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September 11, 2024 · 12:36 PM

Three Key eDiscovery Lessons from Domus BWW Funding v. Arch Insurance Company

By John Patzakis

Domus BWW Funding v. Arch Insurance Company is a recent decision focused mostly on issues and challenges related to preservation of Electronically Stored Information (ESI) in a large enterprise. It is an instructive case for in-house counsel, as it demonstrates how avoidable eDiscovery failures can lead to potentially devastating court sanctions.

Case Background

In Domus BWW Funding, LLC v. Arch Insurance Company (decided August 12, 2024), Plaintiffs brought an insurance coverage claim against Arch Insurance for defense costs related to an underlying civil matter. In its first eDiscovery failing, Arch Insurance did not issue a litigation hold until four years after having constructive notice of the claim.

Employees at Arch Insurance identified relevant ESI, but due to what the court identified as a lack of supervision by counsel, critical potential evidence was mishandled. Arch Insurance’s In-house counsel did not follow up with the paralegal tasked with executing an ESI search, the parameters of which both parties agreed to. Additionally, Arch Insurance inadvertently deleted key emails during a data migration in the summer of 2023.

The Court criticized Arch Insurance’s handling of the ESI search, describing the delay as indicative of “counsel’s disdain” for its discovery obligations. The Court found Arch Insurance’s actions caused prejudice to the Plaintiffs in the form of delays, costs and lost evidence, justifying sanctions under Rule 37(e)(1). The Court ruled that the Plaintiff could introduce evidence of Arch Insurance’s eDiscovery failures at trial and would issue a jury instruction as an evidentiary sanction.

There are three key takeaways from this case:

1. Arch Insurance’s Main Failing was Lacking an Established eDiscovery Process.

Arch Insurance’s challenges centered on its complete lack of an existing process to address eDiscovery preservation. Arch Insurance and their counsel failed to issue a timely legal hold. And when the collection did finally occur, it was highly reactive, haphazard, resulted in inadvertent destruction of ESI, and required the manual efforts of custodians because Arch Insurance had no enterprise-capable collection capability.

Having an established and demonstrable eDiscovery process will not only reduce costs and risk, but it will also demonstrate to the court that your organization takes its eDiscovery obligations seriously. And this case shows that a lack of established eDiscovery process will leave the court with the opposite impression.

2. Court Faults Arch Insurance’s Unsupervised Manual Collection

Arch Insurance improperly relied on custodians to collect ESI without attorney supervision. Courts have repeatedly criticized this practice. (See E.E.O.C. v. M1 5100 Corp., (S.D. Fla. July 2, 2020), district court excoriates defense counsel for allowing the practice of unsupervised custodian ESI self-collection, declaring that the practice “greatly troubles and concerns the court.”)

This again is a symptom of a lack of established eDiscovery process. Without a clear workflow with automated reporting, tracking, transparency and technical execution, it is difficult for attorneys to effectively supervise such a disjointed and ad-hoc exercise.

3. Arch Insurance Failed to Take Advantage of a Targeted Search

While the parties stipulated to a targeted and proportional keyword search protocol to identify and collect potentially relevant ESI, Arch Insurance lacked an enterprise capability to execute such a search. Properly targeted preservation initiatives are favored by the courts and enabled by next generation software to search data sources quickly and effectively in-place throughout the enterprise. The ability to collect data directly and transparently from custodian laptops, desktops, Microsoft 365 and other cloud sources into a RelativityOne / Relativity workspace is a game-changer that enables Attorney’s to begin review in hours rather than weeks.  But without such a capability, an organization must revert to manual efforts that either result in costly data over-collection or faulty, non-defensible effort.

In sum, Domus BWW Funding is an illustration of what often happens when an organization does not have a systematic eDiscovery process in place. An effective process is established through the right people, processes and technology, such as the capabilities of the X1 Enterprise Platform. X1 Enterprise Platform significantly streamlines the eDiscovery workflow with targeted, in-place search and collection with direct upload to a review platform, thereby significantly reducing costs and risk, allowing in-house counsel to demonstrate to the court that they take their discovery obligations seriously.

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August 27, 2024 · 10:36 AM

Addressing Critical Information Governance Challenges from Departing Employees

By John Patzakis and Chas Meier

When employees leave an organization, they often leave behind a significant amount of valuable information. This poses major information governance challenges, as companies must decide how to manage litigation holds and retain essential data assets.

