Technology Survey Indicates Big Case Management Problems From Arbitration E-Discovery Are Spreading

By Deborah Rothman, Esq. on September 14, 2009

On the topic of About Mediation

BY DEBORAH ROTHMAN AND THOMAS J. BREWER

Discovery disputes relating to electronically- stored information, referred to in this article as ESI, continue to bedevil the courts. The disputes increasingly are arising in domestic commercial and some international arbitrations. This two-part article discusses specific types of E-discovery disputes practitioners encounter or can expect to encounter.

In preparation for an October 2008, presentation, at the College of Commercial Arbitrators’ annual meeting in San Francisco, the authors conducted an informal survey of some of the College’s Fellows. The College is an international professional association of commercial arbitrators that promotes ethical best practices, and has published a “Guide to Best Practices in Commercial Arbitration” (JurisNet 2006; see www.thecca.net). The survey’s goal was to identify the types of ESI discovery disputes that the Fellows see in cases where they have served as an arbitrator. A number of the CCA Fellows responded that they have been blissfully free of such disputes in their cases to date, and hope to remain so for the foreseeable future.

But others have been seeing E-discovery issues, and they are saying that these issues have presented a variety of types of disputes for resolution by the arbitrator. Overall, the survey indicates that College Fellows have encountered six main types of E-discovery disputes in their arbitrations; those six issues are covered point-by-point over these two articles.

1. How extensive and expensive a search must be done in order to respond to a document request seeking ESI?

The survey indicates that this is the type of ESI discovery dispute that College Fellows have encountered most often. Almost all predicted increasingly frequent disputes of this sort.

In the courts, search alternatives have ranged from relatively straightforward and limited searches of particular witnesses’ computers or servers, for relevant documents and E-mails, to wide-ranging and expensive searches covering terabytes of data. (A terabyte is a measurement term for data storage capacity. It denotes one trillion bytes, or 1,000 gigabytes. A gigabyte is the equivalent of about 500,000 typewritten pages.)

Particular search issues considered by the courts, among many, have included whether the search must seek out “deleted” files; whether the search should encompass multiple and possibly redundant storage locations, such as laptops; whether the search should go beyond active data to also include backup tapes and other ESI sources, such as fragmented, shadowed, or other residual ESI; whether search terms must be employed disjunctively or conjunctively; and whether forensic images of a hard drive can be created to preserve the data for later searching and analysis.

The arbitrators who responded to the survey made the following comments on the issue of searches’ extent and expense in response to ESI discovery requests:

• “Depends. Balance the potential importance of the information sought and the stakes in the arbitration against the cost and intrusiveness (and bear in mind that arbitration is meant to be quick and cost-effective).”
• “I believe the extent of the search must be such that the attorney for the producing party can state with ‘reasonable certainty’ that it would fully respond to the document request. . . . There is now a premium on attorneys cooperating with one another in determining the universe of electronic information, the differing methods of storage, how to best and most efficiently retrieve it, and the most appropriate form of production. Thus far, I have been pretty successful in convincing them that their IT people and their clients’ IT people know a heck of a lot more about this than do I, so they are far better served in figuring out what works for them.”
• “With the key documents likely to be increasingly E-documents, and these not necessarily on hard drives or in straightforwardly searchable locations, I don’t think arbitrators and judges will be able to stay aloof from issues related, e.g., to whether a party has made reasonable efforts to search for and produce highly relevant documents.”
• “The request should be narrowed to only those documents that either support or undercut a claim or defense, PERIOD. I am not a believer in permitting requests for all documents relating to subject ‘X.’”
•  SECONDARY DATA?

The survey identified a number of sub-issues. For example: When may the requester require the responder to access backup or secondary databases, rather than just easily accessible databases? What sort of factual basis or showing should be required before ordering back-up searching? When may non-primary storage devices be required to be searched (e.g., home computers, personal laptops, PDAs, flash drives, etc.)? When may a party discover the other side’s document retention policies and practices— they are rarely the same—for ESI and litigation hold procedures?

Another sub-issue was identified in the survey comments: “I have seen a fairly steep increase in the number of privileged documents inadvertently produced electronically. The attorneys receiving the production have been quite good about ferreting them out before reading them and before any damage was done, but it is an increasingly problematic issue.” [One author reports “an exponential increase of problems of inadvertent production of privileged material caused by E-discovery.” See Irene C. Warshauer, “Electronic Discovery in Arbitration: Privilege Issues and Spoliation of Evidence,” 61:4 Dispute Resolution Journal (November 2006-January 2007).]

