Considerations of Proportionality for Japanese Companies
Each year, a group of e-discovery experts, judges, and scholars gather together to discuss the challenges of meeting the needs of legal discovery in an era of exponential growth of electronic information. Since 1997, the Sedona Conference has led the path of adapting the law and crafting best practices in the field of E-discovery. They play a vital role not only in helping to craft the rules surrounding e-discovery, but in advising on the practical application of changes they advance.
The single most important change to the rules for e-discovery in recent years is the 2015 Amendments to Rule 26(b)(1) of the Federal Rules of Civil Procedure calling for proportionality in determining the scope of discovery. Proportionality requires courts and parties to approach discovery with consideration of “the needs of the case, importance of the issue at stake, amount in controversy, relative access to the information, the parties’ resources, the importance of the discovery in resolving the issue, and whether the burden of the expense outweighs the potential benefits.” FRCP 26(b)(1)
The aim of proportionality was to redress the mounting burden of e-discovery costs on parties. Still, while the amended language signaled a big change, the degree of its practical impact on the scope of e-discovery remained highly uncertain. Several landmark decisions have distinguished proportionality from the former evidentiary standard which simply called for all information reasonably “calculated to lead to admissible evidence”. Detailed guidance from the Sedona Conference distills the case law on this topic while providing a defensible reference for best practices. These developments deserve careful consideration for the potential benefits available to Japanese companies frequently embroiled in US litigation.
The Sedona Conference had been advocating a more prominent placement for the proportionality standard in the Federal Rules since 2010, and many courts were already making use of their suggestions. The group has introduced 6 principles to refine the use of proportionality with respect to e-discovery. The first principle states, when determining the scope of preservation of materials, the burdens and costs of preserving relevant information should be weighed against the potential value and uniqueness of the information. While the Federal Rules do not apply until a litigation has begun, the rules do require the preservation of information that may relate to potential litigation and provides penalties for litigants who failure to preserve information. In applying proportionality to preservation, the group cautions that a miscalculation can lead to the permanent deletion of relevant information. The group recommends parties avoid applying too narrow a definition of what constitutes relevant ESI. Preserving too much information is better than preserving too little.
In analyzing preservation efforts, the group recommends courts consider when the preservation obligation arose, the information available to the parties at the time, and the costs of preservation for the party. They also mention specific efforts litigants should take to demonstrate their preservation efforts before the court. They strongly recommend parties; (1) have a preservation policy in place (2) identify relevant custodians with knowledge of the matters in dispute (3) have a discussion with those custodians to identify sources of relevant ESI (4) preserve the ESI in question (5) suspend routine deletion measures that would destroy such information (6) maintain the relevant ESI in an accessible format and (7) fully document all preservation efforts undertaken.
These steps are vital for Japanese companies, particularly those with significant exposure to US litigation who may not have document management systems geared towards minimizing risk. Having a system and policy in place is nearly as important as adhering to the policy itself. The second principle states that “Discovery should focus on the needs of the case and generally be obtained from the most convenient, least burdensome, and least expensive sources.” While discovery can be broad, it is not unlimited. The group advises the use of phased discovery, beginning with a narrow scope of timelines, sources, and custodians, then expanding in scale, if and when the evidence suggests more information is required.
The third principle states that “Undue burden, expense, or delay resulting from a party’s action or inaction should be weighed against that party.” In assessing whether a discovery request is unduly burdensome or expensive, the group encourages courts to consider the extent to which the claimed burden and expense grew out of the responding party’s own action or inaction. In addition, courts may consider the time at which the issue arose and whether the requesting party should have raised the issue earlier. For example, failure to inform a requesting party that relevant ESI is being withheld on the basis of proportionality should be weighed against the responding party.
Throughout the Sedona Conference comments, they repeatedly stress the need for cooperation and accommodation. Parties should make good faith efforts to comply with discovery needs, avoid requests that are overly broad or burdensome, demonstrate efforts to resolve any disputes, and show timely and productive correspondence. Records of such efforts are vital for demonstrating compliance and avoiding an unfavorable opinion from the courts.
Retention policies also may affect the proportionality analysis. If a retention policy serves reasonable organizational or commercial purposes, burden, expense, or delay attributable to such policies should not be held against the party claiming burden. For example, if a Japanese company has a rule of never deleting contracts, old contracts may not fall within the scope of discovery if there is a legitimate business purpose to preserve them. Conversely, where policies do not serve such purposes, associated arguments of burden, expense, or delay should be discounted.
Japanese companies typically retain more materials than the average American company, conditioned to delete materials in regular intervals. While preservation of key information is undoubtedly critical to a company’s operations, the presence of excess materials often balloons the scope of discovery to outsized proportions. If materials are preserved beyond the scope of what is required for potential litigation, detailed preservation policies should explain what types of materials are being preserved and what business or organization purpose is being served.
The fourth principle states that the application of proportionality should be based on information, rather than speculation. In considering whether to limit discovery on the basis of proportionality, courts should consider the likelihood that the information sought is helpful in resolving factual issues in dispute. Even if information is relevant, it may not be important enough to justify producing if it creates a major cost or burden. The use of sampling is recommended as a method of determining the probative value of information. A random sample of data can be collected and produced to demonstrate its relative value. The group warns that disclosure of a random sample of materials may lead to the production of irrelevant information and notes a party may wish to consider providing descriptions or examples of the irrelevant documents to satisfy the opposing side.
This principle is a valuable tool for negotiating the scope of e-discovery with opposing counsel and for defending against exploratory discovery or efforts to force settlements through the threat of exorbitant e-discovery costs. It is, however, equally a warning to parties claiming discovery requests are unduly expensive or duplicative without evidence to support those claims. Japanese companies face tremendous costs in collecting, processing, reviewing, translating and producing information for US litigations. Detailed cost estimates of potential expenses should be prepared to effectively argue for proportionality in negotiations with opposing counsel.
The fifth principle states non-monetary factors should be considered in the proportionality analysis. Societal, philosophical, social, and constitutional considerations should all be weighed. In some cases, the interests of society may outweigh the monetary factors. Some courts have found exception to the proportionality analysis in antitrust cases, given their social interests, and potential impact on corporate behavior. Conversely, some important nonmonetary factors favor limiting discovery, particularly if e-discovery is used as a tool of coercion or to wage a war of attrition. These two examples are particularly important for Japanese corporate litigants who have faced both a wave of antitrust cases in recent years and are frequently involved in expensive lawsuits.
The sixth principle states that technological solutions to reduce cost and burden should be considered in the proportionality analysis. As the scope of discoverable data grows each year, technology grows along with it. It is the responding party’s responsibility to consider the best technology to use for conducting their discovery. While there is no obligation to maximize efficiency through technology, a party that does not consider the best technological approach to their discovery will be unable to claim undue burden as a result of that oversight. The group recommends early case analysis for the parties to agree on targeted collections, date ranges, custodians, and data sources. They further recommend relying on specialists with technological expertise to assist in the e-discovery planning process.
Overall, the 2015 proportionality rules signal significant reductions in cost and burden for litigants, particularly for Japanese companies who face the highest e-discovery costs in the industry. Still it must be remembered, as with all rules in the adversarial process, the proportionality standard creates opportunities to pursue, not rules that will be applied automatically. It is incumbent upon litigants to fight for proportionality in the discovery process or to be left without its benefits.