Online Exclusive: Indexing issues

During e-discovery, technology can be an invaluable asset in identifying responsive data from documents, emails, metadata and other information, flagging those that should be withheld for attorney-client privilege and proprietary reasons.

But technology carries its own risks. For example, during litigation with its insurance company, plaintiff Felman Production hired an e-discovery vendor. Due in part to a flaw in the vendor’s indexing, the defendants received privileged emails suggesting Felman had submitted a fraudulent insurance claim. Felman asked the court to order the defendants to return the emails, citing a clawback agreement requiring the parties to return inadvertently disclosed privileged documents. But a magistrate judge found that Felman had not taken reasonable steps to prevent disclosure of the emails and refused the company’s request.

The case has generated controversy because it seems to fly in the face of revisions to the Federal Rules of Civil Procedure intended to protect companies from the inadvertent disclosure of privileged information. At the same time, it exposes the risk of overreliance on technology in providing e-discovery data.

Felman attorneys made mistakes by not carefully reviewing documents before producing them in discovery, says Mayer Brown Partner Anthony Diana. “Organizations should instead develop quality-control methods and a review workflow that balances the need to minimize costs with the risks of inadvertent privilege waiver,” he adds. 

Damaging Document Dump

Felman Production owned and operated a metals plant. After a transformer failure, one furnace became inoperable for almost nine months. The company filed a $39 million claim with Mt. Hawley Insurance Co. for alleged losses, stating that it was no longer able to satisfy customers who needed the quantity of materials produced from all three of its furnaces running simultaneously.  

In the case of Mt. Hawley Ins. Co. v. Felman Production (in which Felman is the plaintiff) filed in the Federal District Court for the Southern District of West Virginia, Felman responded to the defendants’ e-discovery request by producing more than 346 gigabytes of data. The defendants called this a “classic document dump” of largely irrelevant files.

When the defendants reviewed the data, however, they found a smoking gun. The plaintiff produced differing versions of  email from its HR manager to outside counsel suggesting the company did not have proof that the shutdown of one furnace resulted in the claimed losses. The manager suggested that to be successful in the litigation, the company would need to show the court a sales contract requiring production from all three furnaces simultaneously and that no such contract existed. 

The email also said a customer was “ready to [make an] official letter to Felman saying that because of our problem with transformer they will not receive from us necessary amount of metal to cover their contracts and that they [are] losing money and market because we cannot supply them with metal (something like this).” The manager said he had discussed with customers the possibility of signing backdated sales contracts, but the customers’ lawyers “didn’t like this option.” 

After the insurance company brought the email to the court, Felman demanded it back under the Federal Rules and the clawback agreement. The defendants argued that there was no privilege because of the crime-fraud exception, which excludes communications between a lawyer and client in the furtherance of a crime from privilege protection. Felman countered that the emails were about “a good faith inquiry regarding the appropriateness of contemplated conduct.”

Reasonable Ruling

In her May 2010 opinion refusing to order return of the email, Magistrate Judge Mary Stanley took under advisement the crime-fraud exception argument. Her ruling hinged instead on the plaintiff’s failure to take “reasonable steps” to prevent the disclosure of privileged material, as required by the Federal Rules. 

The court found that Felman’s efforts to prevent disclosure of privileged material were not reasonable, even though the disclosure resulted in part from a vendor’s indexing glitch. One of 13 database files compiled by the vendor inexplicably built an incomplete index of potentially privileged materials. Because subsequent searches by outside counsel to locate privileged materials for review centered on the indexed data, they missed the unindexed emails.

Judge Stanley noted that in addition to the contested emails, Felman had identified 377 other inadvertently disclosed privileged documents, 328 of which were from the flawed database. 

But the judge blamed Felman and its outside counsel, saying they “failed to perform critical quality control sampling to determine whether their production was appropriate and neither over-inclusive nor under-inclusive … [and] apparently failed to perform simple keyword searches” to locate copies of the email and identify other privileged documents. 

John Tredennick, CEO of legal technology vendor Catalyst Repository Systems, questions the court’s assessment of the reasonableness of Felman’s efforts.

“In Mt. Hawley, plaintiff’s counsel performed many procedures including sampling and ‘eyes-on’ review of all documents identified both as relevant and potentially privileged before production—by my count as many as 23 steps,” he says. 

The court should punish willful disregard or even abject sloppiness. However, punishing mistakes, particularly those caused by a vendor’s system, is bad policy, Tredennick adds. “The result will be people taking 50 steps to check everything or doing human review of everything, which runs up e-discovery costs.” 

Ralph Losey, e-discovery team leader at Jackson Lewis, says most judges get it right when assessing reasonableness. “I’m inclined to think of the [Mt. Hawley] case as an outlier,” he says. “Bad facts often make bad law.” 

Technology Glitches

Nevertheless, the case serves as a reminder that in-house attorneys and their outside counsel should not be complacent about e-discovery technology. 

“All technology has glitches,” Diana says. “No one can say, ‘I have the perfect technology and therefore I can rely on it.’”

That’s because as the volume of data subject to e-discovery has exploded, the possibility for inconsistencies and mistakes in production has grown along with it.

“Reasonable mistakes can and will happen in complex systems,” says Tredennick. “It is not that computers are unreliable. People make mistakes and data can be inconsistent, which together translate to computer glitches.” 

Diana adds that counsel also should be cautious about inadvertently producing non-privileged data such as personal information, business-sensitive information, IP and trade secrets, and be aware of an overreliance on technology. 

“Organizations should not avoid the use of advanced technology for fear of privilege waiver,” he says. “Rather, their counsel should carefully consider the risks involved in relying primarily upon technology to help curb the costs of a privilege review.”