2010: A Year In Review

In 2010 we have seen many exciting changes to the e-discovery landscape. Metadata and social media have now become standards to be included in discovery requests. Litigation continued to rise in a lagging economy and the sanctions relating to e-discovery violations grew as courts increased awareness. The use of e-discovery tools have been extended for both regulatory compliance and internal investigation functions as well.

In response, corporations have begun to look into new ways to approach the e-discovery problem. First, they have reached out to create internal or external clouds for e-discovery. They have also incorporated archiving into their e-discovery process, a move which intimates the continuing trend of moving discovery in-house.

In 2011 we see similar trends coming to the fore. The incorporation of more data sources (including structured databases), coupled with more advanced analytics and outsourcing to the cloud for space and processing power will ensure that the year ahead will be a dynamic one. For a full 2011 projection check out ZL Technologies' 12 Important E-Discovery Trends for 2011 and Beyond published by eweek.com.  

NewsFlash: e-Discovery Sanctions on the Rise

Okay, so maybe it isn’t shocking to learn that E-Discovery sanctions have risen every year in the past 10 years.  But it is surprising to find that the rise has been so great and that it continues regardless of aggressive attorney educational efforts and maturing technological solutions. 

If you haven’t already seen it, last month the folks at legalworkshop.org published a thorough analysis of e-discovery violations throughout the past 29 years (yes, there was an e-discovery case in 1981). You can find the original post here.  According to the authors “ESI has played a more predominant role in pretrial discovery; producing parties have struggled to comply with ever-expanding and increasingly complex responsibilities. The liberal scope of discovery in federal courts, when coupled with ESI’s defining characteristics—high volume, broad dispersal, and dynamic nature—also confounds efforts to conduct discovery effectively and economically.”

We continue to see this played out in the courts and in the marketplace. The ruling in Qualcomm Inc. v. Broadcom Corp concluded that Qualcomm and its counsel failed to produce more than 200,000 pages of relevant electronic documents and was ordered to pay $8.5 million in legal fees. In the Victor Stanley v. Creative Pipe decision, intentional e-discovery mishaps nearly led to jail time and cost over $300,000 in sanctions.

A quick analysis of the data shows that written rulings on E-Discovery almost tripled between 2003 and 2004 – with a steady increase in each consecutive year and culminating in 2009 with 111 total rulings, 46 sanctions awarded and 12 adverse jury instruction sanctions. The rise of adverse jury instruction sanctions should be of particular concern for  defendants since it was found that the sanctions disproportionally affect them.  Indeed, since 2005, the courts have seen between a 1:5 to 1:3 ratio of plaintiff sanctions to defendants’.

With sanctions being given out at historic rates, it behooves legal counsels to take advantage of timely educational opportunities.  For example, ZL is hosting a webinar next week, December 14^th, on Ethics in E-Discovery (sign up here) and another on 1/11 and 1/25 in January.  For more information click here. 

In addition, in-house attorneys should re-evaluate their e-discovery software to see if it can scale to match the incredible influx of documents and includes air-tight audit trails to prove the defensibility of all actions taken.  By combining education and the tools to properly address e-discovery, ZL aims to help all of our customers develop an unquestionably defensible e-discovery process.

The Extended Functions of E-Discovery: Litigation Support, Regulatory Compliance, and Internal Investigations

E-discovery solutions have naturally been classified as litigation support, and in this post I'll go over why this area continues to be of growing concern. In another section, I will cover why the same solutions which provide litigation support can also help to solve internal investigations as well. 

First, rising litigation highlights the importance of e-Discovery. In Fulbright's most recent survey litigation survey, over 90% of U.S. and U.K. respondents expecting legal disputes to increase or remain the same:  

…93% of U.S. and 97% of U.K. respondents expecting legal disputes to increase or remain the same this coming year. This expectation comes during a year when 87% of U.S. respondents faced new litigation in the past year (up from 83% last year) and 53% of all respondents initiated a suit in the past year (up from 48% overall last year)....In the U.S. – and for large-caps in particular – intellectual property and patent litigation are also high on respondents’ radars. 

And, according to the same study, "More regulators have been investigating a greater variety of companies, from small to large and across sectors – particularly banking, health care and energy." Rampant regulatory changes and stricter enforcement seem to have increased the need for the ability to find documents within an enterprise.

