A Look At The Legislative Bills That May Impact Litigation Budgets And E-Discovery

Tuesday, September 1, 2009 - 01:00

Federal Rule of Evidence 502, giving blanket privilege protection for clawbacks signed by a federal judge, was enacted by Congress last year. This year, Congress has several bills pending that will impact costs and risks of e-discovery, some positively and others negatively.

S.445, the Attorney-Client Privilege Protection Act of 2009 sponsored by Senator Arlen Specter, will blunt the impact of federal prosecutors mandating privilege waivers as a sign of cooperation. Like most of the current bills that may have an impact on e-discovery, it is stalled in committee.

The bill with some velocity (and almost a polar opposite) is H.R.1508, the Sunshine in Litigation Act of 2009, which disallows sealing of discovery and settlements. This would chill discovery. Most companies are hesitant to use quick peeks, even with the Rule 502 privilege protection. Sealing the discovery has convinced some companies to produce more, particularly items with trade secret implications. Making all discovery public can have unintended consequences, since embarrassing and personal emails can be part of voluminous productions. This bill has already had hearings in the House and, unlike others, has a companion bill in the Senate.

Many organizations are advocating strongly to again change the Federal Rules of Civil Procedure in an attempt to contain litigation and e-discovery costs. It is important to note the political landscape in which those discussions will be held. The bills are outlined below, with their sponsors. They include reinstating notice pleading, allowing deductions for fees advanced in contingency cases, allowing suits against those substantially assisting fraud (subprime and financial crisis impacts), and imposition of a mandatory committee on risk management at the board of director level. Bill status can be tracked at www.thomas.gov.

S.1074 - Shareholder Bill Of Rights Act of 2009

Sponsor: Sen. Charles Schumer

Committee: Banking

Status: In Committee

Purpose: Rein in executive compensation practices that led to excessive, reckless risk-taking and contributed to the recent financial collapse. The bill would let shareholders at most publicly traded firms vote on bosses' pay packages. But it would also allow bosses to ignore "no" votes.

Details: Requires the Securities and Exchange Commission and bank regulators to disallow any inappropriate or imprudently risky compensation practices. And it would require financial firms to disclose (not limit) how they calculate any bonus incentives. This would extend to the traders and money managers who can make more than CEOs. There is a "sleeper" provision mandating independent risk management committees at the board of director level.

Impact: Will elevate e-discovery process, controls and litigation budgets to the board level, as well as bring increased actions and scrutiny on preservation, analysis, review and productions of ESI by governmental regulators and shareholders. If Financial Accounting Standards (FAS) 5 is enacted (Accounting for Contingencies), it will have a combined impact regarding accurate budgeting for litigation and e-discovery, as those numbers would need to be reported.

S. 299 - Judicial Patent Education

Sponsor: Sen. Arlen Specter

Committee: Judiciary

Status: In Committee

Purpose: To encourage enhancement of expertise in patent cases among district judges. To raise the level of expertise in patent litigation, improve the reliability of patents and allow businesses to spend more time inventing and less time litigating

Details: Establishes a pilot program in certain U.S. district courts under which: (1) those district judges who request to hear cases involving patent or plant variety protection issues are designated by the chief judge to hear them; (2) such cases are randomly assigned to the district court judges, regardless of whether they are designated; (3) a judge not designated to whom such a case is assigned may decline to accept the case; and (4) a case so declined is randomly reassigned to one of those judges so designated.

Impact: Possible changes in how patent cases are tried; more committed and educated judges who are smarter about technology and e-discovery challenges.

S.437 - IRS Tax Breaks

Sponsor: Sen. Arlen Specter

Committee: Finance

Status: In Committee

Purpose: Trial lawyers are seeking a tax break with contingency case cost deduction for fees advanced.

Details: Would allow trial lawyers to deduct immediately on their taxes the up-front expenses they incur when investing in contingency lawsuits - the kind of suits where they collect a fee only if they win a judgment or a settlement.

Impact: Will increase the number of class action suits filed, and therefore the amount of discovery that needs to be managed.

S.445 - Attorney-Client Privilege Protection Act Of 2009

Sponsor: Sen. Arlen Specter

Committee: Judiciary

Status: In Committee

Purpose: To provide appropriate protection to attorney-client privileged communications and attorney work product.

Details: Prohibits federal prosecutors and investigators across the executive branch from requesting or conditioning charging decisions on an organization's reasonable assertion of attorney-client privilege or decision to pay attorney's fees for an employee. Emphasizes that the right to counsel is chilled unless the confidential communications between attorneys and their clients are protected from compelled disclosure.

Impact: The Department of Justice has changed its rules three times in the past few years. Will codify privilege protection in government investigations. S.1504 - Notice Pleading Restoration Act Of 2009

Sponsor: Sen. Arlen Specter

Committee: Judiciary

Status: In Committee

Purpose: Relax the standard for pleadings in civil lawsuits taking place in federal court.

Details: Except as otherwise expressly provided by an Act of Congress or by an amendment to the Federal Rules of Civil Procedure, which takes effect after the date of enactment of this Act, a federal court shall not dismiss a complaint under rule 12(b)(6) or (e) of the Federal Rules of Civil Procedure, except under the standards set forth by the Supreme Court of the United States in Conley v. Gibson , 355 U.S. 41 (1957).

Impact: Will effectively "overrule" Iqbal and Twombly , two widely cited Supreme Court cases that raise the standard of pleading to survive motions to dismiss.

S.1551 - Liability For Aiding And Abetting Securities Violations Act Of 2009

Sponsor: Sen. Arlen Specter

Committee: Judiciary

Status: In Committee

Purpose: Allow for a private civil action against a person who provides substantial assistance in violation of the Securities Exchange Act.

Details: Amends the Securities Exchange Act of 1934 to subject to liability in a private civil action any person who knowingly or recklessly provides substantial assistance to another person (aids and abets) in violation of such Act.

Impact: Will effectively "overrule" the Supreme Court case, Stoneridge v. Scientific-Atlanta , disallowing suits against attorneys, accountants and consultants. Privilege and third-party subpoenas will also be impacted.

S.537 & H.1508 - Sunshine In Litigation Act Of 2009

Sponsor: Sens. Herbert Kohl and Robert Wexler, respectively

Committee: Judiciary

Status: In Committee

Purpose: To curb the ongoing abuse of secrecy orders in federal courts.

Details: Amends the federal judicial code to prohibit a court from entering an order restricting the disclosure of information obtained through discovery; no sealing of discovery or settlement.

Impact: Would circumvent the Rules Enabling Act, the procedure established by Congress for revising rules in the federal courts. Would also impose additional, unnecessary requirements on litigants, as well as restrict the discretion of federal courts, leading to increased burdens in both time and expense. Will impact the use of quick peeks.

Mary Mack, Esq. is Corporate Technology Counsel for Fios, Inc. She has more than 20 years' experience delivering enterprise-wide e-discovery, managed services and software projects with legal and IT departments in publicly held companies. Follow her on Twitter (@mackmary) and on her blog, Sound Evidence, on DiscoveryResources.org (www.discoveryresources.org).

Please email the interviewee at mmack@fiosinc.com with questions about this interview.