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Discussions surrounding how to address invoicing (or not) the costs of litigation to clients can be, to say the least, a delicate and complicated subject for many outside lawyers and law firms. The costs of litigation increase with ever more potentially responsive data, litigation technology options, and a truly global reach in the context of much litigation. In response, law firms must continue to consider viable approaches to broaching discussions surrounding the recovery of these costs both within the firm and, more importantly, with law firm clients.
As most practitioners are acutely aware, the most significant source of litigation spending in the modern world are costs associated with e-discovery. More specifically, the identification, preservation, collection, processing, hosting, review, and production of documents during pre-trial discovery.
In their course of daily business, corporations are amassing millions and millions of documents. Obviously, the majority of these documents are duplicative and irrelevant to a particular dispute. Nevertheless, a corporation can, at any moment, be pressured to capture these documents and potentially review and produce them in a given dispute or investigation. The strategy behind a proper e-discovery response is to utilize technology to differentiate between the relevant and irrelevant and duplicative data.
For even a routine litigation or investigation, however, the costs associated with a properly planned e-discovery effort can easily soar into the hundreds of thousands of dollars. We're not talking chump change here. Because of the significance of these expenses in now even routine matters, e-discovery costs have come front-and-center in budget discussions between law firms and their clients. To complicate these discussions, there is no single “right” way to navigate the accrual or apportionment of these costs.
|The most expensive part of the e-discovery process is having an attorney's eyes reviewing documents. The more irrelevant information attorneys are reviewing, the more the costs begin to mount. In most cases, a hard drive or email inbox for a typical employee will contain only a small number of relevant documents in comparison to multiple versions of Patriots/Celtics/Bruins/Sox pools — a shout out to Mintz's Boston hometown — offers for lunch, and notifications to clean out the fridge on Fridays. When including back up sources, file shares, department drives, local servers and the duplication across these sources, the amounts for a typical matter become dizzying — easily hundreds of gigabytes or even a terabyte or two. Obtaining, searching, and reviewing such a data universe can take e-discovery costs from the merely expensive to the extremely exorbitant instantly.
Many factors that can contribute to the size of the reviewable universe may be out of an attorney's control including the opposing party's or government's demands, the claims and issues that implicate discovery, and the amount of disaggregated sources from which data must be collected. Attorneys well versed in document culling and advanced analytics, or those who work closely with resident e-discovery counsel, can employ simple steps to minimize review of irrelevant documents to the extent possible. However, even with the best possible technology and workflow, discovery costs will likely remain a major factor and expenditure in any litigation or investigation.
For law firms, the question typically posed is how to manage and defray the costs associated with collection, culling, and reviewing documents. These costs have been traditionally incurred using firm resources, such as proprietary instances of processing, culling, and review technologies, technical project managers, or attorneys.
Law firms have answered this question in various ways and with various solutions. One such approach is to simply outsource the e-discovery process to a vendor that bills for its services directly to the firm or client. Other firms have in-sourced e-discovery and have offered clients a comprehensive collection, review, and production solution. And others still have looked to hybrid approaches in which the firm evaluates each case and recommends a specific set of internal and external services to accomplish the most efficient and cost-effective e-discovery effort. Of course, some clients have taken e-discovery into their legal departments and work with preferred or dedicated providers of their own across their matters and law firms.
There is no definitive conclusion that any one model is better or more efficient here and it's important to acknowledge there is still a multitude of differing opinions. Nevertheless, in any model where a law firm provides some or all of the proposed discovery services, the question arises as to what extent, and how, e-discovery-related services provided by the law firm should be billed.
In the past, there have generally been two options in this context; firms either absorb these costs completely or pass them through to clients similar to copies or legal research tools. There is another approach beyond these two options; one that is more responsive to the realities of e-discovery in the modern world. That approach is to balance the cost of firm resources with the cost efficiencies realized by their utilization to develop a pricing approach that allows the law firm to recover a fair portion of the costs, while demonstrating to the client an ultimate cost savings across the life of the matter.
|The short answer is that there is little in the way of “official” guidance defining reasonable approaches to the concept or conversation of how to bill e-discovery costs incurred by a firm in furtherance of its client's litigation and investigations. The ABA Model Rules of Professional Conduct Rule 1.5 states “a lawyer may not charge a client an unreasonable amount for expenses relating to representation.”
