Strategic Advice for Construction Litigation

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1 Copyright 2013 by the Construction Financial Management Association. All rights reserved. This article first appeared in CFMA Building Profits. Reprinted with permission. BY GREGORY H. CHERTOFF & RICHARD R. VOLACK REDUCING ESI COSTS: Strategic Advice for Construction Litigation ESI has the potential to dwarf the costs of traditional lawyer tasks, such as drafting and arguing motions, making court appearances, and (depending on the case) possibly even arbitration hearings or the trial itself. Dealing with ESI is not an optional consideration it is an imperative. Court rules and case law often requires that a litigation hold be placed on a company s ESI when litigation is possible. This prevents its accidental destruction and ensures that it is available in discovery. Litigation discovery parameters are broad, typically permitting discovery of any relevant information or any information that may reasonably lead to the identification of relevant information. The rule applies equally to hard copy documents and ESI. Court sanctions for failing to properly disclose apply equally to both and can be harsh, potentially including the dismissal of a party s claims or a finding of liability as a sanction. As the world becomes more digitized and more records and communications are created and kept in electronic format, the issue of Electronically Stored Information (ESI) becomes an increasingly important and costly litigation consideration. Ask any construction lawyer handling complex disputes and you will likely hear that managing ESI is often the single biggest line item in his or her litigation budget. Challenges Posed by ESI ESI is often far more challenging to manage than hard copy document productions. The sheer volume of ESI poses the first challenge. ESI data typically dwarfs the amount of hard copy records. In a construction case, the amount of hard copy records is significant. Construction projects have always generated large volumes of data, records, and communications. The ease with which technology permits CFMA Building Profits September/October 2013

2 us to communicate on the fly has exponentially increased the volume of material generated on a construction project. Today, we all pull out our smartphones and type and receive dozens, perhaps hundreds, of s daily, often favoring this easy, written form of communication over picking up a landline in the office. Before and its ability to easily propagate electronic communications, the construction litigator s discovery and document management efforts were relatively simple. The client s records were predominantly centralized. Perhaps there was some searching required for the stray box of records in a PM s car trunk or a misplaced superintendent s notebook, but these were comparatively easy challenges to manage. Locating Potentially Relevant ESI Unlike centralized hard copy records, ESI is typically scattered throughout many employees ( custodians ) inbox/ sent folders and may be contained on central servers or, even more problematic, reside solely on the involved custodians desktops or laptops. These issues pose significant challenges in locating the universe of relevant (or potentially relevant) records. Once the universe of ESI is identified, it must be culled to discern the irrelevant from the relevant and the privileged from the nonprivileged. In the past, those boxes and file cabinets were typically project-specific, organized by topic, and filled with records relating to each key issue contained in clearly marked folders. Now, our inboxes are typically a conglomeration of everything sent and received spanning every project a custodian touched, both relevant/irrelevant to the subject in dispute and privileged/nonprivileged together, interlaced with personal and spam s. While standard software gives some ability to sort and search for the relevant, it is not designed for litigation discovery needs it is slow, provides only limited search capability, and does not provide the opportunity to code to issues or for privilege. subject lines are often of little utility as companies rarely impose an identification convention. Think of your own inbox. Unless you are the unusually organized exception to the rule, you likely have at least a few thousand (perhaps tens of thousands) unsorted s addressing many projects and issues, with a likely mix of business, personal, and junk s waiting to be sorted and organized if and when you have time. Technology Challenged Attorneys The issues posed by ESI are also relatively new. Litigants have been exchanging hard copy records for many decades and, thus, court rules and lawyer practices have been established and tested over time. ESI, by contrast, is new to the scene. Courts are still wrestling with, and trying to understand, the challenges and costs inherent in ESI discovery so they can create appropriate legal standards. Many attorneys are not particularly tech-savvy and have not yet dealt with ESI s unique challenges frequently enough to have developed experienced teams and the practical experience to improve efficiency in the discovery process. Find a Gracious Host To maximize efficiency in dealing with ESI, the first order of business is twofold: Get a rough idea of how much data will need to be managed so that the team can decide how the Use Sweat Equity Savings Opportunities Perhaps the biggest opportunity for ESI cost savings is for your in-house resources to be active participants in the information gathering and analysis process. Companies are often reluctant to dedicate their staff to participating in the discovery process in a meaningful way. Certainly few construction professionals relish these tedious exercises that have nothing to do with building and are likely associated with problem projects. However, complete engagement by those in-house resources as part of the ESI management team can dramatically reduce the time and cost of the process. Your in-house staff knows your systems and how your data is collected, maintained, and managed. Your outside legal team likely has a steep learning curve regarding your unique data sets. Your project staff lived the project and knows firsthand the issues in dispute and, at least generally, what kinds of relevant information exists within your ESI storehouse. An experienced team of legal discovery professionals working with your in-house resources will invariably make significantly faster work of the ESI project than if you left it to your outside counsel alone. September/October 2013 CFMA Building Profits

