Protecting Privilege — New Rule 502 mitigates the risk of inadvertent e-discovery disclosures

By Michael Kozubek

Published in the 2/1/2009 Issue of Inside Counsel.

Privilege review has been a major culprit in the skyrocketing cost of e-discovery. With hundreds of thousands of documents subject to discovery in numerous cases, attorney-client communications and work-product information frequently end up in the hands of the opposing party. Because the production of privileged documents during discovery waives the privilege, discovery teams scour through documents trying to ensure nothing slips through that could damage their case. Still, with the volume of electronically stored information, inadvertent disclosure is almost inevitable, with potentially devastating results.

“Cases have been lost in part because of inadvertent disclosures,” says Bobby Balachandran, CEO of Exterro, a legal hold and workflow software provider.

But that risk diminished when Rule 502 of the Federal Rules of Evidence (FRE 502), originally drafted by the Judicial Conference Committee on Rules of Practice and Procedure, recently became law. The new rule is designed to mitigate the expense of privilege review while protecting companies from potentially large liabilities arising from inadvertent disclosures of privileged communication.

The rule provides that privilege is not waived when privileged communications are inadvertently disclosed, provided the holder of the privilege took “reasonable steps” to prevent disclosure and to rectify the error.

Litigators celebrated the enactment of FRE 502 while warning that it is not a panacea and does not remove the need for sound e-discovery management practices.

“The new rule is welcome news for litigants,” says David Lender, a partner at Weil, Gotshal and Manges. “An inadvertent production will not result in the waiver of the privilege as long as reasonable steps are taken to preserve the privilege before production.”

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Tough Times for Corporate Legal Departments

Lexakos asked law department leaders again about their concerns, priorities and resource allocation plans for 2009. This year’s benchmarking survey covers reporting metrics, outsource planning for IP and litigation, budget pressures, e-discovery, privilege waiver management in relation to new Federal Evidence Rule 502, and other compliance priorities.

In 2007 and 2008, Compliance Week, the leading publication and information service on corporate governance, risk and compliance, chose Lexakos as a conduit for gathering and analyzing compliance needs across all industries

On February 3, 2009, Compliance Week featured the results from Lexakos’ most recent strategic planning survey, with over 230 corporations participating. In addition to highlighting Lexakos’ relevance in the compliance arena, this coverage gives Lexakos an exclusive perspective of hundreds of companies’ needs and practices.   Here is an excerpt:

The new study of corporate law departments confirms what most general counsels already know: 2009 is going to be a rough year.

Forty percent of legal departments expect a decrease in their overall operating budget for 2009, compared to only 8 percent last year. At the same time, however, litigation activity is rising—particularly for the financial sector, besieged by investors unhappy with the sub-prime mortgage meltdown and victims of the Bernard Madoff Ponzi scheme.

Wolf “Even though budgets are being tightened, litigation is going up,” says Rick Wolf, CEO of the consulting firm Lexakos, which conducted the survey. “What it suggests to me is that they’re being asked to do more with less.”

David Cohen, co-chair of the e-discovery analysis and technology group at the law firm K&L Gates, has observed similar trends. “Corporate law departments are facing two realities. The first reality is that litigation does not go away in troubling economic times, and the cost of that litigation tends to go up, not down, every year,” he says. “General counsel are left on the horns of a dilemma: how to cut litigation costs in the face of no decrease in litigation, and often increasing e-discovery demands.”

Those pressures should lead in-house legal departments to prune back the volume of work they leave to outside law firms by doing more work themselves. But law departments are now under their own pressure to cut back on staff. “The result of all of that, paradoxically, is that lawyers are stretched even more thinly than they have been in the past, making it difficult to bring more work in house,” Cohen says.

As a result, law departments are getting more creative in how they cut costs and managing themselves more efficiently, Wolf says. For example, only 32 percent of law departments last year used a centralized litigation group; that number jumped to 49 percent for 2009. And while only 20 percent of respondents last year said their legal departments had a strategic plan for the year, that number soared to 57 percent this year.

Compliance Week ran a similar feature article on the Lexakos 2008 Strategic Planning Survey titled “Records Management: A Governance Crisis?”

For a copy contact information@lexakos.com.

Kill the Billable Hour? A British Response

As much as the legal sector experiences a change in momentum, such a change seems to be occurring now.

Last week, The Am Law Daily picked up on a piece penned by Cravath, Swaine & Moore‘s Evan Chesler in the latest issue of Forbes magazine, entitled “Time to Kill the Billable Hour.” Cravath’s presiding partner, in presenting an impassioned case for abandoning the practice of charging of clients by the hour, lent his voice to a growing debate.

In the United Kingdom, lawyers and clients have never had the same all-consuming obsession with hourly billing as their American peers. Still, over the last 20 years hourly rates have become the dominant currency here as well, and the tide slowly is turning — some British companies and firms are much further along in making the change.

Last summer, our London-based sibling publication Legal Week broke the story that commercial TV network ITV asked its outside law firms to abandon the billable hour and instead adopt alternative billing arrangements. General counsel Andrew Garard, who joined the company in the fall of 2007 from the London office of Dewey & LeBoeuf, said he wanted ITV to become the first major U.K. company to abandon this form of billing, and he initiated a review of the company’s outside legal providers.

By last November, Garard had finalized a list of approved outside counsel, a panel of nine firms, including Dewey, DLA Piper, Lovells, and Slaughter and May, that had committed to alternative billing methods. “None of the firms will bill us with reference to a measure of time on any matters,” Garard told Legal Week.

For more see law.com.

