Electronic File Review Is Becoming Standard

February 2006

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Clients, courts, and opponents are becoming more savvy about the efficiencies that occur when electronic discovery is performed properly. A recent Delaware Chancery Court decision (Instinet Group Inc. Shareholders Litigation, Consolidated C.A. No. 1289-N, December 14, 2005) provides a warning that applies to a broad range of cases.

The case involves the application of plaintiff's counsel for an award of fees and costs following a settlement involving a contested $1.8 billion acquisition. Plaintiff minority shareholders contended that the majority shareholder had material conflicts of interest and breached fiduciary obligations. The settlement included altering the terms of the transaction to get the minority shareholders greater consideration.

Plaintiff's Fee Request Gets Hammered

Plaintiff's counsel requested $1,450,000 of fees and approximately $173,000 of expenses. There was no dispute that plaintiff's counsel actually incurred over 2,600 hours of time, and all of the requested costs. The dispute involved entirely around whether such time and costs were spent efficiently.

Defendants provided the vast majority of its discovery in an electronic form. Plaintiff's counsel spent approximately $125,000 converting these electronic records back to paper to facilitate a paper review of the discovery. In an unfortunately common description of how less sophisticated lawyers often work, the Court provided the following description:

Rather than simply copying the electronic media to permit the plaintiffs' lawyers working on the case to search and review the document production on a computer screen, the plaintiffs spewed the digital production onto paper and, then, copied the paper for review. This approach both added unnecessary expense and greatly increased the number of hours required to search and review the document production. In fact, the time records submitted include a large number of hours, by multiple attorneys, spent reviewing the documents. Thus, the court must disagree with the plaintiffs' counsel's assertion that "this case was a paradigm of efficient litigation," and give less weight than customary to the number of hours expended by plaintiffs' counsel. Additionally, it would be inappropriate to award the full amount of out-of-pocket expenses, as the very costly decision to "blow back" the digitized document discovery onto paper lacks justification."

Based primarily on this concern, the Court awarded only $450,000 for both time and expenses, representing an almost three-quarters reduction of what was claimed.

How to Review Electronic Files

The many expensive steps when processing paper documents significantly add to the expense of the discovery process. When handled manually with paper, it is easy to see how plaintiffs' counsel in the Instinet case incurred significant money with the large electronic production. It is common to make multiple copies to provide working sets, copies for co-counsel, copies for clients, and a "clean original". Additional copies might exist for witness notebooks, chronological notebooks, issue notebooks, etc. Significant paralegal hours are routinely spent copying, organizing, labeling, filing and tracking these paper collections.

Technology improvements are occurring rapidly, making electronic review of records much more user-friendly. Software now exists to facilitate the storage and retrieval of files across multiple software applications.

Obtaining and reviewing documents in their native form has several advantages, including:

Production and copying costs are greatly reduced.
Electronic tagging, filing and recovery are faster.
Electronic sorting and searching is cheaper and faster.
The reviewer can see the document as it originally appeared.
Critical metadata is preserved, such as traced changes, spreadsheet formulae, authorship, and other embedded data. (See How Lawyers Can Use Metadata.)

Newer software is also changing some of the prior disadvantages of native file review. Such disadvantages included difficulty adding production numbers, and redacting privileged information.

To ensure admissibility, the authenticity of electronic documents should be documented and exchanged before the file is used. This is done by creating a hash total that summarizes a byte-by-byte compilation of every character in the file. Once this is done, any change in the file will be seen by a change in the hash total.

Fulcrum Inquiry assists lawyers in investigations and electronic discovery.