Fannie Mae – be careful what you agree to with e-discovery orders

The American Fannie Mae case shows what can happen if a lawyer unskilled in electronic disclosure agrees to something which is beyond his skills and knowledge. UK judges may baulk at questioning an advocate’s expertise, but they have an absolute right to ensure that all the facts are in front of them before endorsing agreements which may affect the case as a whole

American cases involving large sums of money tend to be ignored in the UK on both those grounds – being American and seeming always to involve millions. We can hope that the outcome of the recent decision of the US Court of Appeals for the District for Columbia in In re Fannie Mae Securities Litigation will never be paralleled here (indeed one hopes much the same for America), but it does nevertheless have warnings for lawyers engaged in discovery disputes in the UK.

The opening statement of the Opinion neatly summarises what was at issue:

The Office of Federal Housing Enterprise Oversight (OFHEO) appeals a district court order holding it in contempt for failing to comply with a discovery deadline to which it agreed. Though we appreciate OFHEO’s efforts to comply, we conclude that it ultimately failed to do so and find no abuse of discretion in the district court’s contempt finding or choice of sanction.

In other words, an organisation agreed through its lawyers to a deadline for giving discovery. On thinking about it (always a helpful ingredient in these matters) OFHEO realised that the implications of what it had agreed to were vast. It should never have agreed to the task, let alone the timetable. OFHEO was not even a party to the litigation, but was brought into it by sub-poena in respect of documents which it held. The Appeal Court, weighing the expense and proportionality points against the perceived need to hold a party (or even a non-party) to its bargain, paid almost no attention to the former and found against OFHEO as to the latter. The court said that

“[OFHEO] chose to sign the stipulated order, which ended the [sub-poena] hearing and unquestionably settled the discovery dispute. Having stipulated to a schedule for complying with the subpoenas, OFHEO can hardly complain now about being held to its agreement”.

My first source for this was a post by Ralph Losey , whose views on the evils of unrestrained e-discovery costs make mine seem mild. I subsequently read the Opinion itself .

Put as shortly as possible, the central term to which OFHEO agreed was:

OFHEO will work with the Individual Defendants to provide the necessary information (without individual document review) to develop appropriate search terms. By October 19, 2007, the Individual Defendants will specify the search terms to be used.

The Individual Defendants came up with over 400 search terms covering about 660,000 documents. OFHEO objected, to be told that “the stipulated order gave the individual defendants sole discretion to specify search terms and imposed no limits on permissible terms”.

OFHEO did its best to comply, hiring 50 contract lawyers and spending $6 million dollars or 9% of its turnover. Its repeated efforts to extend the deadlines led the Appeal Court to say that it had treated its Court-ordered deadlines as “movable goal posts and has repeatedly miscalculated the efforts required for compliance and sought thereafter to move them”.

Ralph Losey’s article covers various aspects of this which I will leave you to read. The sentences which I focus on say this:

“It shows that [trial lawyers] should never agree to anything concerning e-discovery without first consulting with an e-discovery specialist…. Trial lawyers, no matter how smart and skilled they may be, are not qualified to swim in these waters alone. Fannie Mae shows just how dangerous these waters can be. You may think something can be done fairly easily and inexpensively, and later be shocked to learn that it will cost millions, and take months, or even years to do”.

I am content to take no view as to the balance between the need for proportionality and the need to hold parties to their bargains. What matters is the fairly simple proposition that lawyers need to find out what the implications are before committing themselves and their clients to disclosure orders, and as to the scope and cost as well as to the time-frame.

This runs into a point which I make often and which goes wider than practicalities and costs. Much of what I write and talk about concerns agreements arrived at between lawyers and the judge at Case Management Conferences.  I stand on the (not really that difficult) proposition that if all of them have the facts, options and alternative costings in front of them, and approach them in a co-operative spirit, they ought to be able to arrive at a proportionate order which balances the obligations of Rule 31.6 CPR (a disclosable document) and Rule 31.7 CPR (the scope of the search) against the needs of justice. We will win that battle when judges start imposing that kind of co-operation, reinforced by at least a broad understanding of what the technology can do. It is achievable as an objective.

