Avansic Whitepaper: Changing Expectations for In-House Counsel
06-27-2018, Clay Chamberlain, Director of Legal Operations, Corterra Energy and Dr. Gavin W. Manes, CEO of Avansic - Corporate
Since the financial crisis, in-house legal departments have been demanding lower costs and better service from their law firms. Total legal spend is a key performance indicator for in-house legal departments and litigation comes under the same scrutiny as any other costs. Indeed, being able to out-maneuver your legal opponent in managing legal costs can be a direct competitive advantage.

In modern companies, the tsunami of electronically stored information adds significant complexity to assessing the costs of litigation. Recognizing these challenges, in-house counsel have been developing methods to control costs and improve the effectiveness of their outside counsel by focusing on how to best deploy resources. These goals, among others, were largely behind the formation in 2015 of the dedicated arm of the Association of Corporate Counsel (ACC) called ACC Legal Operations and the Corporate Legal Operations Consortium (CLOC) – both closely followed and discussed between in-house counsels. The need for responsive e-discovery litigation support has become an indispensable element to an in-house counsel's ability to trust its litigators to deliver results efficiency and effectively.

Challenges for In-House Legal Departments –
Litigation Readiness

Litigation readiness is a challenge for in-house legal departments. Once a lawsuit has been served, early stage data collection and preservation present challenges not always fully understood by outside counsel. The volume of electronic data generated every day at a modern company ranges from simple emails and texts to real-time operational data streams being stored in company databases. A single collection event is the easiest and most cost-effective approach, but time may not allow for that and identifying all the relevant custodians may not be easy. Outside counsel may not understand the raw volume of data to be collected or the scope of the custodians involved. In an effort to buy time, litigators often respond with boilerplate objections and request the collection of all potentially responsive information without understanding the harm such collection practices might have on the business, both financially and to ongoing daily operations. A very early structured approach is the solution to avoid later costly difficulties.

Prior to a lawsuit being filed, in-house legal departments often monitor lawsuits against their peers to anticipate future actions against the company, especially in novel yet repeatable instances where a plaintiff's firm may build an industry around a particular type of claim (e.g., class actions). By waiting until a lawsuit is filed and not understanding the scope of the data involved and the efforts needed to collect it, the company may have no other option than to pay whatever it costs to hire the manpower needed to respond to court orders and deadlines. There is no cost control or assessment of the cost against the risks of the case, which is detrimental to the needs of the in-house legal department to report its anticipated legal spend within the company. However, in-house counsel and outside counsel can proactively prepare by consulting with e-discovery vendors to educate themselves about the scope of relevant data and costs associated with production in anticipation of litigation. Importantly, upon commencement of the litigation, outside counsel will be ready to make highly-informed objections that will be able to withstand scrutiny and limit discovery cost impacts.

The need for litigation readiness is even further enhanced when defending against the surprise requests for emergency injunctive relief of temporary restraining order or defeating a preliminary injunction, as illustrated in the below case study.

Case Study
In this case, a surprise lawsuit was filed against a group of related defendants and a temporary restraining order was entered the very next day based on the affidavits of the plaintiff. The practical effect of this TRO essentially shut down the defendants' entire business operations. The only option for the defendants was to schedule the preliminary injunction hearing as soon as possible and produce all documents to prove the plaintiff's case had no chance of success – all of which had to occur within approximately two weeks. The cost of waiting or losing the preliminary injunction was irreparable damage to the business. Immediate and informed e-discovery operations were indispensable to accomplish the collection, processing, review, and production of approximately 1 TB of information in about 10 days.

First, outside counsel immediately connected in-house counsel with the e-discovery vendor to determine the scope of collection. In-house and outside counsel then determined which of the requested documents were core to the injunctive relief claims and established the scope of proportional production needed. Outside counsel, in-house counsel, and the e-discovery vendor spent a lot of time personally with the custodians (the people most familiar with the data) to determine how to search and collect most effectively. This immediate and coordinated approach served several functions: it educated lead outside counsel to argue for specific and informed proportionality objections to avoid delay; it educated in-house counsel about the risk and expense involved in the litigation; and it educated the custodians (i.e., eventual witnesses) about the areas of inquiry during their depositions and hearing testimony.

For document review and deposition preparation, a web-based e-discovery system was chosen which allowed effective and efficient coordination between the three sets of defense counsel for the co-defendants including out-of-state counsel. In-house counsel was able to ensure the three teams were up to speed and had access to the documents within the short time frame. Due to a Joint Defense Agreement, co-counsels were able to share tags, searches, and other work product within the e-discovery website. Allocating workload between those firms by creating batches and monitoring time spent in the system meant easier case management by the in-house counsel. Additionally, the aggressive deposition schedule required shared work product and documents between co-counsels from a centralized system.

Finally, the litigation team was able to identify the existence or non-existence of significant documents using advanced analytics such as email threading and “more like this” while preparing for expedited depositions and the preliminary injunction trial. The standardization of this discovery process around the e-discovery vendor and its software tools empowered the legal team to deliver a collective result for their clients that would have been improbable using traditional methods. Importantly, with multiple parties, the ability to maintain consistent document endorsements and numbering avoided the logistical excuses and complaints that could have resulted in delays continuing the harms that were occurring as a result of the TRO.

