So Easy A Cave Man Can Do IT? Or, NOT! Lessons From Howrey

There has been a lot of discussion here lately about the recent trend toward law firms and corporations bringing electronic discovery in-house. I have been relatively quiet on the topic, until now. As with most topics, I am jumping in hopefully with some insight based on past experience. We’ve been here before and history tends to repeat itself.

 Some in our industry are very concerned with law firms entering the “electronic discovery space”. Many electronic discovery “vendors” see law firms as a competitive threat. Corporations, well, it certainly makes economic sense in some cases to bring those services in-house where justified. My attitude has always been – if they want to bring services in-house, let’s help them see if there is justification (gap assessment) and then help them build it the right way and track their ROI to make sure their investment pays off. How about law firms? What is their motivation? Partially it is control of the discovery process. Mostly, however, it is revenue. ESI management is a multi-billion dollar industry. Lawyers are business people just like anyone else and when they see business opportunity, they want to capitalize.

Nothing New Here - We've seen it all before.

This is not a new trend, however.  Lawyers have been trying to capture collateral services revenue for decades.  Remember the fax and copy centers?  Many still exist with the firm still seeing revenue.  Some firms have even started copy and scanning companies.  I know firsthand because I was with Susman Godfrey, LLP in the late 80’s when the partnership decided that too much copy money was being outsourced (SG was paying many of the expenses then) so it started Legal Copy, Inc.  Seemed like a good idea at the time.  Ask any current or former partner how it worked out for them.  It did not work out very well. The venture lost money and had to fend off at least one lawsuit. (Jones vs. Legal Copy Inc)  The Susman partners eventually divested themselves of the company and vowed to focus on being great trial lawyers.  They clearly suceeded in that task. 

Rain Clouds Ahead - Look to the Future, but learn from the past.

Today we see several law firms attempting to become discovery service providers, in some case full service.  Where do we think this trend will end?  Well, the same way it always has when someone in one profession (not just the legal profession) attempts to run a competitive business that is outside of their core business – disastrous results.  Don’t get me wrong, there will be some that will be successful.  Fulbright has had some measure of success, but even that firm still outsources.  They know their limitations.  Some law firms have brought in some electronic discovery services, but on a small scale if for no other reason than to be able to evaluate and understand their service providers.  In my view, the right course and the course I’ve taken successfully in the past at 2 different firms.  Every major firm should have a litigation support or practice support department.  However, attempting to be competitive on a large scale is generally not going to be successful if law firms stick with their current model.  But don’t take it from me.  How about the most recent example – Howrey.  As most know, the law firm Howrey, at its 18 offices and 750 lawyers world-wide, imploded for various reasons, but one that was cited was failure to compete with service providers.  CEO Robert Ruyak told Wall Street Journal blogger Ashby Jones: 

Another challenge was the rise of third-party document-discovery specialists that could provide litigation support services at substantially lower rates, he said. Howrey, a law firm with many offices in big cities, and thus, higher costs and couldn’t compete, he added. (Ashby Jones; “CEO Ruyak Partly Blames Contingency-Fees, Discovery Vendors, for Howrey’s Fall”; WSJ Law Blog; 9 March 2011)

In an interview in January of this year, before the implosion, Ruyak saw the train coming, but helpless to stop it. 

 “We had to make the decision to focus even more than in the past and it was clear we needed to downsize the firm,” Ruyak told the Lawyer. “You also need to remember there have been some dramatic shifts in litigation in the U.S. The use of electronic discovery and outsourcing has meant less need for manpower. That’s been a dramatic shift in the past few years.” (Debra Cassens Weiss; “Howrey MP Says Outsourcing, Electronic Discovery Spurred Partnership Downsizing”; ABA Journal; 12 January 2011)

By then Howrey had built a massive electronic discovery unit outside of DC and in India.  The road to implosion for them began back in February 2008 when Howrey was the first major law-firm to open a back office "document service" in India. 

Howrey is to become the first major US firm to open an office in India, writes The American Lawyer, in a move the intellectual property (IP) specialist hopes will give its clients a low-cost option for document management. (Daphne Eviatar; Howrey hits India for 'low-cost option'; Legal Week.com; 12 February 2008)

Washington Post writer Steven Pearlstein also cited investment and inability to compete in electronic discovery as one of factors in Howrey’s demise. 