Like most things, cost produces the constraints which this process work around. Bringing discovery in-house reduces the cost at an astonishing rate. Patrick Oot, a member of the Law Technology News Editorial Advisory Board, is director of electronic discovery and senior litigation counsel at Verizon, based in Washington, D.C. says:

In July 2008, our EDD team completed a business case that presented an opportunity for Verizon to save about $4 million in legal expenses in one year by establishing an in-house system, with support staff, infrastructure and software for internal data processing, hosting and review. We believe that over the next three years, this business case will yield up to potential 395 percent return on investment.

Following this example, both NBC and Microsoft have moved their discovery internally. At NBC, Jonathan Chow -Chief Information Security Officer (CISO) - heads the IT implementation and explained to ComputerWorld that, as with many corporations, the information security department includes e-discovery as a key responsibility for litigation support, M&A activities, and internal investigations. The move in-house allows NBC to administer searches and investigations internally without the dubious cost of hiring outside vendors.

E-discovery Used Internally

E-discovery solutions have traditionally only been seen as a litigation support tool. But no longer. Today, savvy businesses are using the same tools to solve internal investigations, regulatory compliance and records management issues. 

The use of e-discovery tools in internal investigations remains vital for international corporations as well as domestic outfits. All major companies need the ability to search electronically stored information ( ESI) to complete internal investigations that may be generated by HR or corporate security. No matter the regulatory environment, personnel misconduct and fraud detection must be of vital importance for any company - and a particular worry for CISOs, Chief Security Officers, General Counsels, and CEOs. Unauthorized access to sell or manipulate data and sexual harassment or other inappropriate communication has become all too common, and internal investigations have become ever more important as a result.

Compliance with government regulations remains of great importance to industries such as financial services and healthcare as well as the broader set of publically listed companies. NASD, SEC, and HIPAA govern strict regulations on the retention of e-mail and other ESI. As a part of information management and security, e-discovery tools like ZL’s Unifed Archive can manage the retention (or destruction) schedules for ESI based on a granular set of rules. If a company’s ESI were sand in a box, ZL’s proactive e-discovery tool is a very speedy fine-toothed comb.

As the application of e-discovery tools expand, many companies find that classifying them purely as litigation support can be a misnomer. The discovery function serves both litigation support and internal investigations due to the increasing need to hold employees accountable to company policies. No matter the name, the ability to search through a company's ESI remains a pillar of responsible corporate governance. 

Avoid the Big House: Bring e-Discovery In-House

Over at Law.com you can find an extensive examination of the recently filed Victor Stanley Inc. v. Creative Pipe Inc ruling. Here's a valuable excerpt [emphasis mine]:

Magistrate Judge Paul Grimm's lengthy opinion in Victor Stanley Inc. v. Creative Pipe Inc., filed Sept. 9, is worth the read... But the opinion is newsworthy because it sets out a harsh remedy for the defendant whom he found had destroyed evidence, lied to the court and dragged out proceedings -- civil contempt, with the defendant facing severe costs and fines or a two-year prison sentence if he fails to pay that fine. 

The court's focus upon and analysis of the costs -- in time, money, effort, and expertise -- of spoliation and dilatory tactics to the justice system is both spot on and timely.

What this has done is to highlight how important it is to follow a defensible discovery collection process and reinforce the fact that spoliation can directly lead to jail time. The importance of a legally defensible and thorough discovery process cannot be overstated.

It is not just one tool which can be a panacea, but the build-out of an entire data management process which will reduce risk. The industry standard, Electronic Discovery Reference Model (EDRM), serves as a decent guide:



The EDRM, although a good guide, can be limiting, as its flow does not represent the continuous nature of many discovery processes. At ITBusinessEdge I found another way to look at managing the process:

This visualization, unlike the one-way EDRM, views information management and discovery as part of a continuing process. I believe that this is much more accurate, as discovery can last for years (in the case of Victor Stanley, four years) and can involve going back to the data well many times for a multitude of matters or custodians. The process involves many more parties than purely Legal or IT, but touches upon the foundation of a company's technology strategy.

In order to develop a thorough discovery process, GCs and, increasingly, CIOs need to bring as much e-discovery in-house as possible. CIO.com states that:

The other critical remedy to minimizing risks and costs is bringing as much of the e-discovery process as possible “in-house”. Of course, this means that in-house staff must have a thorough working knowledge of the relevant processes, organizational archiving and data structure and enough technical know-how to choose and implement the right tools to support the required processes, which include (data) identification, preservation, collection, processing, review, analysis, production and presentation.

