The eDiscovery 2.0 blog has extensively covered the three recent predictive coding cases currently being litigated, and while real court cases are paramount to the direction of predictive coding, the 7th Circuit program will proactively address a scenario that has not yet been considered by a court.  In Da Silva Moore, the parties agreed to the use of predictive coding, but couldn’t subsequently agree on the protocol.  In Kleen, plaintiffs want defendants to redo their review process using predictive coding even though the production is 99% complete.  And, in Global Aerospace the defendant proactively petitioned to use predictive coding over plaintiff’s objections.  By contrast, in the 7th Circuit’s hypothetical, the mock argument predicts another likely predictive coding scenario; the instance where a defendant has a deployed in-house solution in place and argues against the use of predictive coding before discovery has begun.

Traditionally, courts have been reticent to bless or admonish technology, but rather rule on the reasonableness of an organization’s process and depend on expert testimony for issues beyond that scope.  It is expected that predictive coding will follow suit; however, because so little is understood about how the technology works, interest has been generated in a way the legal technology industry has not seen before, as evidenced by this tactical program.

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The hypothetical dispute is a complex litigation matter pending in a U.S. District Court involving a large public corporation that has been sued by a smaller high-tech competitor for alleged anticompetitive conduct, unfair competition and various business torts.  The plaintiff has filed discovery requests that include documents and communications maintained by the defendant corporation’s vast international sales force.  To expedite discovery and level the playing field in terms of resources and costs, the Plaintiff has requested the use of predictive coding to identify and produce responsive documents.  The defendant, wary of the latest (and untested) eDiscovery technology trends, argues that the organization already has a comprehensive eDiscovery program in place.  The defendant will further argue that the technological investment and defensible processes in-house are more than sufficient for comprehensive discovery, and in fact, were designed in order to implement a repeatable and defensible discovery program.  The methodology of the defendant is estimated to take months and result in the typical massive production set, whereas predictive coding would allegedly make for a shorter discovery period.  Because of the burden, the defendant plans to shift some of these costs to the plaintiff.

Ralph Losey’s role will be as the Magistrate Judge, defense counsel will be Martin T. Tully (partner Katten Muchin Rosenman LLP), with Karl Schieneman (of Review Less/ESI Bytes) as the litigation support manager for the corporation and plaintiff’s counsel will be Sean Byrne (eDiscovery solutions director at Axiom) with Herb Roitblat (of OrcaTec) as plaintiff’s eDiscovery consultant.

As the hottest topic in the eDiscovery world, the promises of predictive coding include: increased search accuracy for relevant documents, decreased cost and time spent for manual review, and possibly greater insight into an organization’s corpus of data allowing for more strategic decision making with regard to early case assessment.  The practical implications of predictive coding use are still to be determined and programs like this one will flesh out some of those issues before they get to the courts, which is good for practitioners and judges alike.  Stay tuned for an analysis of the arguments, as well as a link to the video.

Courts are becoming increasingly cognizant of the eDiscovery burdens that the information explosion has placed on organizations. Indeed, the cases from 2012 are piling up in which courts have rejected demands that sanctions be imposed for seemingly reasonable information retention practices. The recent case of Grabenstein v. Arrow Electronics (D. Colo. April 23, 2012) is another notable instance of this trend.

In Grabenstein, the court refused to sanction a company for eliminating emails pursuant to a good faith document retention policy. The plaintiff had argued that drastic sanctions (evidence, adverse inference and monetary) should be imposed on the company since relevant emails regarding her alleged disability were not retained in violation of both its eDiscovery duties and an EEOC regulatory retention obligation. The court disagreed, finding that sanctions were inappropriate because the emails were not deleted before the duty to preserve was triggered: “Plaintiff has not provided any evidence that Defendant deleted e-mails after the litigation hold was imposed.”

Furthermore, the court declined to issue sanctions of any kind even though it found that the company deleted emails in violation of its EEOC regulatory retention duty. The court adopted this seemingly incongruous position because the emails were overwritten pursuant to a reasonable document retention policy:

“there is no evidence to show that the e-mails were destroyed in other than the normal course of business pursuant to Defendant’s e-mail retention policy or that Defendant intended to withhold unfavorable information from Plaintiff.”