3 data should be hosted. If the case is relatively contained in its ESI scope, many law firms have sufficient server capacity to host the data in-house and use specialized litigation data management software tools to permit the data to be organized, sorted, reviewed, and coded. These tools, while powerful, have their limitations. As data sets become larger, their ability to manage the data slows down. A few second s delay in opening a file is not significant when a few thousand records are to be analyzed. However, when the data set escalates into the hundreds of thousands or millions of records (which is not at all unusual), those few seconds per record add up to major expenditures at most lawyers hourly billing rates. The sophistication of the data management software also plays a part in cost management. More sophisticated software permits those reviewing the data to perform more complex searches and sorts, which could permit greater reviewer efficiency. The faster, more efficient alternative may be to engage an outside, specialized vendor to host the data. Its web-based access systems are typically faster, and its review and management tools may be more sophisticated. This efficiency and sophistication comes at a cost, which, depending on the size of the data set and the length of the litigation, can be extraordinary. Why the ESI Bill Runs Up So Quickly To properly cull relevant ESI, effort is expended, and, thus, costs are incurred, in at least the following areas: Hosting (or storing) the collected data Collecting the ESI from throughout the company Logically narrowing down the ESI collected Reviewing the ESI information for privilege and relevance Supplying that which must be produced to the other party or parties to the dispute Analyzing the identified subset of relevant ESI for substantive issue identification Analyzing the ESI produced by the other parties in the dispute Many companies engaged in significant litigation establish a long-term relationship with a particular host-vendor, agreeing upfront to flat fees per gigabyte hosted over the life of a case, rather than monthly charges. Regardless of what route makes sense for your company, you need to have a knowledgeable guide to help identify qualified vendors and assist in your comparative negotiations in evaluating their services, tools, and charges. Develop Prioritized Custodian Lists The next challenge is to identify the universe of custodians within your organization who potentially have s that are relevant to the dispute. The custodians generally fall into two classes: Mostly relevant: Those, like a project engineer or PM, who were likely assigned exclusively to the project at issue and, thus, whose s for the relevant time period will mostly be relevant to the project in dispute. Mixed bags: Those, like a project executive or higher level executive, whose s for the relevant period of time will be a hodgepodge of relevant and irrelevant records. Because every company and project is unique, so is every data set. Thus, additional categories of custodian priority may be appropriate, depending on the circumstances. Your legal and project teams should work collaboratively to develop comprehensive and categorized lists of the universe of custodians with potentially relevant information. Those lists tend to grow extensively. Think of how many people in your organization touch a major project: Superintendents; Project Engineers; Assistant PMs; PMs; Schedulers; Purchasing Department personnel; Project Executive; Project Accountant; CFO; VP; EVP; President; General Counsel; Outside Counsel; their administrative support staff; and likely others as well. These categorized lists permit the development of prioritized information gathering. They also permit your legal team to work with your in-house IT team to begin to identify the scope of the data to be gathered. During this period, you should also be developing similar lists to the best of your ability for the other parties in the dispute. These lists will, in part, drive your lawyer s ESI discovery demands of the other parties. They will also allow your discovery team to begin to prepare a budget for the anticipated costs of managing the ESI. CFMA Building Profits September/October 2013

4 reducing esi costs Strategic Advice for Construction Litigation Armed with these lists and budgets, your counsel can attempt to negotiate with its counterpart for limits on the number of custodians ESI to be exchanged, perhaps agreeing to exchange only the mostly relevant category, or at least doing so in the first exchange with rights reserved to seek more only for good cause. Some adversaries are willing to negotiate parameters, and others want the entire universe, either because of a belief of genuine need or, at times, merely for litigation advantage to drive up your costs. This frequently occurs when your adversary has substantially less ESI custodians in its organization than you have in yours. Where some courts are willing to impose limits, others are guided by the generally broad rules of the discoverability of information and refuse to impose limits. Having an estimate of the volume of ESI at issue and the potential costs of addressing it gives counsel the best opportunities to argue for some reasonable limits, trying to balance need and cost. Understand the Project & Dispute to Narrow the Data Set Once the universe of custodians ESI is gathered, the data set must then be narrowed down as efficiently as possible. This can be some of the heaviest lifting in the process. Looking through every linearly, one at a time, should be avoided at all costs. Eliminate