Financial Cryptography

Discovery, the bright new sword of the digital judiciary!

Over at the Economist, they sound the alarm of justice being eaten from within by discovery and especially, electronic discovery. On a case worth $1000 per month:

Horizon immediately asked to see practically everything the teenagers had said on their Facebook and MySpace profiles, in instant-messaging threads, text messages, e-mails, blog posts and whatever else the girls might have done online.

The Beyes’ lawyer, David Mazie at Mazie, Slater, Katz & Freeman, objected on the grounds that Horizon’s demands violated the girls’ privacy. He lost. So hard disks and web pages are being scoured in order for the case to proceed. Gathering and then sifting through all the electronic information that a few teenage girls have generated is excessive and daunting, says Mr Mazie.

Something wrong there, but what is the issue? In comments last week, Daniel Perry pointed to this article by William J. McLean:

Discovery matters are frequently assigned to retired judges and/or experienced local trial attorneys and typically involve the payment of significant fees to these appointed special masters -- often in excess of $400 per hour. ...

The burden and cost of electronic discovery may fall disproportionately on one of the parties in litigation, and this can lead to an unsatisfactory state of affairs in which litigation is determined not on the merits, but instead on rulings that arise out of discovery disputes. Unfortunately, any party with the financial ability to play the e-discovery card may be able to overwhelm its opponent with the discovery process to the point of either driving that opponent out of business or forcing it to forgo a valid claim for damages. Alternatively, it could leave a party without the financial ability to defend a case on the merits.

(Yes, as this is a non-legal blog, I elipsed the formal law reference.) So, discovery is a weapon. If you have more money, you can flood the other side with discovery requests. Back to the Economist:

And yet almost all information today is electronic, and there is ever more of it. “Things that we would never have put in writing are now in electronic form,” says Rebecca Love Kourlis, formerly a justice on Colorado’s Supreme Court and now the director of an institute at the University of Denver dedicated to rescuing America’s civil-justice system.

This system, she says, was already a “sick patient”—with crowded dockets and understaffed courts—but electronic discovery now threatens a lethal “spike in fever”. She has seen ordinary landlord-tenant disputes take three years, and divorce cases that might have been merely bitter, but are now digital wars of attrition. She sees cases that are settled only because one party cannot afford the costs of e-discovery: whereas in the past 5% of cases went to trial, now only 2% do. She knows plaintiffs who cannot afford to sue at all, for fear of the e-discovery costs.

From 5% to 2% suggests Kourlis is blaming electronic discovery on a halving of justice!

How do we -- the victims -- deal with it? What are the defences for that? The Economist suggests that the continental tradition of inquisitional justice is a natural break on the abuse, so do we have to move to Europe? McLean implies there are two defences: traditionally, costs of searching for paper had a natural limit, and the legal code(s) of conduct limits any abuse. As we know, there is now no limit to searching and copying data (remember google, RIAA, etc). The second can go spectacularly wrong:

Discovery motions, meanwhile, continued to be filed. Huge amounts of attorneys' fees were being spent month after month as part of this exercise. No controls or limitations were placed on the discovery process. Despite warnings from counsel that he should get control of this case, the special master continued to allow and hear motions to compel and to impose sanctions. As many as six lawyers would attend the hearings, which would continue day after day, week after week, month after month.

A pattern was developing. Defendants came to fear that yet another motion for terminating sanctions would be forthcoming if something was not done to try and remedy what the special master seemed to believe were the inadequacies of previously supplied answers to interrogatories. At one point, about $1 million was spent on preparing a fifth set of supplemental answers, with the knowledge that yet another a motion would almost certainly be forthcoming. Ultimately no further motion was filed -- at least as to those specific answers.

But, it gets worse. McLean outlines the nuclear option, wherein the Special Master seizes on a lost or deleted document, and strikes the submission. From there, a default on the entire case may be entered.

What's with that? For the record, I, and everyone I know, delete documents all the time! Indeed, I have deleted most of article, above, and the article authors themselves have been skimpy themselves for editorial reasons.

Caveats and memories of Arthur Andersen aside, it seems clear that discovery is a weapon, and the courts may not defend you against it. Further, in this age of digital documents -- 80% of evidence according to one estimate -- there is no natural upper bound on discovery patience, as there was with boxes of paper.

This then makes discovery a threat to your business. In financial cryptography, we search out these threats and work with them, in advance of the lawyers' fees (sorry about that!). Luckily, we can do something about this one: we can use many techniques to organise the documents to be firstly secured and secondly complete. What remains as the open question for you: do we include it in each and every design, in your design, or in no design. This is a question of risk management, of course, but here is the final salutory warning to add some bias:

Postscript: Ultimately the dispute between Synopsys and this group of former employees settled, but not before more than 20 additional discovery motions were filed and heard. The defendant corporation no longer exists, following its acquisition by Synopsys in May 2005. The product that Nassda developed is now owned by Synopsys. The case generated some $100 million worth of attorneys fees. Nine law firms were involved in the prosecution and defense of the case. The special master received about $1 million. Pursuant to the terms of the settlement agreement, our client (one of the Nassda employees) paid nothing.

Which side of that weapon do you want to be on?

Posted by iang at September 2, 2008 05:09 AM | TrackBack