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The $6 Million Mistake

A recent court ruling shows how easy -- and expensive -- it can be to screw up the e-discovery process.

A recent court ruling shows how easy -- and expensive -- it can be to screw up the e-discovery process.Attorney Ralph Losey writes a detailed analysis of a recent case that demonstrates the perils of e-discovery. I've summarized here, but check out the post for the full details.

A government agency was compelled to spend $6 million on an e-discovery exercise for a case in which it wasn't even a party. The Office of Federal Housing Enterprise Oversight (OFHEO) was subpoenaed for documents in litigation involving Fannie Mae and Freddie Mac.

While the subpoena isn't unusual, the cost associated with the search was -- $6 million, which OFHEO says was 9% of its total yearly budget!

Apparently a trial lawyer for OFHEO agreed to an e-discovery search of backup tapes to find relevant information. Unfortunately, that lawyer also agreed to let the plaintiffs define the search terms -- big mistake! At the very least, OFHEO should have demanded the right to negotiate the search terms with the plaintiffs. Otherwise, they risked having to collect a ton of material, much of which would likely prove irrelevant.

And that's just what happened. The plaintiffs came up with 400 search terms, which yielded about 660,000 documents. In addition to bearing the IT costs of having to restore and search the backup tapes, the OFHEO then had to hire 50 contract lawyers to go through all those documents to find responsive material.

OFHEO ran into delays and missed more than one court-ordered deadline to produce the relevant information. Eventually the plaintiffs asked the court to sanction OFHEO for contempt, which it did.

Naturally, OFHEO appealed the sanction, but it was upheld in a Jan. 6 ruling by Circuit Judge David S. Tatel.

I'm quite sure OFHEO didn't budget for a $6 million e-discovery bill. Unfortunately, subpoena and litigation costs aren't discretionary expenses. However, they can be contained, particularly when lawyers are knowledgeable about discovery issues, including search and the costs associated with those searches.

As I've said in other posts, it's imperative for IT and legal to work together -- ideally before a discovery order comes down the pipe.

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