One of the more daunting obstacles encountered by companies involved in a merger is the need to respond to a Second Request under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. HSR Second Requests often involve reviewing and producing substantial numbers of documents within extremely tight time frames, which can be both costly and inefficient; however, there are solutions that allow you to be as proactive as possible in an inherently reactive situation. This article explains the keys to ensuring you use best practices for improving processes and reducing the inefficiencies that are common when responding to Second Requests.
The days are long gone when a client could rely on a law firm to prepare the response to a typical Second Request entirely in-house. The sheer volume is likely to outstrip the scale of any captive solution, and legal departments are looking to their outside counsel to partner with them to mitigate the cost impact through process efficiencies, without sacrificing quality. Creating the right team of in-house counsel, outside counsel, technology vendor, and managed document review provider is essential to achieving these goals. The following list sets out best practices surrounding managed document review to alleviate the burden associated with responding to a Second Request.
Experience with Second Requests is crucial. You want team members who have been there before and can demonstrate that this is not their first rodeo. This means that the entire review team—from the project managers to the technologists and any secondary stakeholders—should have all worked on multiple Second Requests and have been on the receiving end of many calls from outside counsel asking how they can meet the demands of a regulator holding substantial compliance over their heads like a sword of Damocles. This can only come from a team of permanent employees who have been together for years and have worked hand in hand with case teams to confront these issues and make the impossible seem possible. (Further, permanent employees can return to a review even if there is a gap in stages—either before a “second sweep” or “topping off,” or to help with a white paper, preparing for witness interviews, or responding to a challenge to a merger, which means the client retains institutional knowledge of this transaction as well as general Second Request experience.)
Bringing this experience to bear can ensure you meet the substantive goals of responding to a Second Request: producing all responsive, not privileged materials; withholding or redacting privileged content; and identifying and escalating important documents to counsel as quickly as possible. In addition to providing the subject matter expertise of their review teams, the managed document review provider must also be able to make informed recommendations as to the use of technology and/or search terms to cut through the volume and reduce the time to respond. If technology-assisted review is an option, the provider can help design and implement the TAR protocol, as well as identify and account for any blind spots to give the regulator confidence in the robustness of the process. This is especially true when using continuous active learning, or CAL. The review provider must be able to seamlessly adapt to any changes in priorities in terms of custodians, subjects, and/or time frames as the regulator changes the focus of the review. While CAL can certainly facilitate this process, the managed document review provider must monitor changes in scoring for documents that have previously been reviewed; move any new ones that have received a higher score into the first-level review workflow for review and possible production; and provide details so that outside counsel can report back to the regulator if needed. It should also document the decisions made as a team and approved by outside counsel throughout the review, in case the regulator seeks additional information about how the response to the Second Request was prepared.
Even if documents are deemed responsive to the Second Request, not all of them will be produced, as the team must make a determination as to whether they are fully privileged or require redaction prior to production. Important considerations regarding this aspect of the review include:
- Ensuring that there is a process in place for the law firm to sign off on any documents or members of a document family that were once in the privilege review but are now going to be produced.
- Utilizing a tool that streamlines and to a certain extent automates the creation of the log of documents that are withheld for privilege, and customizing that tool for the needs of the particular matter and requirements of outside counsel.
- Putting in place a process that makes sure that all documents redacted for privilege are redacted accurately and consistently. (Note: This applies to redactions of any kind that the review requires, including for data privacy.)
It is also important to avoid pitfalls common to Second Requests. It’s crucial to:
- Recognize when outside counsel wants to start asserting work product over documents related to the potential transaction. Determine any exceptions, such as for documents pertaining to the antitrust clause of the merger agreement or ones where outside counsel for both parties are working jointly to establish “rules of the road” for pre-closing sharing of information between the parties.
- Determine how counsel wants to treat parties for purposes of maintaining privilege, e.g., economists hired specifically to address the regulator’s concerns about market power vs. investment bankers copied on the deal document. While the former would certainly be privileged, outside counsel differ on the approach to the latter.
- Identify third parties with whom communications would normally be at arm’s length and not considered privileged, and be careful to avoid producing communications with members or the client’s board of directors because they communicated with their Gmail addresses. To mitigate this risk, outside counsel should work with the client to provide a list of email addresses—either company emails, personal emails, or emails associated with the directors’ “day jobs”—that they use to communicate with the company.
It is more efficient to address these issues at the start, as opposed to spending precious time and resources on them unnecessarily at the end of the review, when there is pressure from the regulators, the parties (especially if you are working for the target company), the shareholders, or any combination of the above.
Finally, it is imperative to find important documents and escalate them to outside counsel as quickly as possible for further investigation. Reviewers will identify helpful documents based on their experience and review-specific training provided by outside counsel. Examples of helpful documents include ones that show robust competition in the relevant market; conversely, they should also be able to spot instances of gun-jumping or anti-competitive behavior, which are sometimes not as obvious and require a subtler understanding. Managed review teams should also be able to leverage technology and/or search terms to identify any documents similar to the ones confirmed as important by the case teams, as slight differences might provide more context.
Responding to a Second Request might be a necessary evil that is part of the merger clearance process; however, that does not mean that you have to absorb the full brunt of the chaos and inefficiency inherent in the high-volume, time-sensitive process. There are best practices from both a process and substantive perspective that you can deploy to reduce the associated cost and inefficiency and that also ensure the response is as robust as possible.