Irrelevant s Find opportunities to cull out large swaths of irrelevant s by searching and batching for known irrelevancies. Once the custodians are identified, interview them or have them fill out a questionnaire to identify typical personal domains, such as their friends or spouses addresses, the names of their doctors, banks, children s schools, the websites from which they receive professional alerts, websites at which they place online orders, etc. IT specialists and host-vendors often have lists of the top 100 domain names of typically irrelevant s contained in data sets. Once you identify such sources of non-relevant ESI, you can cull from the data set all sent to/from those addresses or domains. Some checking must be done to make sure that relevant ESI was not inadvertently culled, but this exercise will typically remove large swaths of irrelevant data. However, take care not to make assumptions (e.g., assuming an from Home Depot is irrelevant when it could possibly contain information about tools or construction materials used on a project). Set Start/End Date Parameters Understand the project and dispute and seek other ways to cull the data set by batches. Relevant start and end date parameters are useful limiters, especially when stipulated to by all counsel involved. Identify the major players in the project and their domains and cull all of those into a relevant batch. Identify all subcontractors involved in the dispute and pull all of their s in batches into the relevant universe. Conversely, cull, in batches, from the universe of s those from subcontractors that are not relevant to the dispute. Project directories are a useful tool in this regard. Compare the project directory for the project at issue against project directories for all other projects at the company, or given business unit, or other logical subdivision, during the relevant time. Any subcontractor, owner, designer, supplier, or other entity s domains that are not included on the project directory of the disputed project, or which were identified as not relevant to the dispute, can be batched out. Again, some specific checking should be done to make sure that relevant ESI is not inadvertently culled. When batch culling, a clear record of the process employed at each step of the way should be maintained. Culled batches should be identified as such and associated with the batching methodology. Then, if disputes arise about the propriety of the culling, the methodology can be explained or the process can be reversed or altered to address the concern. Cull the Privileged Data Once the data set has been reduced to only include information relevant to the project, cull the privileged information. Try to identify the obvious first, such as those s to/ from the attorneys involved or those that are marked privileged. Try to then perform sub-set searches for items that are more likely to be privileged, searching for terms such as litigation, law, and lawsuit. Note that once such documents are identified, many courts require the timeconsuming and costly action of the creation and disclosure of a log of all of the privileged material withheld from production. Some of the ESI software programs can help generate at least the beginning of this log. Withholding information on a claim of privilege is a party s right and is both critical and problematic if privilege is not properly asserted. Potentially privileged documents should be carefully scrutinized by your legal team before being finally designated as privileged and to be withheld from production. September/October 2013 CFMA Building Profits

5 Create Smart Search Terms Often the parties will attempt to employ search terms to narrow the data set. This exercise can be effective in cases, but it can also pose challenges. If the data set is relatively small, then a linear review may be preferable. If search terms are to be employed, it is best to negotiate them with the adversary upfront, then apply them in test cases to gauge the utility of the results. In a construction case, using search terms like change order or delay will do little to narrow the field. The Future of ESI: Predictive & Suggestive Coding Just recently becoming available by some ESI software and hosting vendors, new technology may change the landscape of ESI discovery. Predictive and suggestive coding uses algorithms similar to those used by online retailers (to learn your buying habits in order to suggest additional products tailored to you based upon your purchase/search history). In the ESI context, statistically significant but still relatively small subsets of the ESI data universe are coded by experienced reviewers, who are familiar with the project and the dispute. The software analyzes the detailed coding of the subset and applies it to the full data set to predict and suggest which documents may be relevant to the dispute. As the reviewers analyze the predicted and suggested documents and further identify them as relevant or irrelevant (or associated with a given issue or issues), the software refines its analysis based on the more refined information input. The charges for the use of this technology can be high, but it may save significant human, billable time. The cost/benefit must be weighed in each case. Significantly, courts have yet to catch up with this emerging technology, so no legal standards for its viability have been established. Unless and until courtimposed standards are established (if this technology is to be used in the discovery process), the parties in the dispute should reach upfront agreements regarding its use and the methodology to be employed in order to avoid costly disputes over the propriety of its use in litigation. Much time and effort can be spent crafting, negotiating, and employing search terms in a trial-and-error fashion. When search terms are employed, they should be as narrow as possible yet not too restrictive. For example, look for the South Street Project as all one term rather than south and street and project as separate terms. Also try to use any unique terms (e.g., project/ owner names, addresses, company