The Grabenstein case reinforces the principle that reasonable information retention and eDiscovery processes can and often do trump sanctions requests. Just like the defendant in Grabenstein, organizations should develop and follow a retention policy that eliminates data stockpiles before litigation is reasonably anticipated. Grabenstein also demonstrates the value of deploying a timely and comprehensive litigation hold process to ensure that relevant electronically stored information (ESI) is retained once a preservation duty is triggered. These principles are consistent with various other recent cases, including a decision last month in which pharmaceutical giant Pfizer defeated a sanctions motion by relying on its “good faith business procedures” to eliminate legacy materials before a duty to preserve arose.

The Grabenstein holding also spotlights the role that proportionality can play in determining the extent of a party’s preservation duties. The Grabenstein court reasoned that sanctions would be inappropriate since plaintiff managed to obtain the destroyed emails from an alternative source. Without expressly mentioning “proportionality,” the court implicitly drew on Federal Rule of Civil Procedure 26(b)(2)(C) to reach its “no harm, no foul” approach to plaintiff’s sanctions request. Rule 2626(b)(2)(C)(i) empowers a court to limit discovery when it is “unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive.” Given that plaintiff actually had the emails in question and there was no evidence suggesting other ESI had been destroyed, proportionality standards tipped the scales against the sanctions request.

The Grabenstein holding is good news for organizations looking to reduce their eDiscovery costs and burdens. By refusing to accede to a tenuous sanctions motion and by following principles of proportionality, the court sustained reasonableness over “gotcha” eDiscovery tactics. If courts adhere to the Grabenstein mantra that preservation and production should be reasonable and proportional, organizations truly stand a better chance of seeing their litigation costs and burdens reduced accordingly.

Predictive Coding Cases

In Moore v. Publicis Groupe, the plaintiffs’ attempt to recuse Judge Peck has diverted the spotlight from the costs and delays associated with use of predictive coding. Indeed, the parties have been wrangling for months over the parameters of using this technology for defendant MSL’s document review. During that time, each side has incurred substantial attorney fees and other costs to address fairly routine review issues. This tardiness figures to continue as the parties now project that MSL’s production will not be complete until September 7, 2012. Even that date seems too sanguine, particularly given Judge Peck’s recent observation about the slow pace of production: “You’re now woefully behind schedule already at the first wave.” Moreover, Judge Peck has suggested on multiple occasions that a special master be appointed to address disagreements over relevance designations. Special masters, production delays, additional briefings and related court hearings all lead to the inescapable conclusion that the parties will be saddled with a huge eDiscovery bill (despite presumptively lower review costs) due to of the use of predictive coding technology.

The Kleen Products v. Packing Corporation case is also plagued by cost and delay issues. As explained in our post on this case last month, the plaintiffs are demanding a “do-over” of the defendants’ document production, insisting that predictive coding technology be used instead of keyword search and other analytical tools. Setting aside plaintiffs’ arguments, the costs the parties have incurred in connection with this motion are quickly mounting. After submitting briefings on the issues, the court has now held two hearings on the matter, including a full day of testimony from the parties’ experts. With another “Discovery Hearing” now on the docket for May 22nd, predictive coding has essentially turned an otherwise routine document production query into an expensive, time consuming sideshow with no end in sight.

Cost and delay issues may very well trouble the parties in the Global Aerospace v. Landow Aviation matter, too. In Global Aerospace, the court acceded to the defendants’ request to use predictive coding technology over the plaintiffs’ objections. Despite allowing the use of such technology, the court provided plaintiffs with the opportunity to challenge the “completeness or the contents of the production or the ongoing use of predictive coding technology.” Such a condition essentially invites plaintiffs to re-litigate their objections through motion practice. Moreover, like the proverbial “exception that swallows the rule,” the order allows for the possibility that the court could withdraw its approval of predictive coding technology. All of which could lead to seemingly endless discovery motions, production “re-dos” and inevitable cost and delay issues.

Better Times Ahead?

At present, the Da Silva Moore, Kleen Products and Global Aerospace cases do not suggest that predictive coding technology will “secure the just, speedy, and inexpensive determination of every action and proceeding.” Nevertheless, there is room for considerable optimism that predictive coding will ultimately succeed. Technological advances in the industry will provide greater transparency into the black box of predictive coding technology that to date has not existed. Additional advances should also lead to easy-to-use workflow management consoles, which will in turn increase defensibility of the process and satisfy legitimate concerns regarding production results, such as those raised by the plaintiffs in Moore and Global Aerospace.

