Court Endorses Predictive Coding

    Oct 22, 2014

    Predictive coding appears to be growing in popularity throughout the legal community. Of course, there are some opponents who contend it is an unreliable and unproven technology that can result in excluding some documents appropriate to the case. Recent case law, however, indicates that courts approve of its use.

    The U.S. Tax Court recently gave predictive coding a stamp of approval when it overruled the Internal Revenue Service’s (IRS) objection to a petitioner’s request for permission to use the technology to review documents. (See Dynamo Holdings Ltd. v. Commissioner of the Internal Revenue Service, 143 T.C. No. 9 [2014].) As noted by Bracewell & Giuliani’s Daniel Meyers in a recent issue of the JDSUPRA Business Advisor, the e-discovery rules in the U.S. Tax Rules of Practice and Procedure are very similar to those in the Federal Rules of Civil Procedure (FRCP).

    In the Dynamo case, Dynamo requested permission to use predictive coding to review volumes of data contained on backup tapes, explaining that a completely manual review would be time- and cost-intensive. The IRS suggested Dynamo produce all the files on backup; the IRS would sign a “clawback” agreement that would allow Dynamo to withdraw any protected documents. Dynamo was not comfortable with that option, and luckily, the court understood its reluctance.

    The court decided that predictive coding was a “happy medium” and rejected the IRS’ contention that predictive coding is an “unproven technology.”

    “Perhaps the most notable aspect of Dynamo was the court’s emphasis on the need to be transparent and cooperative when using new review technology, such as predictive coding,” Meyers suggested. The court was satisfied that Dynamo was attempting to be appropriately transparent.

    A similar request to use the technology was denied by a District of Nevada case because “the record lacked the necessary transparency and cooperation among counsel.” (Progressive Cas. Ins. Co. v. Delany, 2:11-CV-00678-LRH, 2014 WL 3563467 [D. Nev. July 18, 2014])

    This is one more very clear statement from the court regarding the importance of cooperation and transparency among all parties during the discovery process. The pending changes to the FRCP further reinforce that expectation.

    Download the recent Hot Topic “Preparing for E-Discovery: Tools and Techniques to Reduce Risks, Costs” for more information about predictive coding. This technology is also being used for a variety of information governance purposes, as described by two authors in a recent issue of Information Management magazine that is available for free online access. Read “Rolling the Dice with Predictive Coding: Leveraging Analytics Technology for Information Governance” by Leigh Isaacs and “Thinking Outside the Box: Use Predictive Coding as a RIM Tool” by Doug Smith for more information.

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