ZL Technologies developed our solution exactly so that companies can have this level of control over their data. Streamlining the discovery process is only one function of managing data, yet it may well be the most important, as emphasized by Judge Grimm in Victor Stanley Inc. v. Creative Pipe Inc. Corporations should get control of their data and discovery...and leave prison to the murderers.

Ball Sees Decisions

Over on Craig Ball's EDD Update, he posts in reference to Zubulake that: 

Total reliance on an employee to search and select won't cut it in Judge Scheindlin's court. 

The decision puts a nail in the coffin of custodial-delegated holds and persuades me that, at least in the SDNY, no nabob should delegate preservation and search to minions, and certainly no lawyer should leave search to clients alone.  The opinion prompts further resignation to keep everything--especially all e-mail--and cease rotating tapes [s]hould someone so much as whisper the word "lawsuit."  

Mr. Ball is an e-Discovery thought leader and has practically written the book on the subject. In this case, I could not agree with him more and this relates directly to my last post. ESI must be managed centrally; relying on custodial-delegates is just not defensible AND is inefficient. There is no reason to keep high-cost, high-liability processes alive when there are known processes to replace them.

Departing Employees and the Importance of Saving Their ESI

This is one of my posts up on TMA that I thought would be interesting to revisit due to the high unemployment rates we've been seeing. It seems like there are probably a lot of job losses out there (10% is a lot of unemployed) and companies should be prepared in processing employee data correctly. The consequences of not doing so can be stiff indeed. Read below for more:

Virginia Henschel of Lexis Nexis wrote an interesting piece on the perverse logic of the New Hampshire Attorney General’s Office ESI (non)retention policy.  She is right that government agencies can’t just delete their departed employees’ ESI.  Private corporations can’t hide their heads in the sand either.

Although there are too many examples of sanctions for failing to preserve departed employees’ ESI for just one blog post, I must point out that in May, FINRA fined Piper Jaffray $700,000 for email retention failures and disclosure violations. And this wasn’t Piper Jaffray’s first time through the wringer. Back in December of 2002, leading investment houses including Goldman Sachs, Morgan Stanley, Deutsche Bank, and Piper Jaffray failed to preserve e-mail and were fined a total of $8.25M . As FINRA reports on Piper Jaffray (emphasis mine):

FINRA discovered Piper Jaffray’s continuing email retention deficiencies when its investigators requested all emails sent or received by a former firm employee suspected of misconduct…When reviewing the CD-ROM’s contents, however, FINRA discovered that one particular email was not producedthat investigators had already obtained in hard copy form…Only after further inquiries about that missing email did the firm finally inform FINRA of the intermittent email retention and retrieval issues it had been experiencing firmwide…

It is clear that retaining departed employees’ ESI is an essential component of any good enterprise-wide records management, compliance and eDiscovery system. Employees leaving the company present a formidable compliance challenge for companies and government agencies.  Many companies mistakenly rely on their IT departments to save the hard-drives of the departing employees as well as the departing employee’s mailbox and network drive ESI.  Not only does this waste corporate resources (do you really need all that data?  for how long?), it is also creates increased legal and compliance risk.

I believe that a robust file and e-mail archiving system is needed to ensure 100% capture and storage of this type of ESI.  This system must be customizable so that an organization can consider legal and economic factors to ensure that information is retained as long as necessary, but no longer. Just because ESI can be deleted at the click of a button does not mean you aren’t responsible for it. Many will learn this lesson the hard way, while the ones who are prepared will save significant time and money.

Dead End: Hold On! Theres a hole in your case...

Over at Practical e-Discovery, they point to the recent ruling in Siani v. State Univ. of New York, 2010 as being critical in the e-Discovery space. To understand why, let us start at crux of the problem: when do organizations have a duty to preserve data?

Is it forever? Or when there is reasonable suspicion of an upcoming case? Does the pre-suit duty to preserve begin by just a letter by a putative plaintiff which even contemplates a suit? Or perhaps when the suit hits? Without a definitive landmark, it is impossible for organizations and legal teams to plan for litigation. And in a world which runs on dependable schedules and efficiency, that means costly and protracted reaction. 

Siani relies upon the the work-product doctrine, which encompasses documents that are prepared “in anticipation of litigation.” As Practical e-Discovery mentions, Siani v. State Univ. of New York reached the reasonable conclusion, 'that if litigation was reasonably foreseeable for one purpose, “it was reasonably foreseeable for all purposes."' Which means that the duty to preserve begins with the creation of any work-product.

