A Proposed "American Rule" for E-Discovery

The Court of Appeals recognized in the famous Mighty Midgets case that in contrast with the legal system of Great Britain, the "American Rule" is that each litigant generally pays their own way. They will not recover as damages the amount expended in the successful prosecution or defense of their rights, including attorney's fees.

The American Rule has some notable exceptions, but the full expenses of litigation generally are not recoverable because of "a fundamental legislative policy decision." The idea is to not "discourage submission of grievances to judicial determination" and to encourage free and equal access to the courts, without fear of penalties apart from the merits. Such a system, the Court of Appeals has recognized, "promotes democratic and libertarian principles."

Under the logic of the American Rule, a corollary might be that neither party shall be enabled to shift their discovery expenses to the other side, or cause the other side to incur expenses beyond those that are "normal" for the case. This begs a bunch of questions in the context of electronic discovery, because of the new opportunities to create or impose litigation costs.

Understanding E-Discovery

More than 99% of the world’s information is currently created electronically, and nearly every piece of electronically stored information (ESI) is potentially discoverable in a civil lawsuit. In an average case today, the process of exchanging ESI with an opposing party (known generally as electronic discovery or “e-discovery”) can mean processing, reviewing and producing potentially millions of pages of electronic documents. According to one estimate, a “midsize” lawsuit is now expected to generate between $2.5 and $3.5 million in e-discovery costs alone. E-discovery, according to one commentator, “represents the greatest sea change in the practice of law in recent memory.

Minimizing the Risk That E-Discovery Failures Will Create Corporate LIability

E-discovery practice in civil cases and government investigations has rapidly evolved since the onset of federal rules governing electronic discovery a little over a year ago. During its infancy, e-discovery was viewed as a costly but powerful tool that could generate "smoking gun" emails that would alter the outcome of cases. Just a few years ago, litigants were infrequently sanctioned for e-discovery failures, in part, because many judges gave litigants who botched e-discovery the benefit of the doubt and chalked up e-discovery mishaps to "the learning curve." Those days are over.

Judicial tolerance for shortcomings in e-discovery is on the decline, and litigants, their counsel and e-discovery vendors are facing direct liability for such failures. As a result, sensibly managing e-discovery is critical not only to success in the underlying litigation but to minimizing the possibility that e-discovery failures will become a source of liability in and of themselves. Before reviewing some ways to minimize the risk that e-discovery failures will create liability, this article draws upon two recent and notable e-discovery disputes to show how liability can arise.