTE 3] This report led to several private civil actions against Fannie Mae, its senior executives and others. These actions were consolidated into multidistrict litigation in the U.S. District Court for the District of Columbia.

During discovery, three individual defendants who were senior executives at Fannie Mae subpoenaed nonparty OFHEO, pursuant to FRCP 45(c)(2)(B)(ii), seeking records OFHEO had collected in preparing its investigation report. The district court denied OFHEO's motion to quash and ordered compliance. After receiving two separate one-month extensions in the summer of 2007, OFHEO reported to the district court that it had produced all documents requested. During a 30(b)(6) deposition, OFHEO admitted it had failed to search all of its off-site disaster recovery backup tapes. In response, the requesting parties moved to hold
OFHEO in contempt.

Following the first day of the contempt hearing, OFHEO and the requesting parties "entered into a stipulated order that held the contempt motions in abeyance and required OFHEO to conduct searches of its disaster-recovery backup tapes and provide all responsive documents and privilege logs by Jan. 4, 2008 [a date less than three months from the hearing]."
In language central to the D.C. Circuit opinion, the stipulated order's fifth paragraph stated:

OFHEO will work with the Individual Defendants to provide the necessary information (without individual document review) to develop appropriate search terms. By October 19, 2007, the Individual Defendants will specify the search terms to be used.

Pursuant to the stipulated order, the individual defendants submitted over 400 search terms, which returned 660,000 documents (approximately 80 percent of the offices' e-mails). Of the 400 search terms, 150 contained wild-card characters. One such search term alone, "*le percentann percent*" returned all documents containing such words as "Fannie," "annual," "loans," "plan" and "meaningful." The terms captured clearly irrelevant documents such as e-mails between spouses forwarding family photographs and an e-mail exchange in which two spouses are contemplating a holiday cruise.[FOOTNOTE 4]

OFHEO objected on the grounds that paragraph five "limited the [requesting parties] to 'appropriate search terms.'" The district court disagreed and held that the agreement left the search terms in the sole discretion of the requesting parties and provided no limitations on those terms.
Indeed, according to the circuit, the only limit to the right of the requesting parties to designate search terms under the agreement is "the general contractual duty of good faith and fair dealing." Thus, a request for "every word in the dictionary would have been in bad faith and invalid."

Despite the breadth of the search terms and the large number of documents returned, the circuit found that this large figure "may simply indicate that most of the emails actually bear some relevance, or at least include language captured by reasonable search terms." But by this circular logic, any search list would be valid because all the documents retrieved contained the search terms -- that's how they were retrieved.
This actually reveals nothing about whether these search terms were "appropriate" (as OFHEO argued was required by the contract language) or "reasonable" (as apparently read into the contract by the circuit) or whether the mass of documents returned actually have probative value in the multidistrict litigation.
The focus on the language of the stipulated order highlights the importance for practitioners of negotiating these terms in advance. Agreeing that the requesting parties could designate search terms opened the door for the designation of broad and far-reaching search terms. If counsel had fully appreciated the possible problems with a large search request, perhaps the stipulated order would have been drafted to offer OFHEO some protection against such burdens.

NO EXCUSE DELAYS
On Nov. 29, 2007, the day before an interim deadline for production of several categories of material, OFHEO informed the district court that it would be unable to meet that deadline and moved for an extension until Dec. 21. The court granted the motion, but two days before the extended deadline, OFHEO informed the court that it would be unable to comply with the extended interim deadline, and that although it could produce all non-privileged documents by the ultimate Jan. 4, 2008, deadline, it would be unable to produce all the required privilege logs until Feb. 29.

OFHEO hired 50 contract attorneys and incurred over $6 million in expenses (more than 9 percent of the agency's entire annual budget). Despite the high costs and "extensive efforts" undertaken by OFHEO, the district court found that its efforts were "not only legally insufficient, but too little, too late."
Moreover, the district court admonished OFHEO for "treat[ing] its court-ordered deadlines as movable goal posts and ... repeatedly miscalculat[ing] the efforts required for compliance and [seeking] thereafter to move them." For this reason, the court held OFHEO in contempt.

