e-Discovery Team

Judge James D. Whittemore

Three Million, One Hundred Thousand Dollars was found to be a reasonable sum to pay an e-discovery vendor for processing and hosting 2.7 million documents for review in a professional malpractice case. Tampa Bay Water v. HDR Engineering, Inc., Case No. 8:08-CV-2446-T-27TBM. (M.D. Fl. November 2, 2012) (also found at 2012 U.S. Dist. LEXIS 157631 and 2012 WL 5387830). In this case the plaintiff water utility company sued the engineering firm that designed a 15.5-billion-gallon water reservoir, the largest in Florida. Apparently the reservoir cracked and leaked and the water company sued everyone involved. Everyone settled, except for the engineers, although, in a bizarre twist, even they tried to settle. Although the trial against the remaining defendant, HDR Engineering, took over a month, it  took the jury less than four hours to rule for the engineers. The prevailing defendant then moved for an award of its reasonable attorney fees and costs. District Court Judge James D. Whittemore, the learned and conservative judge who presided over the trial, did not hesitate to award the entire $3,100,000 requested for e-discovery expenses.

10% Vendor Cost Was Proportional and Reasonable in this Case

This $3.1 Million award represents a little more than ten percent of the total value of this case, $30 Million. I derive this case value based on the fact that the case actually did settle with HDR for that amount before trial. Then, in a very unusual move, even for Florida, the settlement was later repudiated by the politicians running the water utility, a quasi-governmental authority. I have never seen that happen before. Signed mediation settlement agreements are usually sacrosanct. The case was even dismissed. But the board was later able to change their mind, reject the deal made at the conclusion of a third mediation, and reopen the case. A majority of the board wanted a trial before a jury, and that is exactly what they got.

Judge Whittemore said in his cost order that this case may be the largest engineering professional liability case, in terms of damages sought, ever tried to a jury. At the end of the trial the plaintiff’s lawyers had the gall to ask the jury for a $100 Million award. The jury gave them nothing. Judge Whittemore in denying the motion for new trial found the result unsurprising considering the weakness of plaintiff’s evidence. Tampa Bay Water’s case was all wet.

Under these circumstances where there was a large trial, preceded by three years of litigation, the attorney fees and other costs incurred by the defendant HDR were also large. The case docket had 678 entries, including 11 motions to strike, 2 motions to dismiss, 6 motions for protective order, 11 motions to compel, 3 motions to quash, a motion for sanctions, a motion for summary judgment (with two supplements), 4 Daubert motions, 29 motions in limine, and dozens of non-substantive motions.

The defendant was awarded $9,249,219.85 for reasonable attorneys’ fees (almost everything they asked for), and another $7,798,186.22 for other costs incurred, for a total cost and fee award of $20,147,406.07. This means the $3.1 Million e-discovery vendor cost was about 15% of the total fees and costs incurred by HRD Engineering to defend the case. The Judge had no problem finding that to be a reasonable and proportional award. Do you?

The plaintiff made a really bad decision to reject the mediated settlement where they would have received a $30 Million payment from HRD Engineering. They not only got a zero verdict, but had to pay HRD’s fees and costs. This means the citizens of Tampa served by this utility have to pay the bills for the utilities’ intransigency, although in fairness, the utility board has decided to spend yet more money and appeal, and so in theory they could still prevail. After all, everyone else Tampa Bay Water sued over this ill-fated water reservoir settled and paid them something, and, in my opinion, thereby encouraged this kind of aggressive litigation stance.

Entitlement to e-Discovery Cost Award Under Contract, Not Statute

It is important to understand that Judge Whittemore’s decision pertained solely to the reasonability of the e-discovery costs incurred. The award was based on a contract that entitled the prevailing party in any litigation arising out of the agreement to receive an award of their reasonable attorney fees and costs. The decision had nothing to do with an award of court costs under 28 USC §1920. The plaintiff tried to attack the award by confusing the two grounds. Judge Whittemore made short work of such a sophistical argument:

HDR also requests an award of approximately $3.1 million in electronic discovery costs. Tampa Bay Water argues that most of these costs relate to the collection, storage, formatting, coding and organization of electronically stored information (“ESI”), which cannot be taxed as costs. In addressing the taxation of electronic discovery charges under § 1920(4), the Third Circuit persuasively reasoned that “only the conversion of native files to TIFF (the agreed-upon default format for production of ESI), and the scanning of documents to create digital duplicates are generally recognized as the taxable `making copies of material.'” Race Tires Am., Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158, 167 (3d Cir. 2012).

But in this case, the precise scope of § 1920(4) is immaterial because HDR is entitled to recover its reasonable ESI costs under the parties’ contract.

