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


E-Discovery Trends in 2009 — New developments in e-discovery will affect enterprise general counsel and compliance officers, law firms serving corporate clients, and IT departments

By Christine Taylor, January 9, 2008, 12:10 PM

A few years ago, the Taneja Group coined the term “Information Classification and Management” (ICM) to describe the technology of locating and classifying data throughout the enterprise. ICM covered sub-technology sectors such as e-discovery, compliance, data security control, and data management. However, we saw the term “e-discovery” trump the more comprehensive name as rabid attention turned from ICM to the specifics of civil litigation software tools. We are now seeing the e-discovery term itself take on a fuller usage, more akin to ICM. People do use the term when talking about civil litigation, but are also expanding it to encompass compliance, corporate governance, data classification, and even knowledge management.

In this broad sense we have looked at the trends of the e-discovery market as they impact its largest stakeholders: the enterprise general counsel and compliance officers, law firms serving corporate clients, and IT.

The crux of the matter is that e-discovery and its related areas will be extremely hot for litigation and compliance, especially those related to the financial meltdown. The market increasingly understands the necessity of e-discovery software tools and systems, and will move toward proactive e-discovery adoption. A more reactive approach will remain alive and well as many companies will still avoid implementation until driven to it by a lawsuit or federal investigation. But companies will increasingly understand that the e-discovery solution phenomenon is much more than a litigation aid. It also has major effects on federal compliance and internal governance, and potentially on data management throughout the enterprise.

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Local Government Botches E-Discovery and Legal Hold — County Underestimates Value of Its Own E-mail Records

Some public agencies don’t realize that in ligation their own good records can be their best defense.

Commonly a defendant in a lawsuit is reluctant to search through its e-mails – and incredulous that a court would force it to dig deep for them. In Toussie v. County of Suffolk, 2007 WL 4565160 (E.D.N.Y. Dec. 21, 2007), a New York county made the process of e-discovery excessively difficult and expensive for itself.

Plaintiffs sued the county for allegedly barring them from participation in a real estate auction to which they were entitled. After the lawsuit started, the county did a poor job of preserving its e-mail records. Then, when the plaintiffs demanded – in the “discovery” phase of the lawsuit — that the county search for and disclose relevant e-mail, the county faltered. It initially turned over only two e-mail records.

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E-mail Archiving Demands Overwhelm Backup Alternative

By Kieron Dowling

One look at the numbers makes it clear that e-mail archiving is still in its early stages. While most large enterprises have deployed first-generation solutions, the mid-market has yet to answer the call to e-mail archiving even though all organizations are subject to the same regulatory pressures and IT demands.

The most recent AIIM user survey reveals that 63 percent of organizations have little or no confidence that e-mails related to commitments and obligations made by themselves and their staff are recorded, complete and recoverable.

Meanwhile, 63 percent of respondents to a Storage Magazine survey report they’ve been asked to perform a legal or compliance request, with 73 percent recovering that data from backup tape (and 29 percent from backup disk). But asked how confident they are that they could meet e-discovery requests, 47 percent of the Storage respondents are only “somewhat confident.” Ten percent are “not at all confident.” Still, 64 percent have made no technology purchases specifically for e-discovery, even though the e-discovery process for relevant e-mails can take months.

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Top Ten List for the Evolving Role of In-House Legal and Compliance Officers

The upcoming year promises to bring new operational challenges to our evolving legal and compliance profession.  Based on reader interest from The Datakos Blawg, which had over 20,000 visitors in 2007, and the collective feedback of chief legal officers who participated in Lexakos surveys this year, here is a top ten list of areas of greatest interest or concern:

1.  Legal and compliance risk assessments
2.  Measuring Effectiveness of compliance and ethics program
3.  Proposed new Federal Rule of Evidence 502 (effective December 2008)
4.  Alternate and more cost effective methods for document review
5.  Litigation and matter management systems, and convergence programs
6.  Records and information management program development
7.  Developing data maps and efficient strategies for FRCP compliance
8.  Auditing and monitoring compliance programs (with records management topping the list)
9.  Education and training programs for employees, line managers, executives and boards
10.  E-discovery task force initiatives, including vendor management


Companies Still Struggling To Find Way on E-Discovery

By Beth Bar
December 20, 2007

One year after revisions to the Federal Rules of Civil Procedure (FRCP) were put in place to address confusion and increased costs associated with electronic discovery, corporations are still struggling to comply with the new guidelines.

“Companies are taking a pro-active approach to electronic discovery,” said Allison L. Brecher, who is litigation counsel and e-discovery coordinator at Marsh & McLennan Companies. “The burdens of compliance, though, remain very difficult.”

Although it may be too early to gauge the ultimate impact of the rules, which went into effect on Dec. 1, 2006, attorneys agree that businesses are spending more money and time on electronic discovery.

The stakes are high. Companies that neglect the new obligations may face sanctions if they cannot produce evidence sought in litigation.

The short-term burdens of complying are reflected in several recent surveys.  Some of the findings:

  • Almost 55 percent of the 140 in-house counsel surveyed by the e-discovery consultant Lexakos said their companies needed to spend more time developing e-discovery and litigation readiness plans.
  • Fifty two percent agreed that they had to improve their litigation hold procedures, which require companies to preserve all data that may relate to a legal action involving the company. And almost half expressed the need to develop a process to segregate privileged communications and thus avoid high document review costs.
  • Of the 76 people surveyed by Lexis Nexis at the Association of Corporate Counsel’s annual meeting, 44 percent said that their companies had not been prepared for the new rules. Although 61 percent said they were now very or somewhat confident that they were fully compliant, 30 percent still said that they were not very confident and 5 percent not at all confident.
  • Twenty seven percent of respondents to a litigation trends survey released earlier this year by Fulbright & Jaworski said that the rules have made handling of e-discovery issues in federal litigation more difficult. Eighteen percent said they have made the process at least somewhat easier. The remainder detected no change.

