Dynamo Holdings Ltd. P’ship v. Comm’r of Internal Revenue, Nos. 2685-11, 8393-12 (T.C. Sept. 17, 2014)
A US Tax Court held that predictive coding technique could be used to identify information even thought respondent objected that it is “unproven technology”.
Responded requests Petitioners to produce electronically stored information contained on two backup storage tapes or, alternatively, the tapes themselves (or copies thereof). Petitioners acknowledged that the tapes contained tax-related information but asserted that the tapes also contained privileged information that they had a right or duty to protect. They had to review the responsive information on the tapes before giving the information to Respondent to ensure that privileged or confidential information is not disclosed. Petitioners request the Court let them use “predictive coding” to help identify the information that is responsive to respondent’s request.
Respondent objected that predictive coding was an “unproven technology”.
After noting the Petitioners’ request to be “somewhat unusual…as the Court is not normally in the business of dictating to parties the process that they should use when responding to discovery”, the court holds that Petitioners must respond to Respondent’s discovery request but that they may use predictive coding in doing so. The court found
“a potential happy medium in petitioners’ proposed use of predictive coding. Predictive coding is an expedited and efficient form of computer-assisted review that allows parties in litigation to avoid the time and costs associated with the traditional, manual review of large volumes of documents. Through the coding of a relatively small sample of documents, computers can predict the relevance of documents to a discovery request and then identify which documents are and are not responsive…Through the use of predictive coding, a party responding to discovery is left with a smaller set of documents to review for privileged information, resulting in a savings both in time and in expense”.
In the opinion of the court predictive coding was not an “unproven technology”:
although predictive coding is a relatively new technique, and a technique that has yet to be sanctioned (let alone mentioned) by this Court in a published Opinion, the understanding of e-discovery and electronic media has advanced significantly in the last few years, thus making predictive coding more acceptable in the technology industry than it may have previously been. In fact, we understand that the technology industry now considers predictive coding to be widely accepted for limiting e-discovery to relevant documents and effecting discovery of ESI without an undue burden”.
Accordingly, the court concluded:
“Our Rules, including our discovery Rules, are to be construed to secure the just, speedy, and inexpensive determination of every case. Rule 1(d). Petitioners may use predictive coding in responding to respondent’s discovery request. If, after reviewing the results, respondent believes that the response to the discovery request is incomplete, he may file a motion to compel at that time. See Rule 104(b), (d)”. (international quotation omitted)
The decision of the United States Tax Court is available at https://www.ustaxcourt…
For other opinions on “Predictive Coding” use the tags “PREDICTIVE CODING” in Technethics’ search feature