Also: “The extent of the required search for electronically stored information depends on the usual parameters for discovery (e.g., a date range deemed relevant, and some showing that the information is reasonably calculated to lead to relevant and admissible evidence), and the cost and time that would be necessarily expended by the responding party. Generally, it is not burdensome to search for E-mail messages maintained on a computer system and subject to active retrieval by system users in the ordinary course of business.” The Advisory Committee notes to the 2006 Federal Rules of Civil Procedure amendments suggest a number of factors that may be relevant to requests for extensive and invasive searches. These include: Whether the responding • party can make a persuasive showing of undue burden and cost.

• Whether such a showing of undue burden can be overcome by a showing of good cause consistent with FRCP 26(b)(2)(C). See below.
• The specificity of the discovery request— the general idea being that the requesting party should be required to narrow and tailor a specific set of discovery requests.
• The amount of information available from more easily accessed sources: The parties should examine readily available information first.
• Whether the responding party has failed to produce relevant information that is likely to have existed but is no longer available on more easily accessed sources, or at all.
• The likelihood of finding relevant, responsive information that cannot be obtained from more easily accessed sources: The parties can conduct sampling to determine the costs and burdens of production, and the likelihood of finding responsive, highlyuseful information.
• Predictions as to the importance and usefulness of the further information, considered in light of the amount in controversy.
• Importance to the issues at stake in the litigation.
• Whether the court should consider appointing a neutral forensic expert.

As these factors illustrate, the federal judiciary’s general response to this issue in theory has been the rule of proportionality. This general principle—that courts may limit discovery where its costs do not justify its benefits—was made explicit in Fed.R.Civ.P. 26(b)(2)(C), adopted in 1980. The principle also is reflected in the more recent amendments to Rules 16, 26, 33, 34, 37, and 45 dealing with E-discovery, which were adopted in late 2006.

In practice, however, the utility of this important principle “has been limited in view of the broad standard for discovery in federal litigation. . . . [B]road discovery is the cornerstone of the U.S. litigation process, despite efforts of courts to balance the competing need for broad discovery and manageable costs.” Jonathan L. Frank and Julie Bedard, “Electronic Discovery in International Arbitration: Where Neither the IBA Rules Nor U.S. Litigation Principles Are Enough,” 62:4 Dispute Resolution J. 65-66 (November 2007–January 2008). The principle of proportionality “could have taken center stage with the advent of E-discovery and its capacity to inflict enormous costs on litigants, but it did not. In fact, the debate about E-discovery in U.S. litigation has focused more on the allocation of its costs than on its scope.” Id.

With this history in mind, one fundamental policy issue facing arbitrators is whether they should or will choose to follow the courts’ lead by generally permitting extensive, expensive, and intrusive ESI searches, and focusing decision making mainly on who should bear the cost of such searches. Or will arbitrators rigorously apply the rule of proportionality to fashion more restrictive limits on access to such searches than the courts to date have done?

HELP ON PROPORTIONALITY

The Sedona Principles comprise one source that may be helpful to arbitrators approaching such issues. These principles articulate a set of best practices recommended by an independent think tank to help guide resolution of E-discovery disputes. “The Sedona Principles Addressing Electronic Document Production, Second Edition” (June, 2007)(available at www.thesedonaconference.org).

In general, these principles counsel firm application of the rule of proportionality to require “consideration of the technological feasibility and realistic costs of preserving, retrieving, reviewing, and producing electronically stored information, as well as the nature of the litigation and the amount in controversy.” See Principle 2.
The Sedona Principles also specifically recommend the following on several of the specific issues identified above by the College of Commercial Arbitrator Fellows:

“The primary source of electronically stored information for production should be active data and information. Resort to disaster recovery backup tapes and other sources of electronically stored information that are not reasonably accessible requires the requesting party to demonstrate need and relevance that outweigh the costs and burdens of retrieving and processing the electronically stored information from such sources, including the disruption of business and information management activities. . . . Absent a showing of special need and relevance, a responding party should not be required to preserve, review, or produce deleted, shadowed, fragmented or residual electronically stored information.” See Principles 8 and 9.”

One management tool that has particular merit in such disputes is sampling. Before parties are exposed to wide-ranging ESI searches, it often is possible to fashion searches that are more limited, and less intrusive and expensive. These searches may test the utility of replicating the limited sample searches more broadly.

This approach may not always be useful or possible, but it often is a constructive alternative to consider before authorizing a wholesale search, or in resolving particular motion-to-compel issues. See the Sedona Principles, No. 11: “A responding party may satisfy its good faith obligation to preserve and produce relevant electronically stored information by using electronic tools and processes, such as data sampling, searching, or the use of selection criteria, to identify data reasonably likely to contain relevant information.”

In the same vein, in May 2008, the International Centre for Dispute Resolution, the international division of New Yorkbased American Arbitration Association, announced the release of a new set of guidelines for the document disclosure process in international commercial arbitrations.

Guidelines Nos. 4 and 6(a) provide that arbitrators “may direct testing or other means of focusing and limiting any search” for ESI and also encourage arbitrators to be “receptive to creative solutions for achieving exchanges of information in ways that avoid costs and delay, consistent with the principles of due process. . . .”