A common response to this challenge is to retain departed employees’ laptops, hard drives, or keep their Microsoft 365 or Google Workspace accounts active. However, this approach is both expensive and inefficient. Another often-used method is creating a full disk image of the laptop for archiving. While this preserves data, it is a slow and cumbersome process that can require vast amounts of storage, sometimes reaching petabytes, which becomes both costly and unwieldy. Neither approach offers the ability to gain insights from the data, nor do they allow for intelligent and targeted data extraction, making it difficult to leverage these data assets effectively or comply with legal and regulatory requirements.

To address these challenges, X1 has developed a game-changing workflow utilizing our X1 Enterprise Platform, offering a streamlined and cost-effective solution. With our platform, organizations can process hundreds of laptops and Microsoft 365 accounts in a single day. Leveraging X1’s unique and patented in-place indexing technology, data extraction becomes highly targeted, allowing for efficient responses to litigation holds. This means that each litigation scenario can have a tailored search applied across all relevant data sources simultaneously, enabling precise data extraction.

For example, one company with over two dozen active litigation holds has employed X1’s solution, allowing them to save detailed keyword search routines crafted by their counsel. These searches can be quickly and programmatically applied not only to data on specific laptops but also to archived PSTs and associated Microsoft 365 accounts. Once the targeted data is extracted, the company repurposes the laptops for new employees, resulting in significant cost savings—estimated to be in the millions—and a reduction in storage requirements.

Beyond managing litigation holds, another core benefit of X1’s solution is its ability to extract key data assets from departed employees to retain within the company’s knowledge base. This capability is especially valuable for law firms, consulting firms, and organizations that rely heavily on high-end knowledge professionals. For instance, one law firm uses X1’s workflow to rapidly search large, archived PST files from departed attorneys to identify and separate key data related to ongoing matters. This ensures that crucial information remains accessible to the firm or is appropriately transferred to the attorney’s new firm. Additionally, vital legal and business insights from retained documents and emails are quickly mined and reviewed, enhancing the firm’s overall knowledge management.

Client Example:
• Overview: A major pharmaceutical retailer uses X1 within Relativity to perform 50 data collections weekly, covering both Mac and PC environments. The system allows them to repurpose laptops from departed employees within days instead of months, leading to substantial savings.
• Integration: The company eliminated the need for traditional eDiscovery tools to remediate laptops, opting instead for X1’s more efficient approach.
• Time and Cost Savings: This shift has saved the company millions by:
1. Reducing the reliance on costly traditional eDiscovery tools.
2. Minimizing the risk and cost associated with retaining unnecessary data.
3. Reintroducing millions of dollars’ worth of computer equipment back into circulation.
4. Completing these processes in one-tenth the time it would have traditionally taken, vastly improving operational efficiency.

Conclusion:
In today’s fast-paced and data-driven world, organizations face numerous challenges when it comes to managing and retaining data from departed employees. Traditional methods, such as retaining physical devices or creating full disk images, are not only costly and time-consuming but also fail to provide the flexibility and insight needed to effectively manage information assets. X1’s innovative solutions, particularly its patented in-place indexing technology, offer a modern, scalable, and efficient alternative. By enabling targeted data extraction, streamlining the process for litigation holds, and supporting knowledge retention, X1 empowers organizations to manage data governance with precision and agility.

For companies navigating complex data environments, especially those utilizing BYOD policies, X1 Enterprise Platform ensures compliance while protecting privacy. By implementing X1’s advanced platform, organizations can not only reduce costs and save valuable time but also gain a strategic advantage in managing their information governance needs. We invite you to explore how X1 can transform your data management processes and help you stay ahead in the ever-evolving digital landscape.

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July 18, 2023 · 10:58 AM

X1 Social Discovery Integration with Relativity Proves to Be Game Changing in Several High Stakes Matters

By John Patzakis

Social media is a critical source of relevant evidence in nearly every legal matter. However, most tools collect such evidence using print/screenshot methods that generate flat file images that cannot be effectively displayed and analyzed in review platforms. Law firms and other litigants faced a critical but previously unmet requirement for social media data to be displayed and reviewed in Relativity in its native format and parsed so that each individual Facebook post, Tweet or Instagram is displayed as a record in Relativity, with its own associated metadata, photos, indexed text and in-line comments. This allows for the individual Facebook or Instagram posts, Tweets, etc. to be searched, filtered, tagged, and reviewed at the post level, with all associated metadata and comments inline. This also enables the native Relativity AI analytics tools to be applied to this social media data, which is impossible when imported as mere flat file image screenshots. X1 has solved this critical challenge.

