Feature Article: Looking in From the Outside – Counsel’s Ediscovery Responsibilities
Over the past two years corporations have made significant changes in the way electronically stored information (ESI) is managed in the context of investigations and litigation.
Corporate litigants have strengthened litigation readiness and response protocol, exercising increased control over the beginning stages of the electronic discovery process. Those legal professionals charged with defending corporations’ actions are impacted by this shift in process and must understand what the “new era” of ediscovery operations means for their responsibilities.
ESI Readiness Strategy & Document Retention Policies
Litigation readiness requires policies, procedures and tools designed to identify and preserve potentially discoverable electronically stored information. Adequate litigation preparedness involves implementing an ESI discovery readiness strategy. According to Kroll Ontrack’s Third Annual ESI Trends survey1, only 46 percent of U.S. companies have incorporated this policy.
Despite the fact that almost half of corporations do not have an ESI readiness policy in place, 87 percent of U.S. companies reported having a document retention policy in place. The disparity between the existence of an ESI discovery readiness strategy and a document retention policy suggests a lack of knowledge between the concepts of document retention and discovery readiness, and perhaps a false sense of security that the existence of a document retention policy is comprehensive enough to protect an organization when it must respond to a legal inquiry.
As corporations continue taking control over ediscovery and information management policies, the communication gap that currently exists regarding these policies will continue to widen. Law firms and corporations are not always on the same page when it comes to understanding policies and enforcing them, which spells trouble for counsel. In order to be on the same page as their clients, outside counsel must engage in conversations regarding these policies, ensuring effective strategies are in place.
Litigation Hold Policies & Mechanisms
In addition to implementing an effective ESI readiness strategy and document retention policy, an important component of proactive corporate data management is having a successful litigation hold policy in place. More than 40 percent of U.S. companies report either not having a mechanism in place to suspend their document retention policy or not knowing if such a policy exists. Organizations have a legal obligation to preserve documents once litigation is anticipated, and if companies are not positioned to execute proper preservation protocol, the ESI discovery readiness policy cannot be effective.
Recent case law is replete with examples of courts imposing sanctions against parties and their counsel for failure to properly comply with preservation obligations. However, there is one example in which outside counsel escaped sanctions despite playing a role in the client’s shortcomings. In Pinstripe Inc v. Manpower Inc., the Northern District of Oklahoma sanctioned the defendants who failed to issue a litigation hold and preserve documents appropriately. Outside counsel drafted a litigation hold for the defendants and believed it was in effect. The court chose not to impose sanctions against outside counsel based on the record, which demonstrated that the law firm attempted to confirm that all responsive documents were produced. Despite the fact that outside counsel escaped sanctions in this case, law firms should be cognizant of their duties to monitor their clients’ compliance with proper discovery protocol. It is highly unlikely that every court would treat this situation similarly and choose to let counsel off the hook.
Defensibility arguments, including ESI readiness strategies and document retention protocols, are the responsibility of outside counsel when their corporate clients’ actions are examined under the court’s microscope. According to the survey, 49 percent of U.S. companies tend to agree that their ESI discovery policy is repeatable and defendable, while 28 percent strongly agree. These numbers suggest that the majority of company policies have not been tested and questions of defensibility remain.
Failing to adequately explain discovery shortcomings when defensibility is questioned may lead to the imposition of sanctions against outside counsel in addition to the corporate client. In a series of opinions, the Middle District of Florida, in Bray & Gillespie Management LLC v. Lexington Insurance Company, found the plaintiff corporation and its counsel jointly and severally liable for the defendants’ expenses and costs as a result of discovery failures.
The interplay between outside counsel and the corporate client was also highlighted by the Southern District of Indiana in 1100 West, LLC v. Red Spot Paint & Varnish Company. In response to the default judgment the plaintiff sought, the defendant argued it relied on its attorneys for discovery advice, and therefore, any error was the attorneys’ responsibility. The defendant’s attorneys also attempted to pass the blame by attributing discovery shortcomings to the defendant’s failure to provide accurate and complete information. Finding the case to be “replete with examples of violations of discovery rules,” the court found the attorneys and defendant responsible for the plaintiff’s attorneys’ fees and costs, in addition to granting the motion for default judgment sanctions. This case illustrates that the attorneys are responsible for knowing, understanding and monitoring their clients’ adherence to the requirements specified in the Federal Rules of Civil Procedure.
The practice of identifying, collecting, searching and reviewing electronic data is not taught in most law schools; as such, most lawyers have not received any formal education on this complex subject. Without understanding the intricacies of ediscovery and the related technology, it will be nearly impossible for attorneys to explain to their clients why investing in things such as an ESI readiness strategy and litigation holds are important, especially in tough economic times. As the relationships between corporate counsel and outside counsel continue to evolve, law firms can gain a competitive edge by understanding the ins and outs of this complicated area. This knowledge will allow law firms to take advantage of the various technological solutions in the marketplace to provide time and cost efficiencies for their clients, which will help ensure repeat business, strong reputations and defensibility in the courtroom.
1This report is based on an independent survey conducted by Research Plus on behalf of Kroll Ontrack. A total of 461 (231 U.S. and 230 U.K.) online interviews were conducted among IT and in- house counsel at commercial businesses. Survey questioning was completed between July and August 2009