Considering Second Requests? The Requirement, Task, and Prevalence

While leveraging many of the technologies, techniques, and tactics used in traditional eDiscovery activities supporting audits, investigations, and litigation, Second Request discovery is different in the fact that it typically has unique characteristics that need to be considered in each case.

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An extract from an article via HaystackID

Second Requests: The Requirement, Task, and Prevalence

The Requirement: The Hart-Scott-Rodino Antitrust Improvements Act of 1976 was adopted to help the federal government avoid anti-competitive outcomes during the course of mergers and acquisitions. The HSR Act requires parties to mergers or acquisitions of certain sizes to notify the Federal Trade Commission (FTC) or the Antitrust Division of the Department of Justice (DOJ) and to provide information and documentation regarding the proposed transaction. Upon review of submitted information and documentation, the FTC or DOJ may make additional requests, known as Second Requests, before rendering a decision on the proposed transaction. (1) 

The Task: Second Requests are discovery procedures that consist of formal requests for additional information and documentation and generally follow the framework of the Model Request for Additional Documentary Material (Second Request) as published by the FTC Premerger Notification Office. (2) While leveraging many of the technologies, techniques, and tactics used in traditional eDiscovery activities supporting audits, investigations, and litigation, Second Request discovery is different in the fact that it typically has unique characteristics that need to be considered in each case. These characteristics include but are not limited to:

+ Accelerated Timelines
A Standard of Substantial Compliance
Disparate Data and Locations
Support for Multiple Languages
Need for Advanced Technologies

Accelerated Timelines

From a timeline perspective, merging firms generally make premerger filings with antitrust agencies on an average of 13 days after publicly announcing the deal. (3) These filings typically trigger a 30-day waiting period that commonly results in either the early termination or natural expiration of the waiting period without additional Second Requests. However, when antitrust agencies do make Second Requests, challenged parties must work with antitrust agencies to respond to the Second Request within an acceptable time frame that generally ranges from 30 days up to five months. Additionally, once a Second Request response has been certified as compliant, a second waiting period of an additional 30 days is initiated to allow for a decision on the transaction. Based on this accelerated timeline, eDiscovery providers to the challenged parties must be able to support all elements of a Second Request discovery project in an expedited manner or potentially expose the challenged parties to legal and financial adverse outcomes.

A Standard of Substantial Compliance 

The standard for certification of a Second Request response is that of substantial compliance. Substantial compliance (4) is compliance with the significant or essential requirements of a Second Request that satisfies the purpose or objective of the request even though the formal requirements may not be completely complied with at the time of the response. This standard is unique among discovery requests in that it is time-driven and represents a qualitative best effort at compliance instead of a quantitative, time-independent approach to compliance. Based on the standard of substantial compliance, eDiscovery providers to the challenged parties must be able to balance time, effectiveness, and efficiency to meet certification requirements for Second Requests.

Disparate Data and Locations

Given the stakes and stakeholders involved, parties to proposed merger transactions should consider detecting, identifying, locating, and planning for the collection of information and documents before a Second Request is issued. With disparate types of business data located both on-premise and off-premise at potentially multiple multinational locations, time is of the essence once a Second Request is received, and having data maps and collection plans in place will significantly increase the speed in which an organization can respond with substantial compliance. Based on the complexity of collecting data of different types from different locations, eDiscovery providers supporting potential Second Requests must be able to quickly translate collection requirements into plans and execute those plans to inform the downstream discovery effort required to respond to antitrust agency requests.

Support for Multiple Languages

With more than 70% of proposed transactions in 2018 being greater than $200 million in value, it is reasonable to consider that supporting foreign language discovery and review in today’s business ecosystem will be a part of most Second Request response efforts for larger deals. Larger companies generally have a higher propensity for conducting business in multiple languages. Accordingly, eDiscovery providers supporting multilingual and multilocation discovery and review must be able to assemble language-appropriate and domain-qualified review teams quickly without sacrificing quality to allow for the achievement of substantial compliance with Second Requests within the typical accelerated timelines required for responses.

Need for Advanced Technologies

With short deadlines and potentially voluminous information and documentation requests, the extensive use of advanced data and legal discovery technologies supported by expert technologists may be required to ensure compliance with Second Requests. Using advanced technologies can substantially enhance an organization’s ability to have responses certified as substantially compliant as they increase the velocity at which key eDiscovery tasks can be completed. This capability is vital given that HSR Act violations currently have penalty maximums of $42,530 per day. (5) Additionally, as highlighted in the FTC Premerger Notification Office’s Model Request for Additional Documentary Material (Second Request), challenged organizations are required to identify the use of selected advanced technologies or tools used for specific discovery tasks ranging from email threading and all forms of de-duplication to Technology-Assisted Review. To comply with Second Requests, supporting eDiscovery providers not only need to be able to implement and execute tasks with advanced technologies, but they also need to be able to understand and explain the usage of these technologies to gain approval from antitrust agencies before use.

The Prevalence: During 2018, 2,111 companies notified either the Federal Trade Commission (FTC) or the Department of Justice (DOJ) on Hart-Scott-Rodino reportable transactions. This number represents an increase of 2.9% over 2017 and is indicative of the increasing pulse rate of premerger notifications. Of these premerger notifications in 2018, approximately 2.2% were challenged and triggered Second Requests for additional information and documents with the challenges ultimately resulting in outcomes ranging from proposed transaction restructure or abandonment to acceptance of consent orders for public comment. Based on the importance of Second Requests coupled with the fact that there are limited opportunities for eDiscovery providers to gain experience in this critical discovery area, it is important that companies notifying antitrust agencies of proposed transactions also proactively prepare to engage with a proven and experienced eDiscovery provider to ensure the best possible outcome should Second Requests support be required. 

Read the complete article at An Integrated and Organic Approach to Second Requests: HaystackID Antitrust Agency Request Support

Extract References

(1) Federal Trade Commission and the Antitrust Division of the Department of Justice (2019). Hart-Scott-Rodino Annual Report Fiscal Year 2018. [online] Federal Trade Commission. Available at: https://www.ftc.gov/system/files/documents/reports/federal-trade-commission-bureau-competition-department-justice-antitrust-division-hart-scott-rodino/fy18hsrreport.pdf [Accessed 2 Jan. 2020].

(2) Federal Trade Commission (2019). Model Request for Additional Information and Documentary Material (Second Request). [online] FTC Premerger Notification Office. Available at: https://www.ftc.gov/system/files/attachments/merger-review/may2019_model_second_request_final.pdf [Accessed 2 Jan. 2020].

(3) Fidrmuc, J., Roosenboom, P. and Zhang, E. (2018). The Costs of M&A Antitrust Review and Acquirer Lobbying. [online] CLS Blue Sky Blog. Available at: http://clsbluesky.law.columbia.edu/2018/01/10/the-costs-of-ma-antitrust-review-and-acquirer-lobbying/ [Accessed 2 Jan. 2020].

(4) “Substantial Compliance.” The Merriam-Webster.com Legal Dictionary, Merriam-Webster Inc., https://www.merriam-webster.com/legal/substantial%20compliance. Accessed 2 January 2020.

(5) Behrmann, A., Kimpel, J., Chow, E., Duncan, R., Levy, M., Rosenbaum, S. and Schten, A. (2019). FTC Increases Hart-Scott-Rodino Transaction Thresholds for 2019. [online] Faegrebd.com. Available at: https://www.faegrebd.com/en/insights/publications/2019/2/ftc-increases-hart-scott-rodino-transaction-thresholds-for-2019 [Accessed 2 Jan. 2020].

Additional Reading

Source: ComplexDiscovery

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