E-Discovery Background: The Billion-Dollar Verdict

This week, I will talk briefly about e-discovery's "billion-dollar verdict."

In 2005, a Florida court sanctioned investment bank Morgan Stanley in the case of Morgan Stanley & Co. v. Coleman Holdings Inc. In 1998, billionaire Ronald Perelman sold his majority share in camping equipment company Coleman, in exchange for Sunbeam stock. After Sunbeam went bankrupt in 2001, Perelman sued Morgan Stanley, claiming he was fooled into accepting the Sunbeam shares.

The judge sanctioned Morgan Stanley for not turning relevant emails over to Perelman. Because of this punishment, Perelman did not have to show he was damaged by the deal. Instead, he had to prove only that he relied on Morgan Stanley's advice on the Coleman-Sunbeam transaction.

After a trial, the jury returned a $1.5 billion verdict for Perelman. This included over $600 million in actual damages, and over $850 million in punitive damages!

This verdict was a shock to the financial world. A billion-dollar decision, because of e-discovery issues! The result drew even more attention to electronic discovery and its importance.

Years later, a Florida appeals court reversed the decision - Morgan Stanley wasn't able to present a defense in the case. But the original verdict put the fear of liability into a lot of people. It showed that e-discovery issues matter.


(And, on an unrelated note, some World Cup congratulations go out to: the U.S. team, for holding England to a draw; the German team, for the crushing defeat of Australia; and the Swiss team, for the shocking upset of Spain!)

E-Discovery basics: The EDRM

This week, I will discuss the EDRM.

What is the EDRM?

Well, the letters stand for the Electronic Discovery Reference Model.

Here's some background:

In the early-to-mid 2000s, and especially after the release of the Zubulake decisions, it became clear that the world of electronic discovery needed to agree on an intellectual framework. A common way to talk about e-discovery. A model to which everyone could refer. (A reference model!)

In 2005, some very smart people developed the Electronic Discovery Reference Model, and, courtesy of EDRM.net, here it is in all its glory:

The EDRM identifies six consecutive phases of e-discovery:

• Information Management
• Identification
• Preservation & Collection
• Processing, Review & Analysis
• Production
• Presentation

The model also shows us that as we progress through these phases, from Information Management to Presentation, the volume of data we are dealing with goes down. At the same time, the relevance of this data goes up. (Or, better said: the data becomes more relevant.)

Here are my brief summaries of each of the six parts of the EDRM:

1. Information Management
Every business must manage its information. Even if no litigation is pending, a company must keep track of its data. However, managing information with the EDRM in mind gives the company a big head start in dealing with future litigation.

2. Identification
Once a company and its counsel are aware of the need to conduct electronic discovery on the company's data, they must ask the question: Whose data? Which employees are involved?

3. Preservation & Collection
After the appropriate custodians are identified, counsel must ensure their data is preserved (and not lost or destroyed). Counsel begins to collect this data.

4. Processing, Review & Analysis
Once the data is collected, it is processed - this usually means putting the data into some form of e-discovery review tool. Duplicate copies of the same document are removed. Next, someone (usually an attorney) reviews the data for attorney-client privilege and relevancy to the case. Counsel analyzes the data, to understand what it is and what it means for the case.

5. Production
The data is turned over to the 'other side', or to whomever requested the data.

6. Presentation
The data is shown to a witness in a deposition, or used in a trial setting. At this point, there is relatively little data, but it is very relevant to the case.

This is the EDRM. A model that the industry has agreed upon, so that we understand each other when talking about e-discovery.

Next week: the 2006 changes to the Federal Rules of Civil Procedure.