Howrey invested heavily in a state-of-the-art litigation support center in Falls Church, specializing in the hot new field of “electronic discovery.” There was also a back office in Pune, India, to provide low-cost legal research. In 2008, Legal Times cited Ruyak as one of 30 “visionaries” of the legal profession. (Steven Pearlstein; “Why Howrey Law Firm Could Not Hold it Together”; The Washington Post; 19 March 2011)

Be Careful Out There!

Despite all the evidence suggesting lawyers should be lawyers, some law firms continue down this slippery slope. Some may well be successful, but there will be many that will not.  Next week we will explore why some law firms will continue to remain minor players in this business and bad things will likely happen to some, regrettably. Someone said to me just yesterday that sometimes lawyers have to learn things the hard way. My belief, however, is that lawyers are just getting poor business advice in some cases. Electronic discovery is NOT “so easy a cave man can do it”. Stay tuned and find out why. I will write an article next week analyzing the competitive factors in this fast moving business. Subscribe to the RSS feed and follow the discussion.

Rocket Docket Court Opinion on Self-Collection

Go to any eDiscovery service provider blog site and you will find a post or discussion of the recent opinion out of the Eastern District of Texas where Judge Ward joins a long list of Federal Judges and Magistrates unhappy with the current state of Discovery around ESI.  Let’s begin with what the penalty assessed against the defendant for what essentially was a self collection.

“In conclusion, the Court holds that Blitz is subject to sanctions for various discovery violations as described in this Memorandum Opinion & Order. The Court orders Blitz to pay $250,000.00 in civil contempt sanctions to the plaintiff in this case. The Court additionally orders that Blitz has thirty (30) days from the date of this Memorandum Opinion & Order to furnish a copy of this Memorandum Opinion & Order to every Plaintiff in every lawsuit it has had proceeding against it, or is currently proceeding against it, for the past two years. The Court issues an additional $500,000.00 sanction that will be tolled for thirty (30) days from the date of this Memorandum Opinion & Order. At the end of said thirty (30) days, if Blitz has certified to this Court that it has complied with the Court`s order, the $500,000.00 sanction will be extinguished. Finally, for the next five years subsequent to the date of this Memorandum Opinion and Order, Blitz is ordered that in every new lawsuit it participates in as a party, whether plaintiff, defendant, or in another official capacity, it must file a copy of this Memorandum Opinion and Order with its first pleading or filing in that particular court. This Court expresses no opinion as to the manner in which a particular court may use or not use such copy.” Green v. Blitz U.S.A., Inc, 2011 U.S. Dist. LEXIS 20353 (E.D. Tex. Mar. 1, 2011)

What happened to defendant Blitz U.S.A. is something that could happen in just about any case. If you’re a litigator and reading this and still think it is a good idea to allow your corporate customer to “self collect”, to “save money”, re-read the above conclusion by the court, and read on.

Fox Guarding the Henhouse

In the paper days we conducted document discovery by going to each witness and asking them about how they keep files and then gathering and copying relevant material. Early on, there were times where we would rely upon the witnesses, or the legal department to gather responsive documents. We quickly learned what Blitz just found out the hardway. Someone close to an event that gave rise to the dispute is the last person you want making decisions about what is relevant and what is not because it is guaranteed that their view of what is relevant is going to be narrow, no matter how many instruction memos you write. The bigger problem, however, is what Ralph Losey referred to in his analysis of the Blitz option as “the fox guarding the henhouse”.

"There are many dangers inherent in self-collection, including good faith omission by inadvertence, laziness, or lack of technical or legal training. But the chief danger is bad faith omission by fraud, by the natural desire of a witness to protect him or herself by not producing incriminating emails. This is the fox guarding the hen house scenario that represents the greatest danger of self-collection." Another “Fox Guarding the Hen House” Case Shows the Dangers of Self-Collection. By Ralph Losey.

