ESI: The Economics of Litigation...

The operational risk and complexity of eDiscovery is increasing and the economic impacts are becoming a Board Room topic of debate. This study from RAND by James N. Dertouzos, Nicholas M. Pace, and Robert H. Anderson opens up some of the serious implications of Electronically Stored Information (ESI) as it pertains to this research:

Business litigants display a mix of optimism and concern about the impact of the new federal rules on e-discovery that went into effect in December 2006. To some extent, the balkanization that marked federal decisions in this area is likely to be reduced, but the core concerns over uncertainty about what are reasonable steps to take in advance of and during litigation remain. Thus, it is apparent that further clarification and development of e-discovery rules that promote efficiency and equity for both defendants and plaintiffs are required. For example, the new federal rules require early and full disclosure of IT systems, but interviewees noted that many lawyers are unfamiliar with the modern and continuously evolving hardware, applications, and internal record-keeping practices of their clients. Lawyers risk significant sanctions for failing to properly carry out e-discovery duties that they may not be equipped to handle. Even technologically savvy attorneys voiced concerns that providing opposing parties with detailed IT “roadmaps” as envisioned under the new rules would lead to discovery demands designed solely to drive up costs. And as corporate clients increasingly move toward internalizing collection, review, and production tasks in order to limit litigation costs, their outside counsel may find themselves with reduced control over the process but nevertheless still vulnerable to sanctions.

Lawyers who are modernizing their efforts to review documents are partnering with new boutique firms to accomplish this because they have the tools and the technology subject matter expertise. However, these efforts may be increasing the cost of litigation to corporate clients even though the automation and outsourcing is enhancing their process of review and relevancy. This is because the lawyers are still charging their clients for manual review by associates in the firm who charge by the hour in most cases in excess of $300/hr.

eDiscovery and the costs and benefits of litigation are a constant dialogue on the golf course, the skybox and the private rooms of fine dining in New York, Washington, DC and most major metro areas. The reason has to do with the "Mathematics of Litigation".

The previous discussion makes it clear that e-discovery, by changing costs, creating new risks, and altering the flow of information, could alter litigant incentives to file suit, settle cases, and go to trial. For example, several interviewees claimed that the significant burdens of e-discovery outweighed the benefits of going to trial, especially in low-stakes cases. Thus, they were fearful of an increase in lawsuits of questionable merit in which defendants would settle rather than incur the costs of discovery. Viewed from another perspective, plaintiffs may choose to settle cheaply, dismiss their own cases, request less, or refrain from filing in the first place if their own costs of discovery (whether as producer or requestor) overwhelm the value of their claims.

The trend line for eDiscovery is clear. Corporations are bringing the eDiscovery mechanism in-house and are integrating the legal department with savvy staff in the IT ranks. Outside counsel will continue to remain a key aspect of the litigation process but are quickly being asked to take more traditional roles in the case. Outsourcing the automation tasks to the law firm will only increase the complexity and the potential liability of ESI related episodes or incidents.

operational risk