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In this ever-evolving technological age, lawyers just cannot escape e-discovery. It’s begun to take center stage in litigation, with pitched battles over production formats, search terms, review technologies and—perhaps even more importantly—how much it will cost and who foots the bill. And what’s worse, these wars are waged with such vehemence and vitriol that they often overshadow the very reasons the two parties are in court to begin with.
A few common themes are present in many of the recent e-discovery-centric cases that have come down the pike. As seen recently in Monique Da Silva Moore, et al. v. Publicis Groupe & MSL Group (see "Da Silva Moore sets stage for predictive coding's advancement"), the issue of working with opposing counsel to develop a sound discovery protocol, agreed to in advance, regardless of the technology-assisted review tool is critical. Equally important in recent cases is the matter of proportionality and ensuring that the parties’ requests, and the corresponding costs, are proportional to the underlying litigation.
What follows is an analysis of three lawsuits—one currently awaiting a ruling and two recently decided—that are helping to shape this incredibly divisive e-discovery landscape.
Race Tires America, Inc. v. Hoosier Racing Tire Corp.; Dirt Motor Sports, Inc.
Online exclusive video: Reining in the cost of e-discovery
On March 16, the 3rd Circuit found in Race Tires that federal courts are not empowered to shift the costs of e-discovery production except under the narrow circumstances explicitly provided for in Title 28 United States Code section 1920 (28 U.S.C. 1920), which allows the prevailing party to recover costs from the losing party for “exemplification” and the cost of making copies (see “Court reduces e-discovery costs award by more than 90 percent”).
In September 2007, tire supplier Race Tires America (RTA) sued rival tire company Hoosier Racing Tire and motorsports sanctioning body Dirt Motor Sports (DMS), alleging violations of the Sherman Antitrust Act, which prohibits anti-competitive activities in the marketplace. RTA was incensed over Hoosier’s adoption of a “single tire rule” for certain motorsports and related exclusive supply contracts for race tires between Hoosier and a number of sanctioning bodies, including DMS.
As in many similar cases, both of the defendants had an extensive amount of electronically stored information (ESI), and the Federal District Court for the Western District of Pennsylvania had issued a case management order (CMO) directing them to work with the plaintiffs to compile an agreed-upon list of keyword search terms. The CMO, among other things, also stipulated the formats in which the files should be produced. The defendants retained different vendors to assist with the ESI production, with Hoosier producing 430,733 pages of ESI and DMS producing 178,413 documents in electronic format. The production cost Hoosier more than $125,000 and DMS more than $240,000. The defendants then moved for summary judgment, which the district court granted.
After prevailing, the defendants sought to recover the e-discovery costs, including hard drive imaging, data processing, keyword searching and file format conversion, from RTA. The district court, under 28 U.S.C. 1920, granted the request, reasoning that the vendors’ services were indispensable, and therefore it was appropriate to shift the cost to the losing party.
This decision was seen as a breath of fresh air by companies sick of paying outsized e-discovery costs.
“When the district court decided the case, it gave a glimmer of hope to a lot of companies hoping to get some relief with the massive amount of e-discovery costs that they frequently encounter. Even with technology advancements, e-discovery costs continue to rise year after year as data sizes double and quadruple.” says Robin Stewart, of counsel at Lathrop & Gage.
The celebration, however, was short-lived. On appeal, the 3rd Circuit rejected the district court’s broad interpretation of the statute and held that only two narrow categories of ediscovery costs were assessable: exemplification of materials, and making copies (under 28 U.S.C. 1920(4)). The court concluded that none of the vendors’ activities in the case could be regarded as an exemplification of materials, and that only scanning and file format conversion can be considered making copies. As a result, the defendants could only recover about $30,000 of the e-discovery charges from RTA.
“The 3rd Circuit took a very strict view of the statute and focused on its actual language,” says Troutman Sanders Partner Alison Grounds. “It has sort of been a stretch to take the definition of ‘copy’ or ‘exemplification’ and extract that across all of the processes involved in producing electronic documents.”
Grounds explains that the initial idea behind parties incurring their own fees was to not deter plaintiffs from bringing lawsuits. But because the statutes addressing costs are so outdated and don’t account for the tremendous burden that massive e-discovery costs have placed on the legal system, a different problem has arisen. Instead of parties fully trying cases in court, they’re settling just because of the threat e-discovery costs present.
Alitia Faccone, co-chair of McCarter & English’s e-discovery committee, agrees.
