In every business lawsuit, mountains of electronic data must be sorted through and eyeballed as the opposing sides gather evidence in the discovery process.

Wading through "e-discovery," as it is called, creates many headaches, but the companies ultimately footing the bills for the legal services have a big gripe:

Law firms hire temporary or contract attorneys at $50 an hour, then turn around and charge two or three times that amount to their corporate clients.

"It's a profit opportunity for many firms," Robert Bjornsti, vice president at AXA Equitable Life Insurance Company, told a packed audience at LegalTech New York, an annual trade show at the Hilton New York. Big firms see the labor-intensive discovery process as an opportunity to create "another profit center."

He added: "My view is, 'Why would we pay any more than we need to?'"

Bjornsti is not alone. At a panel discussion on managing e-discovery costs, Martha Mazzone, associate general counsel at Fidelity Investments, said she has taken discovery and document review in-house at her fund-management firm.

Security was one reason, but Mazzone said she also got fed up with bills that included temporary or contract lawyers whose fees were doubled or tripled when Fidelity was asked to pay.

Joining Mazzone on the panel by Jeffrey Fowler, a lawyer with O'Melveny & Myers — one of Fidelity's outside law firms. He was there, she said, because the law firm figured out how to lower document review costs by setting up discovery centers and didn't charge more than it was paying for its temps.

Bjornsti said AXA has gone a step further, by bringing much of the discovery process in house. AXA now hires the technology company vendors and temps, and makes it clear that the corporation, not its outside law firm, is the client.

The AXA executive's speech preached a "new paradigm" for using outside counsel, which he delicately suggested will "affect law firm profitability."

Bjornsti told the crowd he wants to be free to hire smaller, cheaper law firms from, say, Peoria, Illinois, rather than be tied to the "marquee" firms in big cities. Marquee firms have the "scale" required for complicated discovery processes, that feature comes at an increasingly unpalatable price: as much as $1,200 an hour for senior partners.

Bringing discovery in house opens the door to hiring less-expensive litigators, he said. At any rate, corporations are usually better equipped to handle massive amounts of data than law firms, because corporate IT departments "bigger than the entire law firm, very often," he said.

"Why would this be a core competency of a law firm?" he asked rhetorically.

"We can hire temporary attorneys," Bjornsti told the crowd. At the panel, Mazzone said highly skilled contract lawyers will "charge a fourth of what a law firm is going to charge you," she said. "The model that outside counsel has worked on will go away."

So let's hear it for the temps! But surely, there are some associates who are counting on document review to meet their requirement to bill those thousands of hours. What do they make of this corporate counsel revolt?

by Karen Donovan