As a sanction, the district court ordered production of all documents withheld on the sole basis of qualified deliberative process privilege and not logged by the Jan. 4, 2008, deadline. The court ordered that these documents would be produced only to counsel and that the production would not waive privilege.
OFHEO also argued that the contempt finding was an abuse of discretion because the district court compelled compliance without considering cost-shifting, narrowing the scope of the requests, or finding that defendants demonstrated good cause for forcing OFHEO to retrieve its inaccessible data.
The circuit was unsympathetic, holding that OFHEO waived these arguments by entering into the stipulated discovery order. If OFHEO wished to pursue these arguments, the circuit suggested that OFHEO should have continued the hearing scheduled to consider the subpoenas, and if the district court nonetheless compelled production, OFHEO could have "defied the adverse ruling and appealed any ensuing contempt finding."

In response to OFHEO's argument that it substantially complied with the order, the circuit stated that "[w]ere we deciding this matter in the first instance, we might not have held OFHEO in contempt." However, the circuit could not find that the district court had abused its discretion, given "even two and a half weeks after the final deadline set forth in the stipulated order, OFHEO had produced just six of the required thirty-one privilege logs. Not until after the district court held OFHEO in contempt did it provide the remaining logs, and according to the individual defendants even these are incomplete."
The district court had also noted producer's repeated extension requests, "ultimately concluding that OFHEO had requested one extension too many and that strict enforcement of its deadline was warranted."

CONCLUSION
In re Fannie Mae serves as a cautionary tale to all practitioners faced with discovery demands. Agreements should be carefully negotiated and counsel should not agree to unmitigated keyword searches without reserving the right to negotiate search terms and without waiving the right to pursue cost shifting.
If the producing party cannot reach a fair agreement with the requesting parties, nonparties may be better served by refusing to comply with subpoenas until the court considers the burdens and rules on cost-shifting rather than entering into broad agreements.
H. Christopher Boehning and Daniel J. Toal are litigation partners at Paul, Weiss, Rifkind, Wharton & Garrison. Joanna L.W. Trachtenberg, an associate at the firm, assisted in the preparation of this article.

::::FOOTNOTES::::
FN1 The High Court in the United Kingdom has also been unsympathetic to the complaints of parties that electronic discovery would impose high costs. In Digicel (St. Lucia) Ltd v. Cable & Wireless PLC, [2008] EWHC 2522 (Ch) (Oct. 23, 2008), the court found that despite an expenditure of over two million pounds and 6700 hours of attorney time, the producing party would be required to do a further production after failing to properly meet and confer about electronic discovery prior to collecting documents.
FN2 OFHEO has since been succeeded by the Federal Housing Finance Agency.
FN3 In re Fannie Mae Sec. Litig., 552 F.3d at 816.
FN4 Brief for Appellant United States Office of Federal Housing Enterprise Oversight (Aug. 5, 2008) at 13; Status Report of OFHEO's Production and Request for Forbearance of Interim Deadline by Office of Federal Housing Enterprise Oversight (Nov. 29, 2007) at 2-3.

Labels: eDiscovery, In re: Fannie Mae Securities Litigation, Key Words, Sanctions, Sedona Conference, Spoliation

posted by Charles Skamser @ 9:18 AM 0 Comments

Concept Search Case Law Emerging

In a followup to my post regarding my investigaiton of a SaaS based conceptual search technology for the eDiscovery market: http://ediscoveryconsulting.blogspot.com/2008/05/in-search-of-integrated-conceptual.html, I came accross an interesting article on the Law.com site by Leonard DeutchmanPennsylvania Law Weekly titled "When E-Discovery Is Put to the Test, Will federal rules on expert testimony govern admission of search engine results?".

This outstanding article discusses the issues of how the courts view search technology in light of Disability Rights Council v. Washington Metropolitan Transit Authority, 242 F.R.D. 139 (D.D.C. 2007) and United States v. O'Keefe, 537 F. Supp. 2d 14 (D.D.C. 2008) and Equity Analytics v. Lundin, 2008 U.S. Dist. LEXIS 17407 (D.D.C. Mar. 7, 2008).

Please note that I am still evaluating search technology and will post my finding as soon as I have completed my investigations. However, I felt as though this article raised so many pertinent and timely issues that I wanted to post it before my findings were complete.

The fulll article is as follows:

An influential federal district judge whose opinions on e-discovery are well respected may have set e-discovery on a path toward its most searching scrutiny yet.