names, etc.) if only a limited number of entities are involved; and contract numbers and change order numbers if a discreet number of change orders are involved. Try to be claim specific. If the dispute arises from a water event, then search for the name of the storm; a delay event, search for the cause of the delay; or a breach of contract, search for the alleged cause of the breach or defect. Formulate Project Identifiers in Your Company s As is likely evident from the strategies described previously, a significant expense can be incurred just in identifying which of your custodians s relate to the project that is the subject of the dispute. This significant cost is relatively easily avoided with some forethought and diligence. For a project s mostly relevant custodians, that is, those who are assigned full-time to one project, such as a superintendent or a PM, your IT department should set up their so that every sent contains a unique projectspecific identifier that can be searched for to isolate those project-related s. A project name, project number, unique code in the electronic signature, or hidden embedded piece of metadata all could serve the purpose. Alternatively, a diligent application of a convention in the subject line of the can suffice as well. Requiring your staff to start each subject line with the project name or number followed by a topic descriptor is also effective. However, automated systems of embedment are more reliable, taking out the human factor. For the mixed bag custodians, whose s relate to many projects or company-wide issues, embedding poses a greater challenge. Software exists that will require the association by the sender of every sent with a project name or number before it is sent. (Some executives may balk at this constraint on their ability to freely , but forcing that issue can save vast sums when it comes time to locate relevant ESI.) CFMA Building Profits September/October 2013

6 reducing esi costs Strategic Advice for Construction Litigation Disclose Cost Effectively Plan ahead on how the ESI will be exchanged between the parties in the case. There are many ways to turn over the data once it s collected. Some courts may dictate the format of production, while others leave it to the parties to address among themselves. Production can be in native format (i.e., in an unprocessed form) or in a processed form, such as turning the data into PDF or TIFF files, along with the associated metadata (e.g., the creator of the document, time of creation, time document was sent, etc.). Native format productions are less expensive, but the data, in its raw form, can be manipulated. Petrified data, converted into PDFs or TIFF files, is less prone to alteration, but there is often an expense associated with doing so. Some data, like large spreadsheets or audio, video, or graphic files may not be usable if petrified, so special technological considerations must be accounted for. Again, planning ahead and negotiating agreed-upon protocols with the other parties provides certainty to the process and avoids the expensive effort of having to reproduce data in a different format after issues are recognized. Have a Fall-Back Plan Despite all the great pains that litigants and lawyers take to segregate the relevant from the irrelevant and the privileged from the nonprivileged, errors will invariably occur. The larger the data set, the more likely it is that some information will inadvertently be disclosed to the other side that should have properly been held back. Counsel should negotiate claw-back agreements with its adversaries to specifically address upfront how the parties will treat inadvertently, improperly disclosed information. Typical claw-back agreements address segregating inadvertently produced data immediately upon notice. These agreements also address preclusion of its review by the receiving party until the propriety of the production is resolved (either by negotiation or by court or arbitrator ruling) and improperly disclosed information is returned or destroyed. Closing Thoughts ESI management tools available, and team members who have done it effectively before are all imperatives to reducing what may be the largest single line item in a litigation budget. That reduction could mean the difference between being able to bear the cost of litigating to vindicate your position and having to settle for less than you are entitled to, or foregoing vindication of your rights altogether. n GREGORY H. CHERTOFF is Co-Managing Partner in the NY office of Peckar & Abramson, P.C., where he co-manages the firm s staff of 21 attorneys. A practicing attorney for 19 years, he regularly represents GCs, CMs, and owners in all manner of construction projects, disputes, and aspects of risk management. Gregory is a frequent author and presenter on various construction law topics to industry and legal forums. He earned a BA from the University of Michigan and JD from Hofstra University. Phone: , ext gchertoff@pecklaw.com Website: RICHARD R. VOLACK is a Partner in the NY office of Peckar & Abramson, P.C., where he addresses clients questions and concerns on a daily basis. He also serves as Chair of the company s IT and Paralegal Committee, which addresses, among others, the ESI issues within the firm. As a construction attorney, he counsels some of the country s largest GCs, CMs, and owners in all aspects of construction dispute resolution. Richard earned a BA from the University of Scranton, MA in Political Science from Syracuse University Maxwell School, and JD from Syracuse University College of Law. He is a member of the New York City Bar Association, New York County Lawyers Association, New York State Bar Association, and American Bar Association. Phone: , ext rvolack@pecklaw.com Website: The significant costs of ESI can be made more manageable and predictable by having an ESI strategy developed in a collaborative effort by your legal and in-house teams. Upfront planning, an understanding of the legal requirements, knowledge of the company s policies and practices, facility with the September/October 2013 CFMA Building Profits