Guidance from the ABA Committee on Ethics and Professional Responsibility, further suggests that, as far as e-discovery expenses related to litigation go, costs pertaining to outsourced provider services are simple enough to handle — these are “hard costs” that must be passed-through to a client with no markup or additional fee unless the lawyer incurs costs additional to the direct costs of the vendor services.
Unlike vendor expenses, “soft costs” incurred by a firm utilizing internal resources to provide e-discovery services as part of its representation are faced with a more nuanced analysis. A firm is precluded from passing on overhead costs to the client, including rent, power and salary expense. However, a lawyer may recoup expenses reasonably incurred in connection with the client's matter for services performed in-house, so long as the charge reasonably reflects the lawyer's actual cost for the services rendered. At a minimum, any soft cost must be relayed to the client before the representation begins or not long after.
|The conversation between attorney and client regarding the use of internal resources must be detailed and informative. The fact remains that many law firms employ industry-leading project managers with extensive legal and technical qualifications. The combination of top talent and cutting-edge technology can have a major impact on costs while maintaining defensibility at all times. It is critical to understand both the costs that may be incurred as well as the costs that may be abated.
The infrastructure and talent dedicated to client service have been implemented for the primary purpose of supplementing the client's representation. Even though these costs are “soft,” an actual cost is incurred to the firm and that cost is directly attributable to the client's representation. This “cost,” however, is attended by the reassurance that client resources are being expended in the most efficient and logical way for the matter at hand.
The cost discussion for e-discovery in this context is complex as it contains both a technical and legal component. The technical component tends to be iterative, as the firm begins to uncover the secrets that the data may be hiding. However, the legal component is definitive, seeking prompt decisions based on early observations. This conversation should include the following:
As mentioned before, this will be a conversation interplaying the internal costs incurred with total amount of costs abated. The most important aspect of this conversation is maintaining transparency throughout the entire discussion and tying success to mutually agreed-upon and clearly defined metrics. Clarity and foresight as to the goals and reasoning behind each cost incurred are critical at the outset so both client and counsel can align as to the proposed workflow and expenses.
|Examples of success in this area are not hard to come by. In one recent instance at Mintz, a completely outsourced processing and review project — with reasonable fees for processing, searching and hosting — would have resulted in more than $75,000 in initial processing and hosting fees not including any document review costs.
This was a reasonable fee given the scale of the data. Working in collaboration with a Mintz technology project manager, however, it was possible to rely on key features of Relativity's processing and analytics suite to quickly process for preliminary search and culling capabilities the entire set of data. Once the dataset had been culled sufficiently with search terms, the team could further leverage Relativity analytics to rapidly identify, without further effort, the most relevant documents to orient the review team to the overall themes of the corpus. From there, they developed a predictive algorithm that further prioritized the review corpus uncovering the extent of the documents in the corpus that were similar to the “interesting” documents identified during initial case assessment.
While a similar result might have been achievable in the context of outsourcing the processing and initial case assessment project completely, by leveraging internal resources and the technology at hand, Mintz was able to achieve results with more fluidity with the trial team. Moreover, the team was able to engage directly with the client with regard to the use of firm resources to conduct the initial case assessment. Ultimately, many of the centrally relevant documents were located and elevated within two weeks of receiving the data at a cost of less than 50% of the initial processing fees that would have been incurred, not to mention the avoided review costs.
|Since e-discovery is becoming no less complex and supplies of data sources and file types are only growing, it is critical to have a principled, strategic approach to cost recovery minimization and recovery. It is time for firms to look at their human and technology resources and what they can do to build their approach, keeping in mind that clarity between attorney and client should be a top goal to work toward, no matter which model is deployed.
Whether the solutions to cost recovery problems are external or internal, understanding why those solutions are chosen will help provide peace of mind to firm and client alike. Providing the client with a timely understanding of the cost behind the benefit will satisfy ethics requirements and keep a client satisfied.
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John Koss is special counsel, E-Discovery at Mintz Levin. His practice focuses exclusively on e-discovery and large data management. In this role, he counsels clients on all aspects of the e-discovery lifecycle from information governance to preservation, collection, and review, to presentation at trial, arbitration, or before regulatory bodies. Daniel Pelc is senior manager, industry marketing at Relativity, Inc. where he specializes in law firm cost management and innovation strategies.
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