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The House Judiciary Subcommittee on the Constitution convened its hearing on "The Costs and Burdens of Civil Discovery" on Tuesday, Dec. 13, to address whether amendments to the Federal Rules of Civil Procedure (FRCP) are needed to ameliorate what the corporate legal community considers to be excessive costs and burdens of e-discovery. In the end, the consensus of the participating members was that the question is being actively studied by the Federal Judicial Conference's Civil Rules Advisory Committee, so there is no reason for Congress to involve itself at this time.
In his opening statement, Chair Trent Franks stated that the current discovery rules "appear to fall short" of the goal of encouraging the just, speedy, and inexpensive resolution of disputes envisioned by FRCP 1. "Costs are increasing because the discovery rules are too vague," Franks said, and the "[v]ague standards and harsh sanctions leave parties no choice but to preserve excessive amounts of data."
Rep. Jerrold Nadler, D-N.Y., opened his statement with the observation that the title of the hearing did not "even remotely acknowledge" the critical role discovery plays in uncovering facts so that cases can be resolved on the merits. While acknowledging that electronic data discovery poses new challenges and burdens to litigants, Nadler pointed out that electronic data has also "proven particularly valuable in uncovering critical evidence and improving accountability," and that "we should not lose sight of the tremendous benefits of discovery in our focus on its alleged costs and burdens." Nadler also read from a letter submitted to the subcommittee by the Civil Rules Advisory Committee, which urged the subcommittee "to allow the Rules Committees to continue their consideration of these issues through the thorough, deliberate, and time-tested procedure Congress created in the Rules Enabling Act."
Next up, Rep. John Conyers, D-Mich., pointedly asked Franks why no members of the advisory committee had been invited to testify at the hearing. When Franks responded that some judges on the Advisory Committee believed it was more appropriate for that committee to convey its position by letter, as opposed to appearing before the Congressional subcommittee, Conyers quipped that "apparently, their letter may not have been as persuasive upon you as they had hoped it would because you determined to continue the hearing anyway." Conyers then noted that less than one-tenth of 1 percent of federal cases involve the level of discovery costs that were subject of the hearing, "which suggests that this hearing may be based on some corporation insistence that they be heard about this matter" rather than a genuine need to consider rules changes.
The first witness, former Colorado Supreme Court Justice Rebecca Kourlis, now the executive director of the Institute for the Advancement of the American Legal System, began by stating what litigators already know: that e-discovery has made litigation more complex and expensive, leading to fewer trials and more settlements based on the cost of litigation rather than the merits of the dispute. "The culprit seems to be, to some significant extent, the way in which the pretrial process unfolds."
Proposed responses under discussion include rules changes, more effective judicial case management, and increased cooperation among attorneys in discovery, she said. IAALS supports all three, but believes that "real change will only be institutionalized if it is accompanied by rules changes," she added. Kourlis explained that the Standing Committee and the Civil Rules Advisory Committee of the Judicial Conference are actively working on these issues and that "[a]ll of us defer to the Judicial Conference in that role but all of us have a stake in the outcome."
William Hubbard, assistant professor of law at the University of Chicago, testified about the costs of preservation and discovery, reporting that "most cases in federal court involve relatively modest spending on discovery," with discovery in the median case costing about $12,000.
However, he emphasized that the distribution of discovery expenses in general -- and preservation costs in particular -- have a "long tail," meaning that while most cases entail relatively modest costs, there is "a small but substantial number of cases whose the costs vastly exceed the costs of the median case." Hubbard estimated that about 5 percent of federal cases have discovery costs exceeding $100,000, and those cases account for more than 60 percent of the money spent on discovery in all cases. He also noted that parties can incur preservation costs in matters that never proceed to litigation. Federal rules that "create incentives for the proper consideration of both the costs and benefits of preservation and discovery" could help reduce the ambiguity and overbreadth of current case law, Hubbard said.
William Butterfield, a partner at Hausfeld, said the only objective empirical data on discovery costs, from a survey by the Federal Judicial Center, shows that discovery costs in the vast majority of cases are proportionate to the stakes in the litigation and to the total litigation costs. Discovery in the largest and most complex cases, those in the "long tail" described by Hubbard, is costly and always will be, Butterfield said, and "amendments to the civil rules won't change that." The fear of sanctions that some companies claim are causing them to over-preserve are overblown, said Butterfield, given that sanctions are sought in just one-fifteenth of 1 percent of federal court cases, and are granted in only about half of those cases. A review of sanctions decisions demonstrates that parties "are not getting sanctioned for conduct that is not egregious," he added.
Some of the "solutions" proposed by various groups are unworkable or severely unfair, Butterfield said. For example, the proposal to have the duty to preserve triggered only by the filing of an actual complaint, rather than when litigation is reasonably anticipated, would permit the unfettered destruction of relevant evidence even where litigation is a virtual certainty, and would effectively undercut existing statutes of limitations, forcing parties to rush to litigation to prevent the destruction of evidence, he argued.
Thomas Hill, associate general counsel at General Electric, told the subcommittee that current Federal Rules result in American companies "wasting billions of dollars on unnecessary document preservation and production." He described two illustrative matters at GE. In the first, where GE has a reasonable anticipation of litigation but has not been (and may never be) sued, to comply with preservation requirements, the company has spent almost $5.4 million to collect, store, and code over 4 million documents, he said.
In another case, where the amount in dispute is less than $4 million, GE has collected, preserved, and produced over 3 million documents, each of which was reviewed by a lawyer prior to production, at a total cost of about $6 million, he noted. Because many of the documents produced in litigation are never reviewed by the adversary that requested them, and courts rarely consider cost-shifting, Hill said, there is "a perverse incentive which becomes leveraged to skew dispute resolution not on the merits but on the economics."
Questioning the witnesses after their testimony, Conyers clarified that all of the witnesses have communicated their positions and recommendations to the Advisory Committee on Civil Rules, and he suggested to Franks that the subcommittee might consider holding another hearing next year to learn the results of the Advisory Committee's work on these issues.
Related items:
• Analysis by Robert Owen, of Sutherland Ashbill & Brennan
For more about the hearing, visit LTN's EDD Update blog -- www.eddupdate.com.
Henry Kelston, senior counsel at Milberg, and a member of the firm's E-Discovery Committee, specializes in complex litigation and e-discovery issues. Email: hkelston@milberg.com.
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