ESI Storage Blues

If you're like me, when I run out of space in my house, I sort through things, toss them out, give them away or hold a rummage sale. Even then I end up with items that not even Goodwill will accept-- in the trash they go. Unfortunately, you can't do that with your client's or your own corporate data.

So what to do when you run out of storage for the all important bits and bytes? Two options: buy more storage or rent disk space. Sounds simple enough but both of which can have a significant impact on e-discovery data management and retrieval. I will briefly examine both options.

Purchasing more servers or storage peripherals spells ownership but it also has a hardware depreciation and upgrade element to consider. It also means more upkeep that might even require more staffing to maintain the systems. In cost accounting lingo, it is described as the Total Cost of Ownership (TCO). The goal is to decrease TCO, not increase it.

However, this might be the only viable avenue to store data if your client insists on absolute security and confidentiality, despite the fact this might only provide a perception that the data is more safe and secure than being stored somewhere else. No one wants to admit the fact that neither security nor confidentiality can be guaranteed in today's hacker and virus-proned environments. There's simply no absolutes in the IT world.

On the other hand, renting disk space translates into paying someone to be the custodian of your data. This is an increasingly attractive proposition due to the growing terabytes or even petabytes of electronically stored information (ESI) that can overburden internal IT infrastructures. Data organization and ease of retrieval should be one of the key criteria to consider before engaging a vendor to take on this critical task.

The advantage of using a third-party vendor is that there's minimal costs or overhead associated with hardware, software maintenance or potential staffing issues. Since these vendors specialize in storage, they also tend to be very efficient at it. Regardless, hiring a vendor to handle your data is not as easy as it may sound. Before signing the service agreement on the dotted line, consider the following factors:

  • Hardware - Does the vendor's system integrate well with your IT infrastructure? It is critical that the vendor system "talks" to your internal document management system (DMS), your email servers and Intranet portal storage elements such as Microsoft SharePoint. All of which involve SQL databases to a great extent.
  • Searching - How receptive is the vendor's system when it comes to "data-on-demand"? Is the storage system fully searchable and in what manner? How fast can data be retrieved and produced? How is the data being indexed, migrated or archived in the vendor's system. All of which affect your company's ability to comply with e-discovery requests pertaining to F.R.C.P. Rule 26(f) and/or court subpoenas.
  • Administration - Does the vendor's system impose a shift on how you manage your data internally? If so, how easily can your organization and/or vendor adapt to this new paradigm. Do you need adjustments to your IT framework in order to make full use of the vendor's system? Inadequate planning can easily turn "Plug-and-Play" into "Plug-and-Pray."
  • Leverage - Does outsourcing data storage provide a better solution than insourcing? In this down economy, IT budgets are closely scrutinized and a misstep can spell a million dollar disaster (think cost effectiveness and client buy-in). In addition, outsourcing data storage potentially provides a justification in passing some of the costs to clients. At the minimum, your expenditure can show up on the client's invoice as a line item even your company might decide to write it off for the client's benefit-- Seeing is believing.
  • Collaboration - How well can the vendor's system work with other multi-platform systems that your e-discovery team potentially encounter. The more compatible the vendor, the higher chance of success. Industry standard is king or queen.
  • Continuity - Do you have a plan B (or C) if the vendor goes out of business (especially without notice)? How functional is your business without vendor support? What about your vendor's business partners? Can they provide support when the parent has gone fishing?

All of these are not easy questions to answer. However, with adequate planning, some, if not all, of the risks mentioned above can be minimized. If you abide by productivity expert Denis Waitley's  motto of "Expect the best but plan for the worst," at least you can say you have done your best when things go wrong. And they will.

Need a Reason to Hire E-discovery Counsel? Here Are $6 Million.

Not having knowledgeable e-discovery counsel can be costly -- a lesson the Office of Federal Housing Enterprise Oversight (OFHEO) found out the hard way.  Failure to devise a comprehensive plan for responding to a third party subpoena seeking ESI ended up costing the agency over $6 million to comply with a court order, more than 9% of the agency's entire annual budget. In a rare Court of Appeals decision, In re Fannie Mae Securities Litigation, 552 F.3d 814 (D.C. Cir. January 6, 2009), the D.C. Court of Appeals affirmed the district court's order holding the OFHEO in contempt for failing to comply with a discovery deadline to which it agreed.  But it's a bit more complicated than that.

The OFHEO regulates Fannie Mae and Freddie Mac, government sponsored enterprises participating in the secondary mortgage market.  Fannie Mae is subject to a number of private civil actions which have been consolidated into multidistrict litigation in the U.S. District Court for the District of Columbia.