Technological advances that also increase the accuracy of first generation predictive coding tools should yield greater understanding and acceptance about the role predictive coding can play in eDiscovery. As lawyers learn to trust the reliability of transparent predictive coding, they will appreciate how this tool can be deployed in various scenarios (e.g., prioritization, quality assurance for linear review, full scale production) and in connection with existing eDiscovery technologies. In addition, such understanding will likely facilitate greater cooperation among counsel, a lynchpin for expediting the eDiscovery process. This is evident from the Moore, Kleen Products and Global Aerospace cases, where a lack of cooperation has caused increased costs and delays.

With the promise of transparency and simpler workflows, predictive coding technology should eventually live up to its billing of helping organizations discover their information in an efficient, cost effective and defensible manner.  As for now, the “promise” of first generation predictive coding tools appears to be nothing more than that, leaving organizations looking like the cash-strapped “Monopoly man,” wondering where there litigation dollars have gone.

This choice between two unpleasant alternatives is sometimes called a Morton’s Fork (but typically only when both choices are equal in difficulty).  The saying (not to be confused with the equally colorful Hobson’s Choice) apparently originated with the collection of taxes by John Morton (the Archbishop of Canterbury) in the late 15th century.  Morton was apparently fond of saying that a man living modestly must be saving money and could therefore afford to pay taxes, whereas if he was living extravagantly then he was obviously rich and could still afford them.[i]

This “pay me now/pay me later” scenario perplexes many of today’s organizations as they try to effectively govern (i.e., understand, discover and retain) electronically stored information (ESI).  The challenge is similar to the oil filter conundrum, in that companies can often make rather modest up-front retention/deletion decisions that help prevent monumental, downstream eDiscovery charges.

This exponential gap has been illustrated recently by a number of surveys contrasting the cost of storage with the cost of conducting basic eDiscovery tasks (such as preservation, collection, processing, review and production).  In a recent AIIM webcast it was noted that “it costs about 20¢/day to buy 1GB of storage, but it costs around $3,500 to review that same gigabyte of storage.” And, it turns out that the $3,500 review estimate (which sounds prohibitively expensive, particularly at scale) may actually be on the conservative side.  While the review phase is roughly 70 percent of the total eDiscovery costs – there is the other 30% that includes upstream costs for preservation, collection and processing.

Similarly, in a recent Enterprise Strategy Group (ESG) paper the authors noted that eDiscovery costs range anywhere from $5,000 to $30,000 per gigabyte, citing the Minnesota Journal of Law, Science & Technology.  This $30,000 figure is also roughly in line with other per-gigabyte eDiscovery costs, according to a recent survey by the RAND Corporation.  In an article entitled “Where the Money Goes — Understanding Litigant Expenditures for Producing Electronic Discovery” authors Nicholas M. Pace and Laura Zakaras conducted an extensive analysis and concluded that “… the total costs per gigabyte reviewed were generally around $18,000, with the first and third quartiles in the 35 cases with complete information at $12,000 and $30,000, respectively.”

Given these range of estimates, the $18,000 per gigabyte metric is probably a good midpoint figure that advocates of information governance can use to contrast with the exponentially lower baseline costs of buying and maintaining storage.  It is this stark (and startling) gap between pure information costs and the expenses of eDiscovery that shows how important it is to calculate latent “information risk.”  If you also add in the risks for sanctions due to spoliation, the true (albeit still murky) information risk portrait comes into focus.  It is this calculation that is missing when legal goes to bat to argue about the necessity of information governance solutions, particularly when faced with the host of typical objections (“storage is cheap” … “keep everything” … “there’s no ROI for proactive information governance programs”).

The good news is that as the eDiscovery market continues to evolve, practitioners (legal and IT alike) will come to a better and more holistic understanding of the latent information risk costs that the unchecked proliferation of data causes.  It will be this increased level of transparency that permits the budding information governance trend to become a dominant umbrella concept that unites Legal and IT.

Because these costs and delays affect the courts as well as clients, it comes as no surprise that judges have now heightened their expectation for how organizations store, manage and discover their electronically stored information (ESI).  Gone are the days when enterprises could plead ignorance for not preserving or producing their data in an efficient, cost effective and defensible manner.  Organizations must now follow best practices – both during and before litigation – if they are to safely navigate the stormy seas of eDiscovery.

The importance of deploying such practices applies acutely to those organizations that are exploring “cloud”-based alternatives to traditional methods for preserving and producing electronic information.  Under the right circumstances, the cloud may represent a fantastic opportunity to streamline the eDiscovery process for an organization.  Yet it could also turn into a dangerous liaison if the cloud offering is not properly scrutinized for basic eDiscovery functionality.  Indeed, the City of Los Angeles’s recent decision to partially disengage from its cloud service provider exemplifies this admonition to “look before you leap” to the cloud.  Thus, before selecting a cloud provider for eDiscovery, organizations should be particularly careful to ensure that a provider has the ability both to efficiently retrieve data from the cloud and to issue litigation hold notices.

