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Ethical Cost Recovery in E-Discovery

Posted by Bill Gallivan | Tue, Jul 27, 2021

FRCP #1 is clear:

“These rules govern the procedure in all civil actions and proceedings in the United States ….. They should be construed, administered, and employed by the court and the parties to secure the just, speedy, and inexpensive determination of every action and proceeding.”

Do your eDiscovery practices align with this rule?

Over the last several years, and certainly, since the 2015 amendments to the FRCP, litigators have successfully argued that eDiscovery was burdensome, inaccessible, and expensive for all but the largest and most complex matters. Recent trends indicate that judges are increasingly pointing to affordable software solutions as the basis for compliance with federal and state eDiscovery rules. We can all agree upon the following observations:

  • Almost all matters, large and small, require some manner of electronic discovery,
  • Compliance with discovery demands is evolving due to the widespread availability of affordable tools,
  • State Judges will no longer be lenient, and
  • Judicial oversight will increase.

New York and 8 other states have agreed:

During the preliminary conference, parties must appear "sufficiently versed in matters relating to their clients' technological systems to discuss competently all issues relating to electronic discovery [.]" N.Y. CPLR §§ 202.10(b), 202.70(g).

  • Judges have ruled against attorneys for lack of knowledge, in Federal matters they have required that non-technical attorneys “Bring your geek to Court”.
  • Finally, obligation to disclose outside vendor costs and firm mark-up are increasing
Since eDiscovery solutions have become more accessible, it is incumbent upon you to develop sufficient knowledge of eDiscovery best practices to ensure your clients receive, quality, affordable services.

As the eDiscovery industry evolves, more firms are moving to a cost-recovery model in which their eDiscovery bill is passed on directly to the client. Outsourcing all eDiscovery services is an expedient (yet not cost-efficient for your client) way to pass through “expert service” fees to your client. Full-service eDiscovery providers exert tremendous financial demands on your already anxious client, where such firms often charge fees averaging in excess of $25/GB. Meanwhile, the insourcing movement diminishes the argument that eDiscovery is costly and burdensome. Clients universally prefer firms with the tools and expertise to minimize eDiscovery costs. Outsourcing eDiscovery to expensive, full-service third party firms is an unsustainable and costly practice.

The solution is simple – outsource the technology and insource the legal services. 

When it comes to cost recovery, many law firms reduce their marginal cost by managing all their matters in one hosted environment. Here lies the challenge: you will achieve the optimal balance by managing all your matters as part of one comprehensive technology subscription, however, you need to split the bill in order to recover costs on each individual matter.

Digital WarRoom® Management Console offers a solution that combines affordability with streamlined cost recovery because it enables you to:

  • View information across all matter databases, to include production times, user activity, Bates ranges, bill codes and other pertinent information relating to each matter,
  • Select each matter for which you would like a unique invoice, and
  • Create customized, cost recovery split invoices for each matter.

Digital WarRoom recommends:

Host all your matters in one Private Cloud environment. After you have reviewed your eDiscovery bill, communicate with your clients and agree on a billing metric for each individual matter, but make it simple – for example, $2/GB/month, or $100/Month. When you create an organized, cost recovery system under this model, your clients will appreciate a lower bill and your firm will recover all costs under a standardized workflow, saving money, time and energy.

Manage client billing expectations.

It is frustrating for clients to witness their fees climb and grow out of control. Requirements change and often, estimates of the activity or ESI volumes are not precise. Management Console enables you to keep costs under control. At any time, use the Management Console to view in real time your data usage, professional service requests and other factors that affect your monthly bill, enabling you to foster and maintain transparent communication with your client.

Cost recovery of eDiscovery services is ethical

Bar Associations and the Courts agree that cost recovery billing is ethical, as long as the fees are not excessive.

ABA Ethics Opinion 08-451 states that U.S. lawyers are free to outsource legal work, including to lawyers or nonlawyers outside the country if they adhere to ethics rules requiring competence, supervision, protection of confidential information, reasonable fees and not assisting the unauthorized practice of law.”

Consequently, cost recovery for the outsourcing of legal work to 3rd party vendors is ethical and, indeed, a common practice. But are the fees your outside vendor charges competitive? Consider eDiscovery hosted software at 1/10th the price of third-party vendors (including training) so that YOUR FIRM can deliver affordable and accessible eDiscovery services for your clients.

ABA Formal Opinion 93-379, a definitive analysis on billing norms, sets forth: “In the absence of an agreement to the contrary, it is impermissible for a lawyer to create an additional source of profit for the law firm beyond that which is contained in the provision of professional services themselves. The lawyer's stock in trade is the sale of legal services, not photocopy paper, tuna fish sandwiches, computer time or messenger services.”

CA BA Opinion

Digital War room provides defensible recovery of technology costs, enabling you to focus on what you do best - delivering high quality legal services to your clients.

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Topics: Best Practices, Pricing

Written by Bill Gallivan

Bill is a seasoned technology commercialization manager, security & forensic consultant, and submarine officer that founded Digital WarRoom in 2002. He is a strong advocate for making e-discovery accessible to everyone and creating publically available educational content. Bill serves as President, CFO and Chief Mentor for the Digital WarRoom family.

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The content on this blog is not intended to be legal advice.

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