H.R. 4115: Triggering Soaring E-Discovery Costs

Monday, July 5, 2010 - 01:00

David Lender is Co-chair of the firm's 160-lawyer Complex Commercial Litigation practice and a member of the firm's 15-person Management Committee. Over the past several years, he has successfully tried numerous cases in both federal and state courts.

Editor: Are your corporate counsel clients concerned about litigation costs?

Lender: They all are. Litigation costs are a major concern, especially given what's going on in the economy. Corporations have imposed significant budget constraints that have hit legal budgets as well. E-discovery is in many cases the most significant cost in litigation. It can easily eat as much as 50 percent of a company's litigation budget.

The concern about e-discovery costs is compounded by the fact that those costs are frequently incurred under circumstances where clients feel they did nothing wrong, yet they face multiple millions of dollars of potential discovery costs.

Editor: Do these increases in e-discovery costs result from notice pleading?

Lender: The problem stems from the fact that discovery is still very much open-ended. Some judges are trying to rein it in, but there is still a mindset among many lawyers that a party is entitled to and should discover everything that is relevant or possibly could lead to the discovery of admissible evidence. Notice pleading exacerbates the problem. If notice pleading is all that is required, a savvy plaintiffs' lawyer can, in most cases, craft a complaint that can survive a motion to dismiss, and then you're off to the races with e-discovery and the associated costs.

Editor: Do e-discovery costs and disclosures of confidential data intimidate corporations into settlement of otherwise meritorious cases?

Lender: It really depends on what's at stake in the case. If you're looking at a billion-dollar case, for example, the plaintiff's leverage is not going to be as great because no one is going to settle a billion-dollar case for several hundred million dollars in order to save a few million dollars in e-discovery costs. The normal case, of course, is not a billion dollar case. If you're projecting that your worst case scenario is a $10 million loss, and you're looking at $2-3 million in e-discovery costs, some companies may simply do a risk assessment and be inclined to settle the case rather than to fight it.

Editor: Have settlements stimulated by e-discovery costs resulted in fewer trials?

Lender: Trial lawyers are seeing fewer trials because of settlements triggered by the spiraling cost of e-discovery. That's a shame because there are legitimate disputes that should be decided by juries, not settled because of the expense of litigation. Also, when cases are settled, the dispute is not part of the process of building precedent to serve as guidance to future action. We need to get control over the e-discovery process by changing the mindset to a focus on discovering the core documents and not everything under the sun. Until we do this, there will be fewer trials because the cost of e-discovery is overwhelming the incentive to try cases. We are hearing this lament from judges and trial lawyers as well as clients.

Editor: Are the U.S. Supreme Court decisions in Twombly and Iqbal a step in the direction of getting control over e-discovery costs?

Lender: Absolutely. What Twombly and Iqbal held was that conclusory pleadings are simply not acceptable and that courts should not allow litigants to be drawn into potentially very expensive discovery unless and until they set forth enough facts in the complaint to state a claim to relief that is plausible on its face. That means that plaintiffs are supposed to have facts to support their case before they file the complaint. They are not supposed to bring a case based on a theory and then use today's very expensive discovery with the hope of finding the facts that they should have had when they brought the case to begin with.

Twombly, an antitrust case, is really a great example. The complaint in that case pled in conclusory fashion that there was an illegal agreement, but the only factual allegations in the complaint to support that contention were about parallel conduct. If the Conley standard, which is what H.R. 4115 is trying to legislate, was literally applied, the Court likely would not have dismissed the complaint because the pleading left open the possibility that the plaintiff might through discovery find some facts to support recovery. Under H.R. 4115, a court would not be allowed to dismiss a complaint unless it appears beyond doubt that the plaintiff can prove no set of facts in support of its claim.

Editor: In your experience, have cases been dismissed because an insufficient chain of facts has been pleaded?

Lender: In my experience courts still are reluctant to dismiss a complaint on a motion to dismiss unless the complaint is legally deficient based on the facts as pled which must be accepted as true in a motion to dismiss. Where Iqbal and Twombly have had the most impact are cases where the complaints are just conclusory pleadings combined with formulaic recitations of the elements of a cause of action. Those kinds of complaints pre- Twombly and Iqbal often survived because those conclusory allegations were accepted as true. Courts now feel more empowered to dismiss such cases.

Editor: Are you of the view that a scientifically valid chain of causation is required by Twombly and Iqbal in cases involving pharmaceuticals, chemicals or similar complex products?

Lender: My view is that in such cases you need some scientific basis to make the claim plausible. The centerpiece of Twombly and Iqbal is that a plaintiff should not be allowed to advance a theory of causation without any factual predicate to support it. You should not be permitted to bring a suit and use expensive discovery either to find some facts to support that theory - or even worse to use expensive discovery to force a settlement.

Editor: Have state courts in which you practice tended to follow federal precedent interpreting the federal rules? To what extent have Twombly and Iqbal been applied by lower federal courts?

Lender: So far states have continued to follow their prior precedents and allow notice pleadings since Twombly and Iqbal govern only federal pleadings.

The federal district courts are starting to look more at plausibility, but they generally are still careful about granting motions to dismiss. It would be helpful if somebody did a post- Twombly and Iqbal analysis to determine whether there has, in fact, been an increase in the number of motions to dismiss filed and whether a higher percentage of complaints have been dismissed. I think the numbers likely will show that there has not been a dramatic increase in the number of motions to dismiss that have been granted. If so, that could go a long way to convincing people that H.R. 4115's premise that people are being denied access to the courts is unfounded.

Editor: Under Twombly and Iqbal, when does e-discovery commence and is it more focused?

Lender: Many courts understand that e-discovery costs in complex litigations can get out of hand. In Twombly there is a clear admonition that district courts should not unleash e-discovery unless the court concludes that a plausible claim exists. One of the outgrowths of Twombly and Iqbal is that courts are now more willing to entertain a motion to stay or limit discovery until the motion to dismiss gets resolved.

Editor: How would passage of H.R. 4115 now pending in the House Judiciary Committee affect e-discovery costs?

Lender: H.R. 4115 tries to return the world to the literal standard that was stated in the Conley case. But as the Supreme Court noted in Twombly , the Conley "no set of facts" language had been questioned and criticized by courts and commentators for years. When the Supreme Court set forth the plausibility standard, it was reflecting the fact that many courts were not in practice literally applying the standard enunciated in Conley. If H.R. 4115 becomes the law, and is literally applied by courts, the burden of e-discovery will dramatically increase because it will be much more difficult to get a complaint dismissed on an early motion. That means that, other than in class cases, you will not have a real opportunity to dismiss the case prior to summary judgment, which usually does not get filed until after discovery.

Companies' litigation costs will soar because they're going to incur large e-discovery costs in almost every case. This is also going to put more pressure on already overly taxed judges because they're going to have to oversee discovery in virtually every case.

Please email the interviewee at david.lender@weil.com with questions about this interview.