Spending 9 percent of your organization's total annual budget on e-discovery for a case to which you are not even a party may seem exorbitant. But despite going to such lengths, you can still be found in contempt if you miss agreed upon production deadlines.
That was the outcome of In re Fannie Mae Securities Litigation, which the D.C. Circuit decided Jan. 6. In one of the few appellate cases addressing e-discovery, the appeals court upheld a district court decision finding the Office of Federal Housing Enterprise Oversight (OFHEO) in contempt for failing to meet its e-discovery deadline, even though the agency spent $6 million attempting to comply.
OFHEO's discovery ordeal began in the summer of 2006 when three defendants in class action litigation against the Federal National Mortgage Association (Fannie Mae) subpoenaed records from OFHEO, which regulates Fannie Mae. One year later, OFHEO reported it had produced all the requested documents. But in a deposition, an agency representative revealed that some offsite disaster recovery tapes had not been searched. The requesting parties moved to hold OFHEO in contempt.
After the first day of the contempt hearing, attorneys for OFHEO agreed to a court order that said, "OFHEO will work with the [requesting parties] to provide the necessary information ... to develop appropriate search terms. ... The [requesting parties] will specify the search terms to be used."
The problem for OFHEO was that the requesting parties proceeded to specify more than 400 search terms that appeared in approximately 660,000 documents, or 80 percent of OFHEO's total stored e-mails. The agency's inability to meet deadlines for producing those documents resulted in the contempt order.
"The case emphasizes the importance of carefully reviewing the terms of [an e-discovery] stipulation and their ramifications," says Kevin Burke, a partner at Cahill Gordon & Reindel. He notes the stipulation at issue did not specify "what was and what was not subject to further objection based on reasonableness."
Movable Goal Posts
OFHEO hired 50 contract attorneys and racked up $6 million in expenses attempting to comply with the order. Nevertheless, the agency asked for two extensions to production deadlines and even then produced only 330,000 non privileged documents. In addition, it had not completed the required logs listing documents withheld solely on the grounds of qualified deliberative process privilege, which exempts government agencies from disclosure of materials containing communications that are part of the agency's decision-making process. The requesting parties again asked for a contempt finding.
At the contempt hearing, OFHEO argued that it should not have to produce the huge volume of information because the stipulation "limited the [requesting parties] to 'appropriate search terms.'" But the district court disagreed, saying the stipulation "gave the [requesting parties] sole discretion to specify search terms and imposed no limits on permissible terms." The court ruled OFHEO in contempt, finding its efforts to comply "too little too late." Clearly annoyed with repeated extension requests, the court added, "OFHEO has treated its court-ordered deadlines as movable goal posts." It ordered the release of all documents with the search terms specified by the requesting parties.
OFHEO appealed to the D.C. Circuit, which unanimously upheld the lower court, saying OFHEO offered no extrinsic proof that the stipulation limited the requesting parties to "appropriate search terms."
OFHEO also argued that, based on Federal Rule of Civil Procedure 45, the district court abused its discretion by forcing OFHEO "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."
The appeals court noted in dicta that had OFHEO completed the hearing on the initial contempt motion, it might have proved examination of the backup tapes would impose an unfair burden. "Whatever the merits of these claims, OFHEO abandoned them by entering into the stipulated order," the court said.
OFHEO made several missteps that led to the adverse ruling, according to e-discovery experts.
Ralph Losey, a shareholder at Akerman Senterfitt, calls the outcome of the case "totally avoidable." OFHEO could have presented expert proof at the initial contempt hearing that showed the disaster-recovery backup tapes and other records demanded were not reasonably accessible, Losey says. Even having opted for a stipulated agreement, it could have won a bigger role in determining search terms had the stipulation been crafted more expertly. It could have reasonably sought to limit its discovery exposure, for example, to 20,000 e-mails or a maximum expense of $10,000, he adds.
B. Jay Yelton, III, principal at Miller Canfield, points out that OFHEO's attorneys initially made some correct decisions by attempting to limit discovery by setting date, custodian and word search restrictions. But he says they created their own problems through prolonged "foot-dragging and extension requests at the eleventh hour." Neither OFHEO nor the Department of Justice, which represented the agency on appeal, responded to requests for an interview.
Losey says it is not uncommon for trial lawyers to underestimate the burden of producing electronic documents. For in-house counsel, the decision underscores the importance of having experts who understand the implications of such common e-discovery practices as keyword search and provide reliable estimates of time and expense before entering into e-discovery agreements.
"Don't agree to anything unless you know how much it will cost and how long it will take," Losey says.