With Relativity and RelativityOne being the industry-leading review platform on the market, X1 sought to streamline the export process from X1 Social Discovery to Relativity to provide an efficient and scalable workflow for the abundant eDiscovery and investigations customer base. X1’s game changing social media and web-based data collection solution, X1 Social Discovery, offers the ability to collect and search data from popular social media platforms (including Facebook, Instagram, Twitter, YouTube), websites, and email utilizing a truly unique approach. X1 Social Discovery’s innovative Relativity integration has uniquely provided the ability collect social media and webpages in their native format at the object (post) level with associated metadata, photos, and in-line comments intact, allowing for individual import for review in RelativityOne as individual records. Social Discovery is the only eDiscovery solution today that enables Facebook, Instagram, Twitter, YouTube and other social media data to be displayed in Relativity at the post level, where each post is an individual record.

In contrast, the alternatives are web plug-in tools that generate flat file image PDFs as its final output. So, if there are 30 social media posts that are in a feed, a single monolithic image PDF will be generated as the collection output. These bulk screenshots are of very limited value as they are not collected in native format, retain no post-level metadata, and are not searchable (absent a secondary and inferior OCR process). This output is practically useless for a review platform (as the entire output is one object).

The X1 Social Discovery Relativity Integration has been successfully utilized throughout multiple organizations including large corporate legal departments, government agencies and law firms for evidentiary purposes within investigations and compliance related matters.

In a recent case that provides a great representative illustration, one of the Top 50 Law Firms in the U.S. was able to successfully use this integration in an employment class action to import over 20,000 Facebook Group posts and other social media items collected by X1 Social Discovery seamlessly into Relativity without any manual processing steps. During the review, they were able, thanks to X1 importing all items as native objects with preserved metadata, inline comments and extracted text, to search, filter and review all the social media items in Relativity. The attorneys and paralegals were able to quickly and easily view all the pieces of a particular post together giving them a comprehensive understanding of the social media content. This capability led to a successful outcome that would simply be impossible without X1 Social Discovery.

To see this critical and unique functionality in X1 Social Discovery v7, please watch our product tour on-demand. Alternatively, we would welcome the opportunity to brief you and your colleagues directly. Please contact us to speak with a member of the X1 Team.

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May 12, 2022 · 11:06 AM

Usage-Based Pricing Model Increasingly Driving eDiscovery Software Growth

by John Patzakis

Legal Tech software CEOs often grapple with two competing challenges: Growing revenue in a manner that supports how customers buy their products for their individual cases, while at the same time maximizing shareholder value by recording recurring revenue, which the investor community typically favors. Recurring revenue generally comes in the form of fixed annual or monthly subscription licenses.

However, eDiscovery software providers are increasingly aligning their SaaS pricing strategy with the amount of product usage their customers consume. Instead of paying a fixed rate, the pricing is based upon actual usage. The benefits of this approach include a shorter and simpler purchasing process and increased customer satisfaction and retention.

In the eDiscovery space, customers often prefer to pay by “matter”, i.e., per lawsuit or legal case. Law firms and service providers typically utilize eDiscovery SaaS software specific to an individual case on a pass-through cost basis, where their end-client ultimately pays for the services. In the case of corporate law departments, oftentimes the organization prefers to purchase annual subscriptions for eDiscovery and apply the license over multiple matters in the course of the year. However, such buying decisions vary by organization, with corporate counsel sometimes deferring eDiscovery workflow and tech decisions to their law firms, which favors a usage-based pricing model.

While tech companies with recurring annual term revenue will typically garner higher valuations, eDiscovery software firms with usage-based pricing models are now seeing similarly elevated valuations. Investors are recognizing the very unique economics and buying dynamics specific to the eDiscovery software space. But it is incumbent on eDiscovery software execs, their investment bankers, and board members to educate the broader market on this dynamic unique to the eDiscovery space. In some situations, investors new to this space attempt to apply a steep discount to usage-based SaaS revenue, as it doesn’t fit in with their “paint by the numbers” ARR models. Rick Weber, Managing Director of Legal Tech investment banking firm Arbor Ridge Partners notes, “while the usage model is not annual recurring, it is ‘monthly re-occurring,’ and thus projections and modeling can be made based on company history and industry norms and should be treated like ARR contracts.”