In the world of ESI, unlike the world of paper, the delete key can erase forever millions upon millions of records in a blink of the eye, or in this case with the stroke of a key. There is also the danger that a witness will alter evidence. On March 29 in Richmond, Va., District Judge Robert Payne sanctioned the mortgage division at SunTrust by ordering the bank to pay the legal fees related to the pretrial discovery-related work of its adversary, United Guaranty Residential Insurance Co. of North Carolina (UG), a mortgage insurance subsidiary of AIG. The offense? Former bank employee Mary Pettitt tried to re-write history by altering email from 2005. SunTrust is appealing the decision.


Why do I care about what some Judge in East Texas says?

If you are a commercial litigator, particularly someone that handles IP litigation, you might care what Judge Ward says. After all, this is not just any old Federal Judge. This is the rocket docket court. What is a rocket docket? The term was originally applied to the United States District Court for the Eastern District of Virginia, after Albert V. Bryan Jr., who ran the federal courthouse in Alexandria, decided that justice was being dispensed too slowly for his liking. The court earned the nickname among attorneys practicing there in the 1960s, who told stories of Bryan ruling on the spot when motions were argued, and trying entire cases in one afternoon.

More recently, the Eastern District of Texas has seen an increase in the number of cases filed relating to patent infringement. This District has experienced an increase in the number of patent cases filed and tried, notably in the courts of Judge T. John Ward in the Marshall Division, Judge Leonard Davis in the Tyler Division, and Judge David Folsom in the Texarkana Division. Some believe the reason so many IP cases get filed there is because the judges are “Plaintiff friendly”, which is actually not the case. The reason so many patent cases get filed in Marshall is because the district has a set of local rules for patent cases and relatively fast trial settings. As a result, patent plaintiffs have flocked to this small venue. In addition the proximity to larger cities (such as Dallas and Houston) along with an aging jury pool interested in protecting property rights, may attract patent cases to Marshall, Tyler, and Texarkana. See Wikipedia. 
The opinions relating to the discovery of ESI continue to come out of courts across the country, yet we still don’t see a significant change in the way lawyers generally approach the identification, preservation, collection, review and production. We are, however, beginning to see considerable involvement from their corporate customers. What is your preservation and collection process?

Consolidation Consolidation Everywhere!

Wow! The consolidation of the technology industry continues with recent activity in the storage, compliance and eDiscovery sectors. Yesterday came the announcement of email archive software company Symantec Corp.’s purchase of privately-held Clearwell Systems, Inc.  Assuming Symantec is able to pull off what no other consolidation has done so far, this could mean a solution that will finally make the ESI management, preservation, processing, review and production of ESI in one application possible. The struggle for these applications to date has been integrating from the left side of the EDRM.  They have historically struggled beyond Information Governance (Records management) and Litigation hold features where downstream features are important and downstream integration with preservation, processing review and production must be seamless and scalable. In other words, they do a pretty good job of managing and placing ESI on litigation hold, but they do a horrible job of everything downstream. There have been similar marriages and so far nobody has nailed it yet. This commentator for one is holding out great hope for this one.

This week also saw Autonomy announce that it would acquire the “Digital Assets” of Iron Mountain. Among those digital assets acquired - Stratify. Stratify is an eDiscovery product that competes with Clearwell, Relativity, Viewpoint, iConect and other similar applications in that space. Stratify has been around for some time but was never really able to sustain deep market penetration. Iron Mountain purchased Stratify in January 2010.

This year has also seen companies like StoredIQ and Nuix both receiving significant additional capital investments to remain competitive. The year so far has been packed with movement in the software and related services industry with the purchase of Encore by Epiq and Huron’s acquisition of LECG’s eDiscovery unit. These are just a few of the recent moves in what has become a very fast paced and quickly changing landscape. This is not a new trend, however. Consolidation and divestiture will continue.

So, what does this mean for the consumer of these services? There will continue to be market confusion with fewer choices in some areas with many, many more choices in others. Much more complex applications with orders of magnitude more features and functionality will be available. Our current cost structures will continue to change with some pricing models that simply won’t work going forward. We expect to see the GB pricing model go away.

We’ve seen many product changes and some new technology roll out over the past few years. iConect entering the processing and analytics space with their INCEPT product, or Dr. Roitblat’s latest’s endeavor in the advanced technology space with his answer to Recommind’s “Predictive CodingTM” feature. OrcaTec’s technology is OrcaCategorize.