In the summer of 2006, individual defendants who were former Fannie Mae executives subpoenaed 30 categories of documents from the OFHEO.  The OFHEO was not a party to the litigation.  After some discussion, the request was limited to certain email communications stored on OFHEO's network and backup tapes.  By the summer of 2007, OFHEO reported that it had produced all of the documents requested.  The defendants conducted a 30(b)(6) deposition of OFHEO, and learned that it had failed to search all of its off-site disaster recovery tapes.  A few months later, after the OFHEO failed to produce additional documents, the individual defendants moved to hold OFHEO in contempt.  Following the first day of the contempt hearing, OFHEO and the individual defendants entered into a stipulated order that required OFHEO to conduct searches of its disaster-recovery backup tapes and provide all responsive documents and privilege logs by January 4, 2008.  The order contained the following provision:

OFHEO will work with the Individual Defendants to provide the necessary information (without individual document review) to develop appropriate search terms.  By October 19, 2007, the Individual Defendants will specify the search terms to be used.

Pursuant to the stipulated order, the individual defendants submitted over 400 search terms, which covered approximately 660,000 documents.  OFHEO objected on the grounds that the stipulated order limited the individual defendants to "appropriate search terms," not a list that was "tantamount to a request for the dictionary."  The District Court disagreed, and ruled that the stipulated order gave the individual defendants sole discretion to specify search terms and imposed no limits on permissible terms.

OFHEO undertook extensive efforts to comply with the request, hiring 50 contract attorneys solely for that purpose, and spending over $6 million dollars.  OFHEO moved for and received two extensions, but failed to meet the deadline.  The individual defendants renewed their motions for contempt, and the district court granted them, finding that the OFHEO's efforts at compliance were "too little, too late."  As a sanction, the court ordered production of all documents withheld on the basis of the qualified deliberative process privilege and not logged by the January 4, 2008 deadline.

After a thorough analysis of the language in the order, the Court of Appeals upheld the district court's ruling, holding that "whatever ...ambiguities may lurk in the stipulated order, it unambiguously requires OFHEO to process the search terms the individual defendants specify."  Id. at 821.

The OFHEO made another challenge: that it substantially complied with the stipulated order in good faith, and that contempt was therefore inappropriate.  The Court of Appeals recognized that if its was deciding the matter in the first instance, it might not have held OFHEO in contempt.  However, because the review was for abuse of discretion, and the Court found that the OFHEO provided no basis for concluding that the district court abused its discretion in finding OFHEO in contempt.

What are the expensive lessons learned?

  • Hire knowledgeable counsel upfront to deal with the issues inherent in producing ESI.  Cleaning up a mess later is much more expensive.  You need counsel who understand the nuances involved, the technical issues and the potential expense associated with preserving, collecting, reviewing and producing ESI.
  • Negotiation of search terms is a standard step in producing ESI, and not one to be entered into lightly.  It could likely have saved millions of dollars here, where the OFHEO gave defense counsel carte blanche to decide the terms.Work with your counsel to develop a plan that is efficient, cost-effective and fulfills your obligations under the federal rules. 
  • Then, and this is important, get the parties to agree to it or go to the judge and get sign off before undertaking any expense.  It is unlikely, absent the OFHEO's shenanigans of failing to respond or pretending the Court's November 2006 order didn't include ESI, that the district court would have required the OFHEO to spend $6 million to produce information.  So the Court of Appeals suggests, and recent decisions from district courts are in line with approaches that minimize the costs to parties, especially third parties to an action.
  • Once you have sign off of your obligations, execute the plan, document your steps and move onto the next challenge.

Continuing to deny that knowledgeable counsel is needed in this new and rapidly developing area of the law will continue to cost organizations copious amounts of cash.  And who can afford that in this economy?  

Kudos to Liz Chamberlin for assistance with this post.

First Amendment Trumps E-Discovery

In a recent and previously sealed federal fraud and tax evasion case (U.S.A. v., W.D.WI, Case No. 07-GJ-04, filed 6/26/07), the district court ruled that customers who bought used books via have a cognizable First Amendment right to maintain the privacy of their reading choices.

The case stemmed from the U.S. Justice Department's discovery attempt (via a grand jury subpoena) to obtain Amazon customer records in order to advance its criminal case against a used bookseller suspected of committing criminal fraud and tax evasion. The Justice Department in this case does not suspect Amazon nor its customers of any wrongdoing. It simply wants to use the customer information to build a case against the defendant.

Citing the "compelling interest" test in "In Re: Grand Jury Subpoenas Duces Tecum, 78 F.3d 1307 (8th Cir. 1996), the Wisconsin court stated that "although a grand jury subpoena is presumed valid and enforceable, if the witness demonstrates a legitimate First Amendment concern raised by the subpoena, then the government must make an additional showing that the grand jury actually needs the disputed information."

The Wisconsin court further stated that "the subpoena is troubling because it permits the government to peek into the reading habits of specific individuals without their prior knowledge or permission."