In this case, the culture of coordination and the use of a centralized, web-based review tool resulted in a timely vacated TRO and a denied preliminary injunction. Further, these early e-discovery assessment procedures and collaboration ultimately created large discovery cost savings over the course of the litigation. In-house counsel was able to report on the effectiveness and efficiency of the case discovery – despite the initially calamitous circumstances.

Ensuring Proportional Discovery under the New Federal Rule 26

In-house counsel are always looking for their outside counsel to provide them with tools to use in court to limit the scope of discovery and control discovery costs. When managing the practical realities of litigation, most recognize that it is an impossibility to gather and review all available potentially relevant electronic data. From the in-house legal department perspective, the question often asked is whether the scope of discovery makes sense in proportion to the size of the case. Understanding this early helps make informed litigation decisions.

In December 2015, in attempt to address skyrocketing litigation costs and clarify the standard, the “proportionality” amendments were made to Rule 26 of the Federal Rules of Civil Procedure. Now, Rule 26(b)(1) requires that the discovery be “relevant to any party's claim or defense and proportional to the needs of the case.” In doing so, the court must consider the following six factors:
1. The importance of the issues at stake in this action;
2. The amount in controversy;
3. The parties' relative access to relevant information;
4. The parties' resources;
5. The importance to the discovery in resolving the issues; and
6. Whether the burden or expense of the proposed discovery outweighs its likely benefit.
Fed. R. Civ. P. 26(b)(1).

Used properly, this rule provides litigators with a great tool to rein in discovery. An example of this rule's application is demonstrated in Oxbow Carbon & Minerals LLC v. Union Pac. R.R., 322 F.R.D. 1 (D.D.C. September 11, 2017). Here, defendants sought to compel plaintiff's CEO, William Koch (“Koch”), to produce responsive documents. After the plaintiff had already spent about $1,391,000 in reviewing and producing about 584,000 documents from 19 custodians, they then attempted to argue that the burden of reviewing and producing Koch's additional documents were simply a step too far. The plaintiff initially estimated that such a review would result in an additional 214,000 documents and $250,000 in costs, which turned out to a misleading overrepresentation. Ultimately, the court found the discovery request proportional to the needs of the case and ordered plaintiff to produce Mr. Koch's documents within 30 days. Id. at 11; See also Reibert v. CSAA Fire & Cas. Ins. Co., 2018 WL 279348, 2018 U.S. Dist. LEXIS 860 (N.D. Okla., January 3, 2018).

In addressing the proportionality rule, the court was quick to point out that “Oxbow decline[d] to address any of the other proportionality factors highlighted in Rule 26.” Id. at 7. However, a closer read of the case helps illuminate a principal issue with plaintiff's proportionality objection arguments – it was too late before plaintiff truly knew the magnitude of the scope of its collection, review, and production. When plaintiff estimated initially that the Koch discovery would add 214,000 documents to the already 584,000 produced and it later turned out that there were only an additional 65,000 to review, the difference in the incorrect initial estimate made the new smaller number seem relatively small. By the time this argument came for its second hearing, plaintiff had already spent $1,391,000 in reviewing and producing documents; thus, the remaining $85,000 seemed relatively small as well. In addition to the inability of plaintiff to contradict itself and argue that the issues at stake in this action were not important, not understanding of the scope of collection early in the case likely resulted in overstating estimates and costs that made the proportionality arguments made later in the case seem futile in comparison.

Truly understanding the scope of collection and preservation as early as possible with the assistance of the e-discovery vendor will enable outside counsel to both make specific proportionality objections and show with evidence the six factors that support the need to limit discovery. Avoiding general arguments about discovery and focusing on the specific discovery requests at issue is necessary to persuade the court. While it may not be initially successful, having all the information early in the case about discovery scope and proportionality will help persuade the judge to draw the line as early as possible – rather than after spending $1.3 million in document review.

Regardless of the ultimate merits of the case, in-house legal departments have to watch the bottom line. Using all the tools in an outside counsel's arsenal to ensure the scope of discovery is limited to the proportional needs of the case will ultimately assist in-house counsel to achieve an efficient and effective result for their companies.

The importance of being ready for an e-discovery event cannot be overstated. It is a common tool in the warfare of litigation to use the “drowning them in data” tactic. But efficiencies and preparedness for e-discovery eliminate the cost leverage by an opponent and allow the merits of the case to drive the resolution. Being efficient about e-discovery takes away that leverage.

Another way to prepare is to ensure IT systems are created and operated with e-discovery and litigation events in mind. This may mean spending legal department budget funds, but those costs will be made up many-fold by discovery efficiencies.

Importantly, with new organizations like ACC Legal Operations and CLOC, in-house legal departments have a razor-sharp focus on improving efficiency and effectiveness – and they view these as strategic strengths in litigation. By combining seasoned trial experience with modern tools, this will invariably assist outside counsel and in-house counsel meet the challenges of satisfying their client.