There will be much more emphasis on workflow and procedure. A big, complex, multifaceted application does no one any good without the proper process. Otherwise, we will just continue to have what we have had up until now – the creation of new technology and integration without sufficient adoption. Translation – they are making it, but nobody is buying in large numbers.

And what is the good news for some of us and our clients? Those of us that advise across many different technologies in the services industry will benefit from the competition, innovation and investments. So, Symantec, Clearwell, iConect, Autonomy, Lateral Data, FTI and all you other movers and shakers in the software world, keep up the good work!! Innovate, compete in a fair and honest way, but don’t lose whatever it is that you had. Whoever it is that you were, you got there because of your people, your culture and your customers. It is not just software integration that you must do when you bring two worlds together. It is the integration of two cultures. I know what you’re saying – we got it. Iron Mountain thought it had it when it bought Stratify a little more than a year ago. History tends to repeat itself if you are not careful.

The ECA Black Box

I read another great, and somewhat controversial, article in LTN last month – “Riding the Waves of Early Case Assessment” by George Rudoy.  Our old friend ECA returns! The last time I wrote on the topic of ECA appears to be December 2009 – “Early Case Assessment – What is it really? 

“Early Case Assessment (“ECA”) is an overused term that many in the eDiscovery business have adopted as a buzz word to define a process that is a combination of technology and professional expertise. It gets thrown about a lot, often by those that sometimes don’t know what it really means.”

Not much has changed since 2009 in terms of how ECA continues to be associated with technology features. Software solutions designed for early case assessment are widely available, but are vastly misunderstood and often underutilized, or worse, utilized with too much unverified reliance. The number of advanced technology choices out there is mindboggling, even for those of us who keep up with them. This has and will continue to cause considerable confusion in the market. ECA is the process of doing exactly what it says – determining what your case is about early. How early? As early as is humanly possible, that’s how early. Usually we need to know yesterday, right? Data reduction and “review cost avoidance” are pleasant bi-products of a well thought out ECA workflow. Technology is just a tool that helps us find and organize documents and information more efficiently. Speaking for myself, the more advanced the technology, the better. “Finding the truth and then putting your own spin on it” has never been faster – with the right workflow. T. Boone Pickens once said - “an idiot with a plan is better than a genius with none”. The same holds true with technology. The greatest technology on the planet is wasted at best with the wrong or no plan. The greatest problem we have today, however, is not a lack of technology availability. The problem is not just a lack of a deep understanding of that technology, although certainly part of the problem. The real problem is a lack of desire to understand. Lawyers want to see the documents that tell the story. They don’t want to stand in front of a judge and explain a “black box”. George Rudoy hit the proverbial nail on the head:

"Considering the risks at hand, this could be a significant step forward -- to be able to determine your risk exposure early on in a case, based on what human beings are seeing in the language rather than point to a "black box" purchased off the shelf. Clearly, ECA capabilities both pre- and post-collection continue to evolve.”

 Predictive coding, anagrams, Optimized Distributed Search ("ODS") technology or whatever new conceptual algorithm comes next are all very useful tools. I personally love black boxes! We should use them. We should not, however, expect our lawyers to understand and certainly not explain how that advanced technology works. Sound data reduction techniques based upon a simple human based methodologies that arrive at a set of validated terms, for example, is all that is needed at the end of the day. How information was organized and/or classified using technology to arrive at a validated set of terms is inconsequential with a properly documented methodology. A methodology that may well use conceptual clustering, searching, predictive coding and other advanced features. Again, just tools essential to efficiently organizing and analyzing information. Ultimately, however, a methodology that relies upon on a human call and tag rather than an algorithm is much more likely to be understood and followed. Advanced technology helps us get where we want to go faster and more efficiently. ECA - knowing what happened when, to whom and by whom - is a pleasant bi-product of a well designed and easy to understand and explain data reduction methodology.

Technology is not the silver bullet by itself and can even be dangerous in the wrong hands. Any ECA and data reduction workflow should not only confidently reduce the volume of information that ultimately needs review. It should also increase the relevant content that is ultimately in need of review. Be careful out there!