Exactly right. The whole scope of award issue does not arise if the cost award is based on a contract or a statute, as for instance was the case in United States ex rel. Becker v. Tools & Metals, Inc., No. 3:05-CV-0627-L, 2013 U.S. Dist. LEXIS 46529 (N.D. Tex. Mar. 31, 2013). In Becker the award was based on the False Claims Act statute, not the court costs statute. See Courts Struggle With Determining Reasonability of e-Discovery Vendor Bills.

Why $3,100,000 For e-Discovery Vendor Expenses Was Reasonable

Judge Whittemore concisely explains why the sum of $3.1 Million was a reasonable amount to pay for e-discovery costs in this case:

This was a lengthy, highly technical case which involved 17 million pages of documents. Under the circumstances, the electronic discovery costs incurred by HDR were certainly reasonable^[15] and necessary in managing this complex, document-intensive case. While a large part of the $3.1 million in ESI costs is attributable to the storage and hosting of ESI, that amount was reasonable and necessary to the effective utilization of ESI in this case. Accordingly, no reductions will be made for the ESI costs incurred by HDR.

[15] To put it in perspective, the total electronic discovery costs would equate to a charge of approximately $0.18 per page for a single copy of the 17 million pages of documents involved in this case.

Remember, this cost award was for vendor expenses only, namely vendor costs to process, store, and host the ESI. it did not include the attorney fees incurred to review these 17 million pages of documents from 2.7 million documents. We do not have a breakdown of the total fee award of $9,249,219.85, to determine how much of that expense related to e-discovery. But we do know that total included work by both law firm attorneys and contract lawyers.

Attack on Contract Lawyers Award

The $9,249,219.85 fee award to the prevailing defendant included costs incurred for contract lawyer document review work. This was the correct procedure. It should not have been included on the costs side. Even though the contract lawyers may have been billed by an outside vendor, separate from the law firms representing the defendant, these expenses should not be included in a costs award. They are fees for legal services, regardless of the fact that the billings may have arisen from a non-law-firm. The law and ethics requires that their services be performed under the direct supervision of the law firms that were attorneys of record. Thus contract lawyer fees should never be awarded as a cost, but only as an attorney fee.

What contract lawyers do is legal work, legal services, make no mistake about it, even if much of it is hopelessly old-school and out of date. Anyone making decisions on relevance of a document to a law suit, or not, much less on issues, privilege, or confidentiality, is making a legal decision. They are providing a legal opinion, rendering a legal service. You have to be a licensed lawyer to do these things. It is not just a technicality, as I have heard some people say. These are core legal issues and it is a crime in most states for non-lawyers to engage in the unauthorized practice of law.

The plaintiff here attacked the reasonability of the fee award as it pertained to the contract lawyers by challenging the effectiveness of the contract lawyers services. They alleged that their review was filled with errors and so not even worth the $85 per hour rate charged. The plaintiff only supported the alleged worthlessness with allegations that the defendant mistakenly produced many privileged documents. The effectiveness attack failed here, especially because the plaintiff also used contract lawyers, and they also missed and produced some 23,000 privileged documents. Furthermore, the Plaintiff’s attack did not object to the whole mistaken notion of linear review, instead of more advanced analytics. Apparently all of that was beyond their grasp.

Here is as Judge Whittemore’s rejection of the argument made by the plaintiff in the instant case:

Tampa Bay Water’s expert opines that HDR’s use of contract attorneys at a rate of $85.00 per hour was unnecessary and ineffective and that their fees should be reduced by 50%. Mr. Hill observed that contract attorneys were tasked with reviewing and coding documents (Dkt. 653-3, p. 35). This was confirmed by Mr. Mason, who averred that contract attorneys reviewed and coded the document productions for responsiveness and privilege (Dkt. 653-1, ¶ 13; Dkt. 672-1, p. 6, ¶ 15).

Mr. Vento suggests that the fees incurred by contract attorneys were unreasonable because the contract attorneys made errors which resulted in the inadvertent disclosure of privileged documents. As HDR explained in its reply brief, the production of privileged documents was caused by a vendor computer error, not contract attorneys (Dkt. 672, p. 6). Further, given the 17 million pages of documents in this case, it is unrealistic to assume that there would be no inadvertent production of privileged documents. Indeed, it appears that Tampa Bay Water may have inadvertently produced some 23,000 privileged documents (Dkt. 316-12, Meaders Aff. ¶ 6).

Mr. Vento also contends that contract attorneys performed work that was duplicative of outside vendors. But as Mr. Mason explained, outside vendors performed “objective coding,” which involved reviewing documents and noting items such as the author, recipient, date, and document type. Internal teams, which included the contract attorneys, were tasked with “issue coding,” which involved a more thorough review of the documents for privilege, responsiveness, and substantive issues. There was, therefore, no duplication in the coding process.