In Disability Rights Council v. Washington Metropolitan Transit Authority, 242 F.R.D. 139 (D.D.C. 2007), Judge John M. Facciola recommended "concept searching," -- the use of complex search engines that make use of linguistic or statistical patterning to locate responsive e-mails and electronic -documents, in order for a tardy producer of discovery to wade through voluminous electronically stored information quickly. Interestingly, Facciola made no mention of whether the use of concept searching tools should be subject to Federal Rule of Evidence 702, which governs the admission of scientific or expert testimony.

Recently, however, in United States v. O'Keefe, 537 F. Supp. 2d 14 (D.D.C. 2008) and Equity Analytics v. Lundin, 2008 U.S. Dist. LEXIS 17407 (D.D.C. Mar. 7, 2008), Facciola held that any challenges to or defenses of search methodology in producing e-discovery must be scrutinized under Rule 702, and so ordered hearings under Daubert v. Merrill Dow Pharmaceuticals, 509 U.S. 579 (1993).

These rulings give rise to the question of what a Daubert hearing for an e-discovery search engine would look like.

HOW AND WHERE TO SEARCH
The first issue the court would address is how search engines search. The most direct approach is keyword searching, which take three basic forms:
Direct searching for keywords, e.g., "Locate all files with 'Jones.'"
Boolean searching, e.g., "Locate 'Jones' or 'Smith'," "Locate 'Jones' but not 'Smith,'" and other combinations.

Proximity searching, e.g., "Locate 'Jones' within 25 words of 'Smith.'" Often such searching is restricted by date range, e.g., "Locate all e-mails with 'Jones' created after January 1 but before July 1, 2007 only."

Concept searching, as has already been briefly discussed, takes a different approach. It targets information relating to a concept even if specific keywords are not present (e.g., a series of e-mails mentioning the words "Clinton," "McCain" and "Obama" would likely concern the 2008 U.S. presidential election, even if the phrase "presidential election" does not appear).

Some concept searching tools use "taxonomies" or "ontologies," that is, compilations of both commercially available data and data supplied by the client pertinent to the case collected from the lawyers and key players. Some concept searching uses linguistic analysis examining how the communicants discuss matters, while other approaches, such as "clustering" and "latent semantic indexing," use mathematical probabilities to determine whether a given file is related to a given concept. For an excellent discussion of concept searching, see "The Sedona Conference Best Practices Commentary on the Use of Search and Informational Retrieval Methods in E-Discovery."

A DIFFICULT HEARING
Regardless of which approach the search engine takes, the actual Daubert hearing will prove difficult for two practical reasons, both stemming from the fact that search engine applications are proprietary. First, it simply will be hard to get the designer to appear at the hearing to testify as to how the engine works. Second, the designer will fight giving the best evidence of the efficacy of the engine, that is, the engine's source code, because that code is proprietary. Should the code be revealed, the design would lose its value, as anyone could use that code without having to obtain a license (i.e., a copy of the application) from the designer.

Proprietary applications can be validated without their source code revealed, but only under certain circumstances. The easiest is where a specific positive finding needs to be corroborated. For example, if a proprietary forensic search tool such as Guidance Software's EnCase reports that a file is found at a particular location on a hard drive, an examiner can use an "open source" tool, i.e., a tool whose source code is known and which has been validated, to confirm the finding. Such corroboration, however, does not validate the search tool, only the result of the use of that tool at a particular time. To validate a proprietary tool generally using open source tools requires months of work, thousands of hours by highly experienced analysts, such as the FBI put in when validating EnCase. Of course, each time a new version of a tool comes out, more hours of validation are needed. Thus, while this means may be reliable, it is hardly practical.

A second means would be to use another proprietary tool -- say, Access Data's FTK -- to run the same search as EnCase performed and compare results. This method, however, is not truly scientific, since identical search results are just as likely to confirm that the two engines are identically flawed as they are reliable.

A third means to validate a proprietary search engine without revealing its code would be to search test data sets with known test results and which contain the types of data that the engine would search when regularly deployed. Comparing the results of the searches by the proprietary search engine to the known results should validate or invalidate the search engine. Again, however, such testing is extremely time-consuming and expensive. The designer would have to engage in such testing and publish its results; one could hardly expect the typical user of the search engine to engage in such studies.

As previously stated, the second Daubert hearing issue is where the searching was done. Specifically, the issue would be whether only the files actively stored on a hard drive, for example, were searched, or whether deleted files, temporary files or file fragments in the "unallocated space" of a hard drive were also searched. When ESI is gathered, unless bit stream, forensic images (i.e., exact copies of every 1 and 0 on a piece of media) are made, the deleted files, etc., will not even be present to search. To search for such ESI, forensic tools must be used. Thus, in United States v. O'Keefe, for example, the defendant challenged the government's search results for potentially exculpatory evidence in its possession by arguing that by not looking "everywhere" on the drive for deleted files or file fragments, the government had not fully discharged its duty to search everywhere.

