Navigating an E-Discovery Fee Dispute

This spring I was part of a panel[1] that presented a mock e-discovery fee dispute between a law firm and a corporation that raised the central issue of who has the responsibility to ensure that electronic discovery is handled in a cost-effective manner, by in-house counsel or outside law firms.

The factual setting was that a law firm that had performed a relevance and privilege review on a corporation's ESI prior to production but had not consolidated duplicate records across custodians, resulting in a duplicative review of 19 percent of those records. The corporation refused to pay $95,000 of the $500,000 legal review bill on the grounds that, because 19 percent of those records had already been reviewed, it amounted to double-billing. The results were in line with a recent survey of leading e-discovery providers that quantified potential savings from across-custodian deduping and showed that across-custodian deduping was performed in only about half the cases. [2]

Panel members played the different roles of in-house counsel, relationship partner at the original law firm, the ESI expert and the lawyers representing the corporation and the original firm.

The corporation claimed that its outside counsel had an ethical duty to be technically competent. Failing to consolidate duplicates not only resulted in inflated legal review bills, it also created risks of sanctions and privilege waivers. Having the same records reviewed by different people results in inconsistent decisions on some of those records, e.g. one reviewer produces a copy while another makes a privilege claim on a different copy. In the scenario, the corporation had traditionally played a hands-off role in telling the law firm specifically how to handle electronic discovery in its representation of the company.

The law firm claimed that in-house counsel shared any duty of technical competence and was therefore as much at fault as the law firm. It also pointed to a course of representing the company in multiple cases over the years in which duplicates had only been consolidated within individual custodians.

At the end of the session we invited audience members to vote on how they would resolve the matter if they were the arbitrator. About a third of the attendees would have denied the claim for the $95,000, about a third would have paid the claim, and about a third would have paid half of it. The split in outcome was about the same for people who identified themselves as being outside counsel, insurance-affiliated or in-house counsel.

The lesson I drew from the experience was that implementing cost-effective processes for e-discovery is an ethical obligation owed by both in-house and outside counsel to the corporation, and that in-house counsel ought to recognize that outside counsel may not perceive that it is in their short-term economic best interests to reduce the number of billable hours spent reviewing e-discovery.

In-house counsel should at the very least ask outside counsel whether they are using specific technologies known to produce lower cost, higher quality reviews, e.g. deNISTing, deduping across custodians, email threading, domain name analysis for emails and concept clustering. When they ask, they should ask for metrics about specific savings achieved processing the corporation's data so they can build a set of benchmarks for budgeting in future cases and comparing different law firms. Just asking these questions and following up on them could lead to changed processes that could yield substantial savings without having to undertake the significant efforts required to in-source e-discovery or switch to alternative fee arrangements.



[1] The presentation was for a breakout session at the annual conference of the Council on Litigation Management. Other panel members were Anne Kershaw founder of A. Kershaw P.C.// Attorneys and Consultants; Alexander Rosati, VP & Counsel, Direct Insurance Claims, Endurance Specialty Insurance, Ltd.; Joseph Garnett, shareholder at Sheehy, Ware & Pappas, P.C.; Jane North, shareholder at Deasey, Mahoney, Valentini & North Ltd.; Alan Winchester member of Harris Beach PLLC; and Thomas Leidell, Sr. VP and Claims Manager, Tokio Millenium Re Ltd.

[2] "Report on Kershaw-Howie Survey of E-Discovery Providers Pertaining to Deduping Strategies," available from the eDiscovery Institute, www.ediscoveryinstitute.org.

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