In fact, usage-based pricing is now gaining wider acceptance in the broader SaaS software market beyond legal tech. Cloud infrastructure providers AWS and Microsoft Azure are obvious examples of successful usage-based pricing strategies, but many startups and medium sized companies have successfully implemented the model as well. While usage-based revenue may seem less predictable compared to other pricing models, companies using this model are often growing faster, retaining more revenue, and valued at high revenue multiples. But again, this realization requires a closer look by investors and an intelligent education effort by the companies and their advisors.

One caveat for investors is to confirm that the value of the SaaS usage offering is mostly based upon proprietary software tech versus services that are dressed up as SaaS. Some eDiscovery service providers attempt to position their services as SaaS, without a true standalone propriety software component. An analysis of the cost of sales/gross margins and assessment of the actual proprietary nature of the software is determinative. Gross margins should be at least 80 percent. And while some services are often provided in conjunction with a SaaS usage-based offering, a qualifying factor is whether the software is also separately offered purely as a traditional license to end users without any services required, which is how many customers will opt to buy.

But for true usage-based SaaS offerings, the flexibility, simplicity and supporting of legal customers purchasing dynamics are key to rapid growth and customer satisfaction. As summarized by Weber, “many of the PE firms and investors that have made big bets on such companies in recent years seem to understand the nuance and opportunity while many still lag behind and simply need to think outside of their box.”

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September 8, 2021 · 11:28 AM

eDiscovery Services Are Undergoing a Major Transformation

By John Patzakis

Recent research from industry analyst Greg Buckles at the eDiscovery Journal highlights soaring valuations for eDiscovery tech firms.  For the first time in the history of the industry, multiple eDiscovery tech firms have gone public in a single year, and by my count, there are at least seven tech “Unicorns” (a company with at least a billion dollar valuation) in the space. Relativity leads the way with at least a $3.6 billion valuation based upon their latest financing.

Yet while technology-based providers are seeing escalating valuations, valuations and M&A activity for pure services firms are conversely softening. This is because tech automation is finally catching up to this space. Traditional eDiscovery services typically involve manual collection, followed by manual on-premise hardware-based processing, and finally manual upload to review. These inefficiencies extend projects by often weeks while dramatically increasing cost and risk with many manual data handoffs. However, the first half of the EDRM involving collection and processing are now far more automated than they were even a few years ago. For instance, the one aspect of eDiscovery tech that is actually seeing decreasing usage and revenues are standalone processing appliances. This is because these tools are dependent upon the efficient manual services model prior to ingestion and also post import.

However, the latest in eDiscovery collection technologies will now combine targeted collection with previously manual processing steps that are performed “on the fly” and in the background so that the data is automatically collected, processed and uploaded into a review platform such as Relativity in one fell swoop. Better yet, processing is now free with RelativityOne. The automation Relativity is engineering, including with their integration with X1, along with innovations by other review platforms, is rendering traditional eDiscovery processing tech obsolete, along with manual collection and processing services. The purchasers of eDiscovery services and software have clearly noticed and are demanding adaptation from vendors.  

So how can services firms adapt to the inevitable? Here are few strategies:

First, services firms should move upstream to focus on information governance and privacy consulting. The new generation of eDiscovery technology enables convergence with privacy (i.e. GDPR compliance) information security and many other information governance use cases. This convergence requires high-end strategic consulting to bring these processes together and operationalize them. This also enables services firms to develop direct and ongoing relationships with corporate law departments, IT and other key corporate stakeholders.

Second, data analytics consulting, which is already a prominent offering by many firms, is ripe for further expansion. This is because analytics for eDiscovery is becoming more advanced and user friendly, and thus is able to be applied across the eDiscovery workflow, including pre-collection analytics and information governance.

Third, services firms should find ways to develop or otherwise acquire their own differentiating tech or establish meaningful partnerships with tech platform providers. These partnerships should entail more than merely using the software, but the development of proprietary workflows or even technical integrations that enable unique service offerings.

At the end of the day, eDiscovery is a technical process that is subject to technology disruption just like any other technology-based services industry. eDiscovery services firms that not only adapt to but embrace this change as a strategic opportunity will be the ones who prosper the most.

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