Principles for Negotiating with Regulators in Second Request Discovery

Very few things can incite more stress and urgency for legal and compliance teams than an HSR Second Request. Notorious for their tight deadlines and high stakes, second requests require organizations to process, review and produce large quantities of documents in a matter of only weeks or months. Failure to properly comply can result in significant delays to M&A proceedings.

Decisions about what needs to be reviewed, how and when, must be agreed upon with regulators before review—either electronic or eyes-on—can begin. Yet negotiating these terms with the government is in and of itself and exercise in strategy and tact. This article outlines best practices for successfully agreeing upon terms with regulators at the outset of a second request. By outlining timing agreements, custodian scope, how Technology Assisted Review (TAR) will be applied and government oversight and reporting before review begins, e-discovery teams can ensure the smoothest possible process.

In a typical second request, two companies have announced a merger or an acquisition, and the Federal Trade Commission (FTC) and/or the Department of Justice (DOJ) have 30 days to conduct an initial review of the deal. These agencies want to ensure that this proposed action will not cause harm to consumers, and if after the initial review the agencies need more information before making a ruling, either agency may issue a second request for more data. The actual date for compliance is usually negotiated between the government and involved companies, as are the conditions for compliance.

Timing Agreements

Upon receiving the second request, the legal teams from both companies will need to quickly figure out what the government will want to review, assess how long it will take for the companies to collect, review and produce the relevant materials and privilege log to the agency, and then try to negotiate a deadline that works within those constraints.

It’s important to understand the underlying tension point at the heart of negotiating the compliance certification deadline and productions. Usually, the government wants as much time as possible to review the data – emails, spreadsheets, voicemail recordings, chats, etc. – and determine whether the proposed merger will create an unfair market advantage for the new entity. Thirty days is often not enough time to fully review the materials, so the last thing that the government wants is to receive all documents on the same day, right before the negotiated certification compliance deadline. On the other side, the merging companies typically want to complete the e-discovery process and certify compliance as quickly as possible.

Given these various concerns, legal teams should scope out the likely custodians and the amount of data that will need to be collected before they meet with the agency. This includes evaluation of the scope of custodians and volume involved, whether certain relevant data resides outside of the U.S. and may be subject to data privacy laws and assessment of whether relevant data resides in a unique or new digital format, such as a cloud-based collaboration application.

Once the data universe is defined, the legal team needs to assess realistic timeframes for the e-discovery process given the budget and staffing levels for legal review attorneys. With all this information, counsel should walk into negotiations with a strong sense of the amount of data at hand, the various tiers of data that may be responsive, and realistic timeframes for them to produce this data to the government.

Scope Negotiation

Along with the timing agreement, it is important to simultaneously agree upon which documents must be produced from which custodians, during which time period. When possible, teams should negotiate to have all the specifications in the request cover the same time period. This simplifies the process and leads to better predictive coding results. When that is not possible, it may be possible to restrict the scope of data in the earlier time period by limiting the number of custodians or with the development of different key words.

Scope negotiation also includes reaching agreement upon who the custodians actually are. Starting the collection and review process (except perhaps for custodians that would have been part of the initial HSR filing) before the list is set can be an enormous mistake. Collecting from employees who end up not making the custodian list can waste a lot of effort and hundreds of thousands of dollars. For some critical custodians, the government may require refresh obligations, or an updated production for any responsive documents created since the original production. These refreshes can be difficult and complicated, so it is important to reduce the number of custodians subject to the refresh to the extent possible. It is also possible to negotiate the type of documents that are subject to a refresh. Doing so can save a lot of trouble and expense, as collecting emails is much easier than rescheduling time to collect from each custodian’s local devices or coordinating additional scans of paper documents.

Technology Assisted Review

Over the last few years, the agencies have grown more aggressive in TAR oversight, and it can be reasonably expected that this oversight will continue. The DOJ in particular has become extremely sophisticated about predictive coding and has set out guidelines for e-discovery teams. Tracy Greer, Senior Litigation Counsel for E-Discovery in the DOJ’s Antitrust Division wrote, “The Division believes that the use of subject-matter experts to conduct the review is superior to using armies of less informed lawyers. Productions to the Division too often are rife with facially nonresponsive documents and information that is costly to load and review."

Some of the government’s TAR guidelines are negotiable, and others are not. E-discovery teams will need to come into negotiations armed with the full knowledge of how predictive coding software and statistical reporting works. Understanding the government’s guidelines in advance of the negotiations can help legal teams better prepare and push against TAR processes that may be overly burdensome or expensive.

Government Oversight and Reporting

One of the biggest changes to second request processes is the frequency and detail of reports now required by the DOJ. Historically, it only required reporting at the end of the process, but today there is a push for daily reports. While this is doable, there are practical implications that should be considered as to the balance of what is considered work product and what is in good faith cooperation of the process.

The government also typically requires a sampling of documents that have been predicted to be non-responsive, and they will require some level of remediation should they feel that too many responsive documents have been missed. The common arrangement is for agency attorneys to do this at the counsel’s office, never taking control of actual documents. Also, and critical to understand, is that the government will no longer allow documents that have been classified as responsive by the model to be changed to non-responsive as they make their way through the privilege review process. They argue that this nullifies the recall rate agreed upon during negotiations.

Conclusion

The high-stakes second request process is growing more complex due to growing data volumes and diversity, TAR technology usage and new regulator guidelines. Second request experience, combined with a clear playbook for the process can have a profo und impact on the success of the government negotiations. Successful negotiations will determine the speed at which the e-discovery team can meet the certification, and ultimately streamline a typically burdensome and expensive exercise.

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The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, its management, its subsidiaries, its affiliates, or its other professionals.