To the extent Tampa Bay Water objects to the number of contract attorneys used by HDR, it misses the point. The review and coding of some 17 million pages of documents requires the same number of hours, whether the work is performed by one contract attorney or twenty-eight. While the contract attorneys’ fees are not insubstantial, it was certainly reasonable for HDR to utilize these individuals to conduct an adequate review of the massive volume of documents, whether it was eight or eighteen.

Although the attack on contract lawyers for document review failed in this case, I think the basic idea of challenging the reasonability of contract lawyer fees based on their ineffectiveness could work in other cases. But to do so the losing party would first have to lay a proper predicate during the course of the case, as, for instance, we have seen the plaintiffs do in Kleen Products.

Conclusion

In a large case such as we see in Tampa Bay Water v. HDR Engineering, Inc. the expenditure of $3.1 Million in e-discovery vendor costs alone was just business as usual. Perhaps some money for vendors could have been saved in this case using predictive coding, perhaps not. The issue was never raised (although it is clear from our predictive coding experiments that attorney fees for review could certainly have been saved).

When using the old style linear review you can expect such million dollar expenses as we see in Tampa Bay Water even if this means you must pay the vendor ten percent of the case value. If you include the attorney fees for e-discovery, the total spend for old-time linear document review was probably more than 50% of the total cost of defense of the case. The court in this case had no problem finding such expenses to be reasonable. The prevailing defendant was awarded over $20 Million in fees and costs to defend a $30 Million case.

There are a couple of obvious lessons here. First of all, do not second guess your mediation representatives and back out of a done-deal at mediation. Second, never think you have the jury in the bag and cannot lose if you can just get the case to a jury. No reputable lawyer would ever tell you that. Tampa Bay Water thought that, apparently upon advice of new counsel, and they lost $50 Million so fast their heads were spinning. Third, make sure you have contracts that include prevailing party fee and cost awards and, if you must sue someone, sue under these contracts. Do not bet upon liberal construction of the federal costs statute 28 USC §1920 to make you whole.

Finally, this opinion shows once again that linear review, even with contract lawyers, is very expensive. I personally do not think $0.18 per page is all that great a deal for 17 million pages. Plus if you break it down by document (2.7 Million files), which the order did not do, that is $1.15 per document. And again, remember, this is just the charge for processing and hosting the files. We can only guess what the total charge was per page, or per file, after inclusion of attorney fees to actually review the files. But if you assume an industry standard linear review speed of fifty files per hour by contract lawyers billing at $85 per hour, then it would take 54,000 hours to review all 2.7 million files. Plus, the total cost would be $4,590,000, which equals $1.70 per file. (Remember, the total fee award for this case was $9,249,219.85, so this $4.6 Million estimate for review does not seem too out of line.) That would make the total cost of review, both fees and costs, to be $2.85 per file.

Now compare this $1.70 per document review cost with the projected cost of my experimental ENRON review using hybrid multimodal predictive coding techniques, which was $0.07 per document, not page, and assumed an SME billing rate of $1,000 per hour. Corrections and Refinements to Predictive Coding Narrative. Now you see why experts are all psyched up about the potential of predictive coding? The cost savings will not always be that great, since document review in a construction defect case is much harder than in a simple employment discrimination case. Still, there is no question that the use of advanced predictive coding techniques can dramatically lower the costs of document review. See Where The Money Goes: Understanding Litigant Expenditures for Producing Electronic Discovery (Rand Corporation, 2012); also see my article on the Rand Report. Use of proper predictive coding search techniques is imperative in today’s age of too much information.

The take away here is to both look for high-tech alternatives for your own review, and, like the plaintiffs did in Kleen Products, suggest strongly that the other side do too. Kleen Products, LLC, et al. v. Packaging Corp. of Amer., et al., Case: 1:10-cv-05711, Document #412 (ND, Ill., Sept. 28, 2012). That can give you a position to attack the reasonability of the other side’s bloated attorney fee award request for document review. If you do not, and if you lose the case, you could end up paying for the other side’s inefficient, bloated review, just like Tampa Bay Water did. Then, as a losing litigant in a contract dispute, you can end up being hit twice in the pocketbook, once by your own lawyers for their old-timey, bloated review, and then again for the other side’s inefficiency.

Sure, all of the lawyers win by that arrangement (which is why many wish I would just shut up), and some of the vendors do too, but for how long? Eventually even the most loyal and trusting clients will catch on and move on. I am training plenty of lawyers in advanced predictive coding review methods who will be ready and able to serve them when they do. It is only a matter of time.

This entry was posted on Sunday, August 4th, 2013 at 9:46 pm and is filed under Lawyers Duties, Review, Search, Technology. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.