The amendments includes revisions and additions to Rules 16, 26, 33, 34, 37 and 45, as well as Form 35. Among the matters addressed were the definition of discoverable material, the procedure for asserting privilege or work product after production and the early attention to electronic discovery issues.

The new protocols have made e-discovery compliance a prime litigation issue. H. Christopher Boehning of Paul, Weiss, Rifkind, Wharton & Garrison said that cases are increasingly being dismissed or companies heavily sanctioned based on the loss of electronic evidence.

“Cases are being derailed as a result of discovery issues,” Mr. Boehning said. “You want cases to be decided based on the merits, not on an e-discovery sideshow.”

So far, Mr. Boehning said, the rules have not improved the situation.

“Everybody is still trying to find their way,” he said.

Under the revised rules, parties have no initial duty to produce electronic data that is reasonably identified as inaccessible. A judge, however, can still order the evidence to be produced if she or he deems that there is good cause.

The rules also allow for a subpoena to be served to “permit inspection, copying, testing, or sampling” of electronically stored information.

This occurred in the recent Southern District case, Bridgeport Music v. UMG Recordings, 05 Civ. 6430. In this copyright infringement dispute, defendants UMG Recordings, Napster, Apple Computer and Yahoo! deposed attorney Stewart L. Levy, a nonparty, during discovery and subsequently issued a subpoena seeking production of certain licencing agreements for “new media.”

Bridgeport Music and Southfield Music argued that production of these documents would be unduly burdensome. But Magistrate Judge James C. Francis IV disagreed. In a decision that will be published in the Law Journal on Dec. 27, he ruled that the burden of production was “not so great as to justify quashing the subpoena, even if it is imposed upon a nonparty such as Mr. Levy.”

Costs for complying with the new discovery rules can run into hundreds of thousands of dollars.

High Cost of Preservation

Courtney Ingraffia Barton, an attorney who is vice president of industry relations for LexisNexis Applied Discovery, and Deborah House, Association of Corporate Counsel’s vice president and deputy general counsel, said that one of the biggest challenges companies are facing is securing the resources to implement a system that addresses electronic discovery issues.

David J. Lender, a partner at Weil, Gotshal & Manges, acknowledged that creating an electronic document preservation system is costly, but said that companies save money in the long run because they save on litigation expenses by having a system already in place.

And Adam I. Cohen, co-chair of the New York State Bar Association’s e-discovery committee, said that a documented process for handling information is beneficial in litigation.

“If mistakes are made you can defend your good faith by showing that you have devoted resources and developed methods” for dealing with this type of data, Mr. Cohen said.

Ms. Brecher of Marsh & McLennan, said her company was using a “team-based” approach.

“We are partnering with the IT department, and educating each other,” Ms. Brecher said.

She said that sometimes this education takes the form of training sessions and may involve bringing an information technology colleague to an e-discovery seminar.

Patrick Oot, director of electronic discovery and senior counsel in Verizon’s legal department, said that his company has developed a litigation manual that identifies the company’s policies with regards to electronic document preservation. It also identifies the specific actions that information technology and in-house legal counsel must take.

He said that having some type of efficient and uniform process for dealing with data requests is “invaluable.”

However, Robert D. Owen, a partner at Fulbright who is co-head of the firm’s e-discovery and information management practice group, said that rather than instituting e-discovery policies, many companies have decided to play “the e-discovery lottery.”

“They have decided to take the chance that they won’t be hit,” Mr. Owen said. “It’s a gamble.”

E-discovery law a boon for lawyers

By Ellen Messmer, Network World, 10/19/07  

New regulations governing the storage and management of electronic data that might be needed in federal court actions has an increasing number of organization turning to outside counsel for help, according to a new study.  An annual survey about litigation matters asked 303 corporate lawyers about the impact of the e-discovery law that went into effect last year. 

The e-discovery law is an amendment to the Federal Rules of Civil Procedure related to finding and managing electronically stored information that might be relevant in a legal dispute in federal court. The new law requires processes and technologies to be in place to do e-discovery and to stop any automated or regular purging of relevant electronically stored information at the first sign that a company might be a party to a lawsuit, even before the suit is filed. The law also requires opposing parties to discuss e-discovery issues within 120 days of a lawsuit’s filing.

The fourth annual “Litigation Trends Survey Findings” conducted by Fulbright & Jaworski L.L.P, a global law firm based in Austin, Texas, found that corporate lawyers — over two-thirds based in the United States and the rest mainly in Britain — cited a big jump in use of outside vendors and outside law firms specializing in the e-discovery field. The industry sectors primarily represented are financial services, technology/ communications, manufacturing, healthcare, energy and retail. 

Whereas 37% of the in-house corporate lawyers in the United States had used outside e-discovery vendors last year to help with e-discovery, that number jumped to 51% this year. With U.K.-based lawyers, that number jumped from 8% in 2006 to 71% this year. The need to call on an outside law firm with “special technical expertise in e-discovery issues” rose from 26% last year to 30% for the U.S. corporations represented, and 17% to 32% for the U.K. companies. As a whole, 17% of those answering the survey said they have retained or are considering retaining national or regional counsel specifically for e-discovery issues that arise.

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