The problem with searching "everywhere," however, is not so much a Rule 702 problem as a practical one: forensic searches of every possible file fragment take impossibly long, and if many hard drives and servers are involved, the impossible becomes unthinkable. O'Keefe, however, raises another issue, one far more interesting and conceptually difficult: for search engines, passing the Daubert test may depend upon whether one is trying to prove that something is there or that something is not there.

EVIDENCE AND ITS ABSENCE
Anyone who remembers examining scientific method when taking high school or college science classes will recall the question whether the absence of evidence that "x" is present means that "x" truly is not present or whether the test for finding "x" was simply insufficient. For example, while a PET Scan's positive finding for cancer is conclusive, a failure to detect cancer may mean the absence of cancer or that the PET Scan failed to detect cancer that was present.

Thus, the acceptance of a test as scientific proof under Daubert and Rule 702 is more likely when the test is to prove that something is present than absent. In Sanders v. Texas, 191 S.W.3d 272 (Ct. App. 2006), for example, the Texas Court of Appeals had no trouble affirming the trial court's findings that the expert's use of EnCase to create a bit stream, forensic image of the defendant's hard drive and his search of the drive to uncover child pornography -- both positive findings -- was scientifically valid. Since Encase's findings can be corroborated by a tool other than the proprietary one used, the validity of the imaging and search is much easier to establish.
In O'Keefe, Equity Analytics v. Lundin and the prototypical e-discovery matter, the typical challenge is the opposite of the typical challenge in a criminal matter: the requesting party's typical challenge to e-discovery production is not that it is inauthentic but that it is incomplete. The Daubert challenge in e-discovery cases is to prove that the search results yielded "everything."

If the search engine in question were an open-source tool, the challenge could be more easily met: the search engine's methodology would be open for all to test, and it would either work when searching test sets with known results or produce anomalies or mistakes. However, if the search engine is proprietary, proving the negative (it did not miss anything) by proving the positive (this is how it searches) is not available to the tool's proponent. The "third means" discussed above -- subjecting the search tool to known test data to see whether it missed any "hits" -- could work, but that means is extremely time-consuming, expensive and beyond the capability of the typical user.

THE MYTH OF PERFECTION
The Sedona Conference commentary provides an interesting method of "corroboration." It cites a study in which review attorneys, doing a "manual" review of discovery, were asked how much responsive data they were able to find. The attorneys guessed 75 percent, but a detailed analysis revealed that they had found only 20 percent. Using that study to illustrate what the Sedona Conference's commentary refers to as the "myth of perfection," i.e. that review attorneys slogging through e-documents and e-mails will catch responsive ESI that concept search engines will miss, the commentary makes the scientifically questionable but legally valid point that the validity of concept search tools must be determined by measuring concept search results against the actual results of review attorneys, not against results of a "perfect" search. If concept searching improves upon review practice as it now stands, it is a valid litigation tool.
In making its point, the Sedona Conference commentary returns to a touchstone of discovery practice: that when producing discovery, a "perfect review ... of information is not possible ... . The governing legal principles and best practices do not require perfection in making disclosures or in responding to discovery requests."

The Daubert challenge raised by Facciola, then, may be met not by judging the scientific validity of a search engine in an absolute way, but by judging how valid it is to suit the purposes of e-discovery production, an undertaking which involves many factors, such as the costs in time, money and energy to the producing party and their marginal benefit to the requesting party and the litigation, that have no bearing on the scientific validity of the search engine. In other words, the ultimate acceptance of an e-discovery search tool may be informed by its relative perfection but will ultimately depend, like so many other things in the law, upon the totality of circumstances.

Labels: Conceptual Search, eDiscovery, Rule 702, Seach Technology, Search, Sedona Conference

posted by Charles Skamser @ 6:43 PM 0 Comments

Legal Holds

Gregg Mayer posted the following quick article on Legal Holds inthe CIOLaw.org Blog in the Litigation Hold Section on February 18th, 2008. It provides a great foundation for understanding the subject of Legal Holds and provides links to extensive commentary from the Sedona Conference.