Litigation: Lawsuits are only thing “up” on Wall Street in past year

The worst bear market since the 1930s has left investors wanting to see Wall Street pay.  Investors filed 210 federal securities class-action lawsuits in 2008, up 19% from 176 in 2007, according to Stanford Law School’s Securities Class Action Clearinghouse (SCAC) and Cornerstone Research. Plaintiffs claim they’ve been wronged out of up to $856 billion, up 27% from 2007 and the highest in six years.

Former GC: BigLaw Really Is Better

When Ron Friedmann recently derided general counsel for staying with time-worn practices in their hiring of outside counsel, even in the face of the worst economic crisis since the Depression, he heard from one former GC who said that large companies will not be abandoning their BigLaw outside counsel anytime in the foreseeable future. With her permission, Friedmann shares her surprisingly frank comments.

Sheryl Katz is now an independent legal and technology consultant. She was formerly vice president and general counsel at 101 Communications LLC, now part of 1105 Media. She has also been a partner with Graham & James, counsel to Perkins Coie and an associate at Bryan Cave and WilmerHale. With that experience under her belt, she believes that any movement towards smaller firms is nothing more than a minor trend.

If small firms that would do the same quality work for less were truly available, I would have farmed out more work to them. In some cases former law school classmates, or former attorneys at Wilmer or other firms that I knew, were available in smaller firms to help on matters. Sometimes this resulted in good quality work and lower bills. However, small firms often don’t have the depth of staff, so some matters that are not even necessarily that big can really only be handled by a bigger firm. Also, on a lot of transactions you really need your tax lawyer, corporate lawyer and banking lawyer to be at the same firm.
There are plenty of good lawyers in firms of all sizes and “great” solo practitioners, she acknowledges. “Unfortunately,” she adds, “there is also a lot of mediocrity.” And then there is that CYA factor heard often among GC:

Going to a large firm in a lot of cases is sort of like going to a chain restaurant. You pretty much know that the minimum you are going to get is going to be acceptable. And if the firm messes up, as General Counsel, you are covered. After all, you can always say “It may be a mess but Blank, Blank and Blank is reputed to be a great firm so don’t fault me for hiring them.”

I guess we can call her chain-resturant analogy the food-poisoning theory of law department management. Better the mass-produced burger that is safe and predictable than the risk of a gourmet meal.

By Robert J. Ambrogi on December 29, 2008 at 12:42 PM

GCs Starting to Bring the Work Back Home

Leslie A. Gordon
GC California Magazine
December 18, 2008

Like many in-house lawyers, Shannon Dwyer, general counsel at St. Joseph Health System in the Southern California city of Orange, has been gearing up for the 2010 budgeting cycle. The $4 billion, nonprofit organization, which runs 14 hospitals in three states, has a “responsibility to be a good steward of the assets,” says Dwyer. But in the current economy, she’s finding that using seasoned attorneys at large law firms is quickly becoming “cost-prohibitive.”

As a result, she’s been looking to hire a new lawyer — bringing her legal department to nine attorneys — to help handle even more of St. Joseph’s legal work in house. “It’s a basic cost-benefit analysis,” says Dwyer. “Although there’s some convincing of management to be done whenever you increase [employee staffing] at the corporate level, it’s not difficult to make the business case” that adding in-house lawyers is cheaper in the long run than paying increasingly rising outside attorney fees.

Demonstrating a trend that has significant implications for law firms, a growing number of California companies are under pressure to control costs and handle more work in house, where they can come closer to paying wholesale rather than retail for legal services. According to a 2008 survey of chief legal officers, conducted by consulting firm Altman Weil, GCs like Dwyer are planning to decrease their use of outside firms, which typically constitute the largest expense of any corporate legal department. Correspondingly, chief legal officers plan to increase law department staffing over the next 12 months, according to the survey, which was conducted this past May and June.

Specifically, the survey reports that 49 percent of legal departments plan to hire additional lawyers in the next year, up from the 40 percent who said they planned on new hiring in the last survey. At the same time, 26 percent of law departments will decrease their outside counsel, up significantly from 16 percent in last year’s survey. Only eight percent of CLOs plan to increase their use of outside counsel, down from 18 percent. Not surprisingly, CLOs cited cost control as their top concern over the next three to five years.

Hildebrandt International, another legal consulting firm, conducted a similar survey, which supports the Altman Weil conclusions. Hildebrandt’s 2008 law department survey found that inside legal spending rose by five percent in the United States while spending on outside counsel increased by just two percent. Nearly a third — 29 percent — of the 223 responding companies anticipate a decrease in the number of law firms they will use.

For more see law.com.

Will Tough Economy Push Companies to Outsource Legal Work? Some companies see big savings in ‘offshoring’ legal work – But how’s the quality?

David Hechler
Corporate Counsel
December 22, 2008

Martin Shively directs the worldwide IP operations of Microsoft Corp. But he doesn’t commute to the company’s campus in Redmond, Wash., every day. The associate GC works in a remote office in New Delhi, where he’s been based for 18 months overseeing not call centers, but outsourced patent work. And his operation is saving Microsoft millions on its legal bills.

Shively’s Indian experience dates back to 2004, when he took over budget responsibility for Microsoft’s patent group. There was a lot of buzz about outsourcing legal work to India; corporations like General Electric Co. were doing it, and slashing their legal bills. So Shively figured why not Microsoft? He started with the most basic task he could think of — proofreading patent applications. Instead of paying high-priced associates to do this work at a dozen U.S. law firms that drafted Microsoft’s filings, he hired one vendor in New Delhi to do them all. It was, he says, “a safe place to have a failure.” If it flopped “we just wouldn’t tell anyone,” he laughs.

But it didn’t flop. “We went there to save money,” he acknowledges. “We stayed and expanded because we liked the quality of the work.” It wasn’t just OK, it was better.

For more see law.com.