“We need to figure out a way to rein in the cost and the enormity of what we’re asking people to do so that we can get to the heart of these cases and do what the litigation process is intended to do, which is look at the substantive issues and come to the right decision about the law applied to those issues,” she says.
Another reason for the importance of cost shifting is that there’s typically no financial obligation for the requesting parties in many discovery disputes, who therefore have no incentive to be reasonable and proportional in their request.
“There needs to be a way of making sure that requests are proportional to costs, and that you don’t have a structure set up where there’s an incentive to ask for the most expensive or intensive or time-consuming technology just because it exists, and because you can, and because you don’t have to pay for it,” Latham & Watkins Partner Adrienne Eason Wheatley says.
The 3rd Circuit noted in its decision that conflicts remain among the circuits on how to deal with the contentious issue. It’s likely that other courts will issue differing opinions on the matter as new cases arise.
“Race Tires is important, but it’s just one aspect of a very broad, deep and continuing discussion on this issue,” Wheatley says. “There are multiple stakeholders grappling with this question, so we’re going to see more on this as time goes by.”
Kleen Prodcuts, LLC, et al v. Packaging Corp. of America, et al.
Online exclusive video: Kleen-ing up with technology-assisted review tools
Seen by many as a case that’s similar to Da Silva Moore, Kleen, which also deals with the hot topic of technology-assisted review, has stolen much of Da Silva Moore’s recent thunder as the most-talked-about e-discovery case currently in court.
Whereas Da Silva Moore has tentatively set a general framework for the propriety of predictive coding, elucidating when it’s appropriate for a particular case and helping to define what is appropriate use of the technology, Kleen is expected to play an important role for how, in certain circumstances, e-discovery can and cannot be conducted.
The plaintiffs in the case, which is currently pending in the Federal District Court for the Northern District of Illinois, are a putative class comprising product manufacturers, packaging companies and food distributors. The plaintiffs allege that the defendants, another group largely comprising packaging companies, are in violation of the Sherman Antitrust Act.
What’s currently at issue in the case, which had evidentiary hearings in late March before Magistrate Judge Nan Nolan, is whether the defendants should be required to redo their document production. The defendants have already spent thousands of hours reviewing documents and produced more than a million documents using keyword search tools.
Although the parties initially agreed to use keyword search at the outset, they didn’t agree to a protocol regarding how they would conduct those searches. And now, the plaintiffs are asking Judge Nolan to force the defendants to use a completely different form of technology-assisted review— predictive coding, a software tool that uses complex algorithms based on human input to automatically tag documents.
The plaintiffs contend that predictive coding is better than keyword searching because it doesn’t require users to know all of the pertinent keywords in order to identify all of the relevant documents. If the human input provided is accurate, the plaintiffs claim that computers can use these algorithms to automate the identification of potentially relevant documents faster and more accurately than humans using the more traditional keyword document review methodologies, which would provide them with added assurances that the defendants’ document productions were thorough.
So the big question now is whether Judge Nolan will allow the plaintiffs’ request.
“I’m not sure that a court is ready to render a decision that basically will force a party to completely redo their entire document production in the absence of a more robust justification for it,” Faccone says.
However, experts do expect that Judge Nolan’s decision will provide important guidance about what is permissible after parties agree to a specific discovery protocol upfront, as well as whether one party should have the ability to change that protocol after a tremendous investment of time and under what circumstances the protocol change would be warranted should it be considered an appropriate resolution.
Another issue at play in Kleen is the same question of proportionality that was brought up in Race Tires.Some attorneys are hesitant to engage in a proportional approach to discovery because they fear that it doesn’t necessarily rise to the equivalent of zealous advocacy.
“The proportionality question is really the heart of the electronic discovery debate, or should be the heart of the electronic discovery debate,” Faccone says. “We need to recognize that we can be good lawyers for our clients by engaging in, and understanding, the principles of cooperation and proportionality.”
Kramer Levin Naftalis & Frankel Special Counsel and E-Discovery Counsel Brendan Schulman agrees, noting that recently there has been a decided push for cooperation between parties to mitigate potential discovery disputes before they begin.
“The trend has been to ask attorneys to do some careful thinking and consultation with clients and also, to the extent that it’s possible, to confer with adversaries and engage in a cooperative approach,” he says.
It appears this trend is set to continue. There are a number of cases currently queued up in courts behind Da Silva Moore and Kleen dealing with similar issues that have yet to go public.
