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Crushing Costs - The Defense Bar Is Up In Arms About the Discovery Burden. Is It Right?

National Law Journal - Amanda Bronstad

Nine months into a litigation on behalf of current and former audit associates at KPMG LLP seeking overtime pay, a federal magistrate judge ordered the accounting firm to preserve the laptop hard drives of thousands of potential class members. KPMG said that might cost more than $100 million.

The ruling in October hit the legal profession, particularly the defense side, like a tire iron — a clear example, it seemed, of out-of-control electronic-discovery costs. The order fed an impression that attorneys were using such exorbitant requests to force settlements.

In fact, the statistics — what few there are — don't necessarily indicate a trend toward rising electronic-discovery costs. Rather, only a small percentage of cases become so expensive that they force the parties into settlement talks.

Justin M. Swartz, a partner at Outten & Golden, the plaintiffs' attorney in the KPMG case, certainly sees the situation as an anomaly. "I think it's a mistake for the business community to make this case such an important cause when the facts here, as the magistrate judge described, are that KPMG refused to cooperate throughout the process," he said.

Under the Federal Rules of Civil Procedure, and in most states, he legal system is supposed to be "just, speedy and inexpensive." But electronic-discovery requests compound roadblocks that already existed in the courts to meeting those standards, said Rebecca Kourlis, executive director of the Institute for the Advancement of the American Legal System, a research center at the University of Denver focused on the civil justice system.

Plaintiffs' and defense attorneys appear to share blame. "If you're a plaintiff and ask the defendant, 'Let me have all relevant information,' it's a huge task for the defendant, very time consuming," said George Paul, co-chairman of the e-discovery and digital evidence committee of the American Bar Association and a partner in the Phoenix home office of Lewis and Roca. "But even the plaintiff has to go through all that and review all that."

Fights break out over search terms, how to search electronic documents and what gets produced. Debates rage over what happens if a privileged document is accidentally turned over, or a document doesn't get turned over or is destroyed, and what sanctions, if any, should be imposed on a party that fails to comply with a discovery order.

One of the biggest disputes involves the preservation of electronic discovery — the issue at the heart of the KPMG case.

U.S. Magistrate Judge James Cott found that "each and every Audit Associate whom the company deemed was exempt from overtime payments…could be found to be a 'key player,' " and that the proportionality rule didn't apply to the preservation requests.

A "key player" is someone who has the knowledge to speak about the facts of the case.

Proportionality tests whether the cost of compliance with the discovery demand exceeds the anticipated value of the lawsuit, rendering the request illogical. The leading authority on both issues is Zubulake v. UBS Warburg, in which U.S. District Judge Shira Scheindlin in New York issued a series of rulings between 2003 and 2005 covering electronic discovery.

Most of the concern about rising costs in electronic discovery derives from anecdotal evidence. Not many statistics on the topic exist, and those that do don't necessarily make the case that electronic discovery has pushed up costs — nor that those increased costs are forcing settlements.

The Federal Judicial Center, the research agency of the federal courts, completed a study at the request of the Judicial Conference of the United States' advisory committee on the rules of civil procedure of cases that closed during the last quarter of 2008. The analysis, completed in October 2009, found that a party requested production of electronically stored information in about 36% of the cases, said senior researcher Emery Lee.

"There are a lot of cases that don't have a lot of discovery in them," he said. And of those that did, more than 70% of the attorneys involved reported no problems with electronic discovery. As for costs, the statistics showed a "long tail," in which most of the cases involved relatively low discovery expenses but a few proved quite costly.

For example, the median cost of litigating a case with no electronic discovery was $8,126, according to the plaintiffs' attorneys surveyed. Defense attorneys pegged the cost at $15,000. Lawyers with cases that did require electronic discovery, by contrast, reported spending $30,000 and $40,000, respectively. But in a few cases at the high end — representing the 95th percentile — costs reached $500,000 to $600,000. The figures include hourly rates and contingent fees.

More recently, the advisory committee has been deliberating proposals to address the perceived costs and burdens of electronic discovery. The topic took up 75 percent of the discussion during the advisory committee's regular fall meeting last year, said Benjamin Robinson, counsel to the rules committees. "This is priority No. 1 for the civil rules advisory committee," he said.

Meanwhile, some states are studying the electronic-discovery costs, Kourlis said, and pilot projects have been launched in federal courts including the U.S. Court of Appeals for the 7th Circuit.

Swartz, the plaintiffs' lawyer in the KPMG case, insisted that he has attempted to reduce everybody's costs — agreeing, for example, to request that KPMG produce only five hard drives as a start, just to show what's on them. As for the broader implications, Swartz defended the plaintiffs' bar. "Plaintiff class action lawyers have an incentive to litigate a case as efficiently as possible, not to spend more money than they want," he said. "The last thing I want is a lot of discovery that doesn't move my case forward."