How a White Shoe Law Firm Disputes a Bill

Electronic discovery, the phrase that refers to the mountains of electronic data that could land at issue in a corporate lawsuit, is now at the heart of one such suit for the first time.

For years, newly minted J.D.s at big law firms have complained about the mind-numbing task of staring at computer screens sorting through this data--all in an effort to get those 2,000 billable hours for their $160,000 salaries.

Meanwhile, the partners overseeing these cases fret over whether they have complied with new federal rules governing the responsibilities of lawyers for making sure that all electronic documents actually get to the opposing side.

But in nearly every case, law firms hire outside vendors for the task of loading that electronic data onto CD-Roms, DVDs, or hard drives. It's a veritable cottage industry in the making.

And now...the first lawsuit owing to the practice. And right on top of it, the second.

Sullivan & Cromwell, a white-shoe law firm with offices on Broad Street overlooking the New York harbor, filed suit Dec. 28 against Electronic Evidence Discovery, a Kirkland, Washington firm that is one of the biggest players on the e-discovery landscape.

The suit alleges that E.E.D. "repeatedly missed deadlines, was unable to provide accurate information to S & C about when electronic documents would be available for review or ready for production, and consistently lacked quality control." S & C claims that it does not owe E.E.D. approximately $710,000 for which it's been billed.

The lawsuit, pending in federal district court in Manhattan, was reported by the New York Law Journal on Jan. 7. Sullivan & Cromwell's complaint is believed to be the first of its kind against an e-discovery vendor.

Robert D. Owen, a New York partner with Fulbright & Jaworski, which conducts an annual survey of trends in corporate litigation, including e-discovery costs, said the lawsuit illustrates a central problem in funneling work to vendors. "Quality problems in this kind of project are not uncommon, but they must be managed well," he said. "It's a complicated process."

Indeed.

Perhaps not surprisingly, it did not take long for E.E.D. to head to court as well. On the afternoon of Jan. 7, the day that the New York Law Journal story broke, E.E.D. filed suit in King County Superior Court in Washington state against S & C.

The four-page complaint says that E.E.D., through its lawyers at Davis Wright Tremaine LLP, sent a "demand letter" on Dec. 20, 2007, seeking payment from S & C, and that the law firm has "refused to pay the amounts due" despite the notice. An exhibit to the lawsuit show that more than $58,000 of the bill is interest on outstanding bills.

Did someone say "food fight"?

In a press release, E.E.D.'s chief executive, Dave McCann, came out swinging against S & C. "We believe this matter is nothing more than a dispute regarding payment of a valid receivable," McCann said. "We are disappointed that Sullivan & Cromwell had chosen to litigate this matter rather than negotiate in good faith, but we are prepared to ensure that terms of our contract our enforced."

Sullivan & Cromwell, meanwhile, a firm loath to find itself in the midst of this kind of publicity, had declined comment when the New York Law Journal ran its story on Monday. Yesterday, David B. Tulchin, one of the firm's senior litigators, who co-authored the complaint against E.E.D., issued this statement: "S & C made significant efforts to settle this dispute with E.E.D. before filing suit, but E.E.D. rebuffed those efforts at every turn. Indeed, E.E.D.'s lawyer insisted on 'full payment' and said that unless we paid 100 percent of the invoiced amounts, E.E.D. would sue S & C on January 4."

Ouch! It seems that, despite S & C's complaints of shoddy work, E.E.D. insisted nonetheless that it be paid to the last penny on its $718,608.24 bill. Not a way to play nice in the e-discovery sandbox, especially for a company that claims to be "the pioneer of litigation hosting technology and electronic discovery services."

E.E.D., founded in 19971987, has been owned by the private equity group Welsh, Carson, Anderson & Stowe since 2005. Through a spokesman, E.E.D. refused to provide a copy of the "demand letter" referenced in its complaint, claiming the document is "private."

Among corporate lawyers, there have been rumblings about lack of quality control at E.E.D. For now, the corporate defendant for whom E.E.D. worked remains a mystery. The case it involved has since been settled.

Who will win? Stay tuned. For the moment, S & C seems to be fighting the fight for corporate clients who, in the end, will pay the steep collating fees charged by these vendors.

S & C's Tulchin ends his statement thus: "A law firm cannot in good conscience pass on to its client an expense of this nature when the work performed was well below what the vendor contractually agreed to provide."

UPDATE: On Tuesday, Sullivan & Cromwell withdrew its federal court lawsuit and filed the same allegations against E.E.D. across the street in downtown Manhattan, at New York Supreme Court. The law firm moved the case because some of its partners are not United States citizens. It had sought to bring the case in federal court by claiming "diversity jurisdiction," which requires a dispute between the citizens of two states, and S&C's international partners destroyed the diversity jurisdiction.

by Karen Donovan