2. Must/may ESI responsive to a document request be produced in electronic format instead of in hard copy?

Several Fellows responding to the survey stated that they have been presented with this type of dispute in their arbitrations. The respondents had the following comments about how they have approached this issue:

• “Absent party agreement (which, surprisingly perhaps, is often achieved without arbitrator intervention), I follow the Sedona Principles, and in particular the principle numbered 12 (see below), and order relevant information ordinarily maintained in electronic form to be produced in that form absent some countervailing issue such as high costs to the responding party or confidentiality concerns (often addressed through an agreed protective order).”
• “Yes. Seems to me this will generally be less burdensome for the producing party and more useful for the requesting party.”
• “I have found the recipient usually prefers that method, and I see no benefit from incurring the increased cost of producing it in hard copy.”
• “It is quite customary now for documents to be produced in [electronic] form, rather than hard copy. However, an important question arises as to whether or not hard copy documents should be scanned into [electronic] form before production by the producing party. It is all a matter of specific circumstances. As an arbitrator, I prefer hard copies of important documents arranged in chronological order, as well as the [electronic] form. Searching the [electronic] form for minutiae may be useful, but more useful for me is the ability to turn pages and get the story as it unfolded chronologically. . . . Of course, a fundamental issue, especially in international arbitrations, is whether anything more than very limited document production ([electronic] or otherwise) ought to be permitted. Over and over again, U.S. litigators move forward as though they were in federal litigation. I believe we ought to work hard at training U.S. litigators to learn to try arbitrations on the merits without full discovery. In situations where the opposition is the only repository of genuinely important documents, ‘discovery’ is warranted. In many other situations only very limited discovery is, in my view, warranted.”

Another Fellow recalled the one time he confronted this issue: “I actively discouraged the parties from pursuing E-discovery as being incompatible with arbitration. They both acquiesced.”

Another rightly observed that the issue as posed above can lead to more nuanced disputes: “What form may the production of ESI take [native format versus a .TIFF image])? This also involves redacting and Bates-numbering issues.” (A tagged image file format, or TIFF, is a file format for storing images, including documents and photographs, and is widely used in document imaging and management, and high-volume storage scanning. Producing ESI in native format can fail to protect a document’s future integrity if it was created in a modifiable software application, such as MS Word, WordPerfect or Excel, and also raises issues as to whether the ESI can be redacted or Bates-numbered effectively.)

Sedona Principle No. 12 provides: “Absent party agreement or court order specifying the form or forms of production, production should be made in the form or forms in which the information is ordinarily maintained or in a reasonably usable form, taking into account the need to produce reasonably accessible metadata that will enable the receiving party to have the same ability to access, search and display the information as the producing party where appropriate or necessary in light of the nature of the information and the needs of the case.” (Metadata is hidden data not visible when the document is printed that contains information about the document’s provenance, such as when it was created, when it was last modified or accessed, and who created it. See Frank and Bedard, supra.

ICDR Guideline 4 provides, “When documents to be exchanged are maintained in electronic form, the party in possession of such documents may make them available in the form (which may be paper copies) most convenient and economical for it, unless the Tribunal determines, on application and for good cause, that there is a compelling need for access to the documents in a different form. Requests for documents in electronic form should be narrowly focused and structured to make searching for them as economical as possible. . . .”
The Advisory Committee notes to the 2006 amendments to Rule 34 also contain an interesting discussion of these issues. These include:

1) The producing party’s “option to produce in a reasonably usable form does not mean that a responding party is free to convert [ESI] from the form in which it is ordinarily maintained to a different form that makes it more difficult or burdensome for the requesting party to use the information efficiently in the litigation,” and

2) “If the responding party ordinarily maintains the information it is producing in a way that makes it searchable by electronic means, the information should not be produced in a form that removes or significantly degrades this feature.”

The courts also have considered the general problem of sanctions for failure to make the production in an appropriate manner. In In re Seroquel Prod. Liab. Litig., 2007 WL 2412946 (M.D. Fla. Aug. 21, 2007), for example, the plaintiffs in a multidistrict product liability litigation sought sanctions for failure to produce documents in an accessible or useable format, in addition to missing numerous deadlines. In awarding sanctions, the court cited the defendant’s failure to discuss keyword search terms with plaintiffs, failure to include page breaks between documents it did produce, failure to produce usable single-page TIFF documents, omission of attachments and relevant emails, and purposeful sluggishness in making an effective production.

* * *

In Part II next month, Deborah Rothman and Thomas J. Brewer return with Points 3-6, covering the rest of the main areas of E-discovery disputes revealed in their survey of College of Commercial Arbitrators Fellows, and conclude with predictions for practices in dealing with E-discovery in arbitration.
DOI 10.1002/alt.20290
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