More difficult, however, is the position as between the lawyers and their own clients. A nice proportionate and consensual order as to sources which, in the event, misses the one document which could have won the case is no protection against the ensuing negligence claim UNLESS the client has been a party, and on an informed basis, to the decisions which led to the order.

There is a mass of stuff to debate here which I will subordinate to the simple proposition that lawyers and their clients must work together on disclosure matters, taking such help as they need from someone expert in the technology. This goes beyond practical things – not just “can we achieve this within a reasonable time and at a sensible cost” but into informed discussions as to what “this” is and why it matters.

I was discussing the point with Vince Neicho of Allen & Overy last night. He reminded me of about a speech made by an in-house IT Director at a conference last year. His complaint (or one of them – neither his company’s lawyers nor the system had quite measured up to his not unreasonable expectations) concerned something similar to the Fannie Mae case. His lawyers had agreed to a deadline without involving him. Had he been allowed some input into the discussion, his own resources could have been used to produce the required material at a much lower cost than was run up trying to meet the timescale of the agreed order.

To what extent should judges concern themselves with the practicality of compliance with orders agreed between the parties before them? There is a case for saying what is implicit in Fannie Mae – if a professionally qualified lawyer, holding himself out as skilled in the area (as he is, in theory, merely by being there), agrees to something on his client’s behalf, why should the judge question it?

I do not think it is as simple as that. The Court of Appeal in the Hedrich case gave its blessing to practitioners being ignorant (I paraphrase, or perhaps even parody here, but anyone who is willing to litigate in the High Court must surely be expected to understand something about electronic documents) and if the lawyers do not have a clue then it is for the court to fill the gap. A judge would not make a case management order which he did not think the parties could comply with, and it should be no different if he is endorsing an agreement and incorporating it into an order. In either situation, the court has the opportunity to satisfy itself that the lawyers know what they are signing up to.

That is in part what management is about. What I say here is easily stigmatised as excessive interference by the court or the imposition of yet more front-end expense. I don’t see it like that or, rather, it should not be like that. It is the judge’s job to ensure, so far as is possible, that the case runs on rails with the fewest unexpected hitches and the least scope for satellite quarrelling. Being satisfied not only that any order is proportionate but that is capable of being carried out falls within the overriding objective, and is therefore a duty and not merely a right.

To revert to Fannie Mae, I do see the logic of the Appeal Court’s decision even if I deplore the outcome. If lawyers are free to renege on their bargains because they prove more onerous than expected, then what is the value, in case management terms, of an agreement? It all went wrong because the lawyer making the agreement took a flyer where he should have been informed. Let’s repeat what Ralph Losey says in his article:

You may think something can be done fairly easily and inexpensively, and later be shocked to learn that it will cost millions, and take months, or even years to do.

Such shocks obviously have an impact on the lawyer, his client and probably his insurers, but it is not a purely private concern. It has an impact also on the progress of the action and on the court’s resources and it is that which makes it the right and the duty of the court to be satisfied that any such agreement will not give rise to subsidiary in-fighting, to delay, and to expense. The judge does that by requiring the parties to come to hearings armed with the information, and the costings, which allow a proportionate decision to be made. This involves no embarrassing (and possibly improper) enquiries as to the lawyers’ fitness to conduct the case, but a perfectly proper exercise of the court’s discretion.

My thanks to Mike Morneault of H5 who drew my attention to the Opinion in the Fannie Mae Litigation.


About Chris Dale

I have been an English solicitor since 1980. I run the e-Disclosure Information Project which collects and comments on information about electronic disclosure / eDiscovery and related subjects in the UK, the US, AsiaPac and elsewhere
This entry was posted in Case Management, Courts, Discovery, eDisclosure, eDiscovery, Electronic disclosure, Litigation, Litigation costs, Part 31 CPR. Bookmark the permalink.

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