The work-product doctrine slices both ways, since by invoking it for protection means that to the organization, litigation was reasonably anticipated and the duty to preserve had been triggered at that point. Again, this translates into the fact that the beginning of the work-product immunity should be the beginning of related electronically stored information (ESI) on legal hold.

In effect, companies must enact legal hold the moment in which documents are prepared in anticipation of litigation. There is no way to do so without a proactive archiving and e-Discovery tool already in place, because otherwise there would be reliance on the custodian (potentially those involved) to retain their own (potentially incriminating) documents. And as we have seen in Adams v. Dell, there continues to be a large question in custodian-trusted legal hold.

As more and more of these cases evolve, organizations must focus on proactive e-Discovery.

Deep Sea-Fishing or eDiscovery

Check out this eDiscovery cartoon by Steve Chan posted on The Modern Archivist. Pretty much describes why most ECM solutions can't do effective eDiscovery: the immense number of e-mails in the enterprise. Shark bait--ooh-ha-ha!

FTW: Pro-eDiscovery For The Win

Check out this recent announcement by the State of Florida. Adam Sand, eDiscovery guru, covers it in this post on The Modern Archivist. He makes some good points on the general direction in which eDiscovery is going, namely that there are more and more sources of data which are being considered to be relevant, and social media sits right on the the same frontier that email and other electronically stored information (ESI) only a few years ago. This relates directly to the Technology Adoption Curve, something I vaguely remember from my days at Wharton: 

• Innovators tend to be more educated and prosperous, with a greater tolerance for risk
• Early adopters are younger, educated, and active in the community
• Early majority are more conservative, but open to new ideas and influential within the community
• Late majority may be older, less educated, conservative, and less socially active
• Laggards are highly conservative, oldest and least educated. They often are less prosperous and more risk averse

In terms of eDiscovery and total information governance, I think we are looking at a major reset in the business over the last few years. Although there have been many point solutions to handle the EDRM model, there have exist few truly all-encompassing solutions that can take a company from the information management side to production and move seamlessly back and forth (please refer to the EDRM model below). The move from Reactive eDiscovery to Proactive eDiscovery has changed the landscape of the business.

What this fundamental reset means is that we've seen a reboot in the Technology Adoption Curve. I believe that we are somewhere in the Innovator/Early Adopter phase for this space, namely because what we are seeing in the market are that companies like Cisco and Wells Fargo actively looking to upgrade their eDiscovery technologies to the best available proactive solutions. These are the same companies that are willing to take the time investment to become educated, and lead their industries in risk management. Once the Innovators and Early Adopters begin to the raise awareness and the government continues to add pressure (see my post on HR 1387 or Steve Chan's post here), we will see enough examples to propel the proactive industry to the real meat of the bell curve. 

Inside legal counsels should be aware that this is the curve of the future. Proactive eDiscovery means being prepared for litigation like companies never had the capability of being before. And we all know that the key to success (and winning) is all in the preparation. Being a laggard is simply too risky.

Manual Search...Meet Google

On John Wang's Grokify Blog he states:

Manual ICP is a slow process that increases information risk and can lead to under collection, late collection, and spoliation. On the other hand, automatic collection can enable ECA, fast collection, and Matter-based ICP. There is no question that automated collection holds advantages over manual ICP. Given the risks associated with Manual ICP, the courts and industry thought leaders are correct to ask if manual collections are still relevant and defensible.

Now, there is no doubt that manual collection for eDiscovery is slow and unwieldy. eDiscovery 2.0 concedes the point here, yet they rage on:

While there’s no dispute that the “automated” collection methods available in litigation software referenced above have a number of features that make this approach more efficient, the question is whether a “manual” (i.e., custodian based) collection process is somehow less defensible. If this is truly the case, then many midsized companies without the budget to purchase such e-discovery applications will inherently be found deficient – which is a daunting notion.

There is clearly a fundamental misunderstanding here. Mid-sized companies, with their mid-sized amount of employees will pay mid-sized licensing fees for automated collection, eDiscovery and records management software. The proportion they pay scales linearly (both up and down) with the size of their company.

And the pricing tangent misses the point entirely, which is that a combination of automatic and manual collection will be the most thorough method of eDiscovery. Having the ability to automatically collect documents will be necessary in the near future (if not right now). Without enterprise-wide search and automatic collection, it is like searching the web without Google. Instead, with only manual collection, you would be starting at a website and clicking link to link or typing in random URLs until you find the right site. How thorough is that?