E-Discovery for Corporate Litigants, Part 1 of 2: the True Costs of ESI

E-Discovery for Corporate Litigants the True Costs of ESI
Part 1 of 2

Electronically Stored Information (“ESI”), as defined by the Federal Rules of Civil Procedure (“FRCP”) refers to electronically stored information, which constitutes evidence to be produced during pretrial discovery. This discovery process is known as electronic discovery (“e-discovery”). E-discovery can be especially expensive for corporate litigants, yet corporations do not pass these costs onto the officers, directors and employees who are custodians of their ESI. Instead, corporations manage their litigation risks by obtaining Director’s & Officer’s Insurance (“D&O Insurance”). However, the amount of D&O Insurance coverage available to resolve litigation or protect against judgments is limited by the given policy available to the party seeking coverage. In addition, the amount of coverage provided by the policy is reduced by litigation fees and expenses applied against the coverage.

In order to obtain the maximum coverage under the given circumstances of each individual case, it is necessary for corporate counsel, their insurance agents and insurers to understand not only the potential exposure to the company based on its business activities, but also to assess the risk of incurring e-discovery costs which may waste D&O Insurance coverage. Therefore, familiarity with the volume of ESI a given company typically generates, where the ESI is stored, the various formats of the ESI and the process for retrieving the ESI are key factors to be considered.

There are given requirements involved for almost any party involved in litigation. These litigation requirements include but are not necessarily limited to preservation of ESI, analysis and management of various formats of electronic evidence and its attendant meta data, chain of custody reporting, and protection of legal and statutory privilege are all of paramount concern. Unlike hard copy documents, ESI is volatile, and contains embedded information (e.g. metadata). Unfortunately, particularly in a struggling economy, litigants are now being forced to confront the ultimate dilemma concerning e-discovery: foregoing meritorious claims and/or defenses due to diminishing return on unpredictable legal fees.

Moreover, certain federal (and some state) statutory provisions make e-discovery a mandatory concern for corporations, and the cost of preserving ESI is a regulatory concern under (e.g., Sarbanes-Oxley, Gramm-Leach Bliley, HIPPA, etc.) which is equal to the concerns of litigation.

The environment discussed above, especially over the past three years, has spurned a cottage industry for addressing e-discovery “risk”. However, e-discovery is a variable expense that in-house legal and risk management officers are continually confronted with assessing on a case-by-case basis. Therefore, corporations are constantly attempting to quantify–or at the very least contain–litigation costs that D&O Insurance policies may not have properly contemplated. However, it is not impossible to tackle this financial vulnerability by modeling e-discovery life cycles across various types of complex litigations in the context of efficient trial practice rather than refusing to depart from inefficient pretrial discovery processes.

** This is the first part in a two-part series which comprise an abridged version of the article “E-Discovery for Corporate Litigants,” written by Daniel Garrie and published in the Los Angeles Daily Journal.