What’s a legal hold?
A legal hold is a communication throughout your company that all information that may be relevant to litigation must be preserved, including the outpourings and influx of hundreds of email messages. A legal hold is triggered when your company reasonably anticipates litigation.

No universal answer exists for when litigation is “reasonably anticipated.” It is a highly fact-intensive analysis. Generally, reasonable anticipation of litigation “arises when an organization is on notice of a credible threat it will become involved in litigation or anticipates taking action to initiate litigation,” according to The Sedona Conference Commentary On Legal Holds: The Trigger & The Process. The Sedona Conference is a popular and well-regarded think tank made up of judges, lawyers and academics who discuss issues of complex litigation.
Once triggered, a legal hold must be implemented efficiently. Failing to properly preserve ESI after litigation is reasonably anticipated may result in sanctions from a court, including an adverse jury instruction that whatever the company destroyed should be considered in the worst possible light against the company.

As explained by the Sedona Conference:
Once the duty to preserve information arises, an organization must decide what to preserve and how to accomplish that preservation. In some circumstances, the duty to preserve requires only that a limited number of known historical documents be located and preserved. In other circumstances, the scope of the information is larger and the sources of the information may not be known to counsel.

Knowing about legal holds, and having the capability to implement them quickly and seamlessly, is critical to being ready when your company faces legal trouble.

To read the complete Sedona report on legal holds: The Sedona Conference Commentary On Legal Holds: The Trigger & The Process.

Labels: Document Rentention Policy, Legal Holds, Litigation, Sedona Conference

posted by Charles Skamser @ 4:09 PM 0 Comments

The New Sedona Conference Principles

As inidicated in comments from my previous post regarding 26(f), The Sedona Conference has published a second edition of The Sedona Principles: Best Practices Recommendations & Principles for Addressing Electronic Document Production (June 2007), which is available via download at http://www.thesedonaconference.org/dltForm?did=2007SummaryofSedonaPrinciples2ndEditionAug17assentforWG1.pdf.

The Sedona Conference is a nonprofit group, created in 1997, to tackle complex legal (primarily litigation) issues.

The latest update is a product of Sedona Conference’s Working Group One, an informal, “minithink tank” established in 2002 to provide a forum for jurists, lawyers, experts, and academics to address emerging problems and “best practices” in e-discovery. From an initial membership of about 20, WG1’s roster has grown to several hundred members, including consultant Craig Ball (author of LTN’s Ball in Your Court column); Ariana Tadler, a partner at Milberg Weiss; and Jonathan Redgrave, of Redgrave Daley Ragan & Wagner, among others. I am a founding member of WG1 and served as one of the editors of the update.

The original 2004 version of The Sedona Principles established 14 e-discovery “principles.” The revision reflects the ramifications of the 2006 EDD amendments to the Federal Rules of Civil Procedure, and attempts to address the rule changes without compromising the perspective of the original document’s authors. Here are highlights:

PRESERVATION STANDARDS
The Sedona Principles continue to provide de facto national standards for preservation obligations.

Sedona Principle 5 provides that “reasonable and good faith efforts” are required to accomplish preservation, but it is “unreasonable to expect parties to take every conceivable step to preserve all potentially relevant data.” This standard is representative of the evolving case law and will continue to provide guidance, since the 2006 Amendments do not directly address preservation standards.

Thus, the landmark case of Zubulake v. UBS Warburg, 220 F.R.D. 212 at 217 (S.D.N.Y. Oct. 22, 2003) (”Zubulake IV”), relied upon the Sedona Principles for the proposition that “as a general rule … a party need not preserve all backup tapes even when it reasonably anticipates litigation.” Many courts have cited or specifically followed that holding.

The leading case of Cache La Poudre Feeds, LLC v. Land O’Lakes, Inc., 2007 WL 684001 (D. Colo. March 2, 2007), for example, carefully blends the teaching of the Sedona Principles with case law in order to resolve complex challenges to a litigation hold process.

ACCESSIBILITY OF ELECTRONIC INFORMATION
The 2006 FRCP amendments distinguish in rule 26(b)(2)B) between production from sources of electronic information that are reasonably accessible and those that are not, limiting production from the latter absent a showing of good cause in light of the burdens and costs involved.