“They’re not necessarily going to come out the same way as Da Silva Moore or Kleen will, but clearly this is a trend that’s only going to pick up steam,” says Craig Carpenter, vice president, marketing, at technology vendor Recommind.
Regardless of Judge Nolan’s decision in the case, Faccone speculates that Kleen won’t have quite the level of impact many in the e-discovery community are expecting.
“The outcome of this case aside, I don’t think this necessarily will have long-range implications on the predictive coding question,” she says. “Either way this case is decided, the facts are so unique that people will be able to rationalize and analogize those facts to their particular case one way or the other.”
Pippins v. KPMG LLP
Online exclusive video: How to establish a defensible e-discovery protocol
Decided on Feb. 3 in the Federal District Court for the Southern District of New York, Pippins is a putative class action lawsuit brought by former audit associates at tax and advisory services firm KPMG. The plaintiffs alleged that they were improperly denied overtime wages and were seeking to recover payments under the Fair Labor Standards Act (FLSA).
KPMG filed a motion before Magistrate Judge James Cott seeking a protective order pursuant to Rule 26(c) of the Federal Rules of Civil Procedure to limit the scope of its preservation obligations. The advisory firm objected to having to preserve computer hard drives for thousands of former employees who fell within a potential nationwide FLSA collective action, estimating that the cost of preserving each hard drive was about $600, and that preserving more than 2,500 hard drives would cost at least $1.5 million. To keep costs down, KPMG asked the court to determine whether a random sampling of a small number of hard drives would be sufficient to fulfill its preservation obligations.
Judge Cott denied the motion and ordered KPMG to preserve all existing hard drives. KPMG appealed this decision, asking Judge Colleen McMahon of the Southern District of New York to set aside the ruling because, among other reasons, the magistrate judge adopted an “unreasonably broad” definition of key players in ordering every potential class member’s hard drive to be preserved. KMPG also said Judge Cott didn’t factor in whether the costs of preservation were proportional to the hard drives’ value in the litigation.
Despite KPMG’s potentially precarious position, Judge McMahon denied its motion, writing that, among other reasons, KPMG failed to demonstrate that preservation was unreasonable, and that it refused to engage in good faith negotiations over the scope of preservation with opposing counsel. The plaintiffs had asked for samples of hard drives so they could investigate, and based on what they found, they indicated a willingness to relieve KPMG of the burden of having to preserve all of the hard drives. KPMG, however, refused to turn over the hard drives for sampling, prompting frustration from the court.
“It smacks of chutzpah,” McMahon wrote, “to argue that the magistrate failed to balance the costs and benefits of preservation when KPMG refused to cooperate with that analysis by providing the very item that would, if examined, demonstrate whether there was any benefit at all to preservation.”
Reed Smith Partner David Cohen believes this is a hot case because it’s a situation where the cost preservation is worth more than the case.
“The defendant is essentially in a position where there is great opportunity for extortion,” he says. “The plaintiffs can force the defendants to pay just because the cost of discovery is going to be more than the case.”
The issue of establishing a proper discovery protocol is one of the important issues to arise from Pippins. Had the parties come to an advance agreement on the appropriate custodians, and the scope of preservation and collection for purposes of production, it may have mitigated the outcome.
“This is a good example of why it pays to play nice in the sandbox,” Faccone says. “The court asks, ‘How can we assess the benefits of keeping this information if you won’t even let the other side assess it? You’re telling us it costs a lot, but we can’t see the other side.’”
Because of this, Judge McMahon eventually decided that KPMG wasn’t cooperating to the extent it could, and forced it to preserve all of the hard drives.
“The message that everybody can take from this is that we need to do our best to cooperate with the opposing party and come up with a discovery plan instead of just rushing to the courts every time to seek protection,” Stewart says. “If you can’t agree on a discovery plan and you’re not able to work together and come up with a reasonable solution, then clearly you should seek protection from the court. But here, the courts sensed that KPMG was not cooperating with the other side, and that’s why they gave that type of order.”
Another significant issue in Pippins is data preservation, and the big question of what amendments need to be made to the Federal Rules of Civil Procedure (see "Arguing over e-discovery amendments"). The debate has been raging for quite some time and has prompted a great number of attorneys and e-discovery experts as well as the Sedona Conference, which is providing comments to the Civil Rules Committee about how best to approach these issues, to weigh in on the matter.
“The Pippins decision has made people anxious, and may further the cause for amending the rules to allow some measure of proportionality,” Schulman says.