Effective Data Retrieval Requires Efficient Data Storage

The hype surrounding the cloud has generally focused on the opportunity for cheap and unlimited storage of information.  Storage, however, is only one of many factors to consider in selecting a cloud-based eDiscovery solution.  To be able to meet the heightened expectations of courts and regulatory bodies, organizations must have the actual – not theoretical – ability to retrieve their data in real time.  Otherwise, they may not be able to satisfy eDiscovery requests from courts or regulatory bodies, let alone the day-to-day demands of their operations.

A key step to retrieving company data in a timely manner is to first confirm whether the cloud offering can intelligently organize that information such that organizations can quickly respond to discovery requests and other legal demands.  This includes the capacity to implement and observe company retention protocols.  Just like traditional data archiving software, the cloud must enable automated retention rules and thus limit the retention of information to a designated time period.  This will enable data to be expired once it reaches the end of that period.

The pool of data can be further decreased through single instance storage.  This deduplication technology eliminates redundant data by preserving only a master copy of each document placed into the cloud.  This will reduce the amount of data that needs to be identified, preserved, collected and reviewed as part of any discovery process.  For while unlimited data storage may seem ideal now, reviewing unlimited amounts of data will quickly become a logistical and costly nightmare.

Any viable cloud offering should also have the ability to suspend automated document retention/deletion rules to ensure the adequate preservation of relevant information.  This goes beyond placing a hold on archival data in the cloud.  It requires that an organization have the ability to identify the data sources in the cloud that may contain relevant information and then modify aspects of its retention policies to ensure that cloud-stored data is retained for eDiscovery.  Taking this step will enable an organization to create a defensible document retention strategy and be protected from court sanctions under the Federal Rule of Civil Procedure 37(e) “safe harbor.”  The decision from Viramontes v. U.S. Bancorp (N.D. Ill. Jan. 27, 2011) is particularly instructive on this issue.

In Viramontes, the defendant bank defeated a sanctions motion because it timely modified aspects of its email retention policy.  The bank implemented a policy that kept emails for 90 days, after which the emails were deleted.  That policy was promptly suspended, however, once litigation was reasonably foreseeable.  Because the bank followed that procedure in good faith, it was protected from sanctions under Rule 37(e).

As the Viramontes case shows, an organization can be prepared for eDiscovery disputes by appropriately suspending aspects of its document retention policies.  By creating and then faithfully observing a policy that requires retention policies be suspended on the occurrence of litigation or other triggering event, an organization can develop a defensible retention procedure. Having such eDiscovery functionality in a cloud provider will likely facilitate an organization’s eDiscovery process and better insulate it from litigation disasters.

The Ability to Issue Litigation Hold Notices

To be effective for eDiscovery purposes, a cloud service provider must also enable an organization to deploy a litigation hold to prevent users from destroying data. Unless the cloud has litigation hold technology, the entire discovery process may very well collapse.  For electronic data to be produced in litigation, it must first be preserved.  And it cannot be preserved if the key players or data source custodians are unaware that such information must be retained.  Indeed, employees and data sources may discard and overwrite electronically stored information if they are oblivious to a preservation duty.

A cloud service provider should therefore enable automated legal hold acknowledgements.  Such technology will allow custodians to be promptly and properly notified of litigation and thereby retain information that might otherwise have been discarded.  Inadequate litigation hold technology leaves organizations vulnerable to data loss and court punishment.

Conclusion

Confirming that a cloud offering can quickly retrieve and efficiently store enterprise data while effectively deploying litigation hold notices will likely address the basic concerns regarding its eDiscovery functionality. Yet these features alone will not make that solution the model of eDiscovery cloud providers. Advanced search capabilities should also be included to reduce the amount of data that must be analyzed and reviewed downstream. In addition, the cloud ought to support load files in compatible formats for export to third party review software. The cloud should additionally provide an organization with a clear audit trail establishing that neither its documents, nor their metadata were modified when transmitted to the cloud.  Without this assurance, an organization may not be able to comply with key regulations or establish the authenticity of its data in court. Finally, ensure that these provisions are memorialized in the service level agreement governing the relationship between the organization and the cloud provider.