The unique aspect of the 2006 amendments is that it makes the distinction self-executing. By and large, the post-2006 FRCP amendment cases use a media-based approach in deciding what is and is not “reasonably accessible.” Thus, backup tapes, databases, and, typically, hard drives are presumed to be inaccessible because of the costs of access, retrieval, and review. Local district rules or guidelines in district courts in Delaware, Kansas, and the Northern District of Ohio also help define accessibility. However, a pure focus on the storage media has its limitations. For example, direct access to fragments of information on hard drives in order to create a mirror image implicate the inaccessiblity standard despite the fact that the source — the hard drive — is accessible.

The initial version of Sedona Principle 8 provided a similar, but better approach; namely, that the primary source of information should be “active data” which is “purposely stored in a manner that anticipates future use and permits efficient searching and retrieval.”

The second edition retains the focus on “active data” but incorporates the “accessibility” concept to help define the types of information that require proof that the need and relevance outweigh the costs and burdens “including the disruption of business and information management activities.”

METADATA AND FORMS OF PRODUCTION
As part of the 2006 amendments, Rule 34 now provides that electronically stored information can be produced — absent agreement or a court order — in either the form in which it was ordinarily maintained or in a “reasonably useable” form. Neither the rule nor the FRCP’s “Advisory Committee Comments” address the circumstances under which metadata or embedded data must be produced in a particular case.

Sedona Principle 12 initially provided a presumption that “[u]nless it is material to resolving the dispute, there is no obligation to preserve and produce metadata absent agreement of the parties or order of the court.” After considerable discussion, Sedona Principle 12 was revised to provide a more nuanced view of the need for metadata. It now provides that the form of production should take into account “the need to produce reasonably accessible metadata that will enable the receiving party to have the same ability to access, search, and display the information as the producing party where appropriate or necessary in light of the nature of the information and the needs of the case.”

The comments to Principle 12 explain the advantages and disadvantages of particular forms of production with relationship to the impact of the choices on metadata.

COST SHIFTING
One of the hallmarks of the original Sedona Principles was the tacit adoption of the logic that mandatory costshifting shifts the incentives away from excessive requests for e-discovery.
However, given the reluctance of the FRCP’s advisory committee to adopt that approach in the 2006 amendments, Sedona Principle 13 now states that the costs of retrieving and reviewing information which is not reasonably available “may” (instead of “should”) be shared by or shifted to the requesting party.

CULPABILITY FOR SANCTIONS
The original version of Sedona Principle 14 recommended that sanctions should be considered only where “an intentional or reckless failure to preserve and produce” information exists.

Rule 37(f), on the other hand, adopted an “intermediate” standard of “good faith” as the measure of required culpability. Qualification for this relief involves proof that the party undertook appropriate measures to preserve information at risk of loss and is arguably less forgiving than the “intentional or reckless” requirement in Sedona Principle 14.

Accordingly, Principle 14 has been revised to recommend that sanctions should not issue without a finding of a “culpable failure to preserve and produce,” leaving the issue to the individual facts of specific cases.

Labels: Discovery, eDiscovery, ESI, FRCP, Sedona Conference, Zubulake

posted by Charles Skamser @ 10:16 AM 0 Comments

Metadata in the New eDiscovery Paradigm

As part of the 2006 amendments to the Federal Rules of Civil Procedure (FRPC), Rule 34 now provides that electronically stored information (ESI) can be produced (absent agreement or a court order) in either the form in which it was ordinarily maintained or in a "reasonably useable" form.

However, neither the rule nor the FRCP's "Advisory Committee Comments" address the circumstances under which metadata or embedded data must be produced in a particular case. Providing more guidance, Sedona Principle 12 initially provided a presumption that "[u]nless it is material to resolving the dispute, there is no obligation to preserve and produce metadata absent agreement of the parties or order of the court." After considerable discussion, Sedona Principle 12 was revised to provide a more nuanced view of the need for metadata. It now provides that the form of production should take into account "the need to produce reasonably accessible metadata that will enable the receiving party to have the same ability to access, search, and display the information as the producing party where appropriate or necessary in light of the nature of the information and the needs of the case."

The comments to Principle 12 explain the advantages and disadvantages of particular forms of production with relationship to the impact of the choices on metadata. Taking all of this into account under the assumption of quickly evolving database, application and associated intelligent ORT technology, I predict that metadata is going to evolve in its importance to the understanding of the underlying native data.

Labels: Discovery, eDiscovery, ESI, FRCP, Metadata, ORT, Sedona Conference

posted by Charles Skamser @ 8:44 PM 0 Comments