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.