Law Firms Beware

Amid rising fears of e-discovery malpractice, huge law firm faces client lawsuit

The tables have been turned on one of the world's largest law firms. As a result of allegations of e-discovery malpractice in a state case filed in Los Angeles last week, McDermott Will & Emery, a 970-lawyer global behemoth, must now practice what it preaches. It must issue a "litigation hold" to its own lawyers, litigation support and IT staff and others to preserve its own records that are relevant to the serious charges that its former client, J-M Manufacturing Co., Inc., has leveled.

The lawsuit, filed on June 1 in Superior Court, is believed to be the first e-discovery malpractice case ever filed against a law firm for the alleged failure to supervise contract attorneys that were hired to perform the client’s work and to protect privileged client records.

It is a case that normally would not get much attention. But this is not a normal case. It raises issues and poses scenarios cutting across all sectors of the global e-discovery community. The issues and scenarios undoubtedly cause sleepless nights for thousands of lawyers, litigation support professionals, IT specialists, records managers, technology officers, consultants, staffing companies and legal process outsourcing firms that face the e-discovery phenomenon daily.

Outside help almost unavoidable now in complex cases

These professionals know that electronically stored information, or ESI, abundantly permeates all aspects of business, commerce and daily lives and that any complex legal case -- even some simple ones -- will require outside help to plow through great volumes of electronic data. The new e-discovery legal regimes require that work in order to identify records that are responsive to the discovery demands of opposing parties and to separate privileged documents that must not be disclosed.

The outside help that lawyers or their clients hire – in private and public sectors – are usually technology providers, consultants or hired eyes that perform the practically unavoidable "document reviews." In various ways, the outsourced assistance, who performs services for lawyers and clients, act as "surrogates" for the companies that hire them.

These outside providers relieve lawyers of much of the tedious review of electronic records, but do not relieve them of the "duty to supervise" the persons they hire to help with client’s matters. Any lawyer who doubts that should peruse Rule 5.1 of the American Bar Association’s Model Rules of Professional Conduct.

That is the rub. And that is where McDermott Will & Emery’s former client says it ran afoul of its obligations.

Contract lawyers "DOES 1 through 100" also sued

The complaint also sues persons it describes as "DOES 1 through 100." These are presumably the persons who performed the document review.

The case has been assigned to Superior Court Judge Charles F. Palmer. He was a partner in the Los Angeles office of the large national law firm, Perkins Coie, for 14 years. According to his biography, he handled complex commercial litigation there before his appointment to the bench by former Governor Gray Davis in 2002.

J-M, a major manufacturer of PVC piping, had hired McDermott to defend against civil False Claims Act charges concerning the quality and sale of its products to federal and state governments. Filed in January 2006, the case remained under seal until October 2008. In March 2010, the complaint against McDermott states, J-M retained Sheppard Mullin Richter & Hampton to replace McDermott.

J-M had 160 custodians of records

The document review the complaint describes was no easy matter. J-M had about 160 custodians of ESI that were "likely" responsive to government discovery requests. McDermott hired Stratify, an outside vendor, to cull through the ESI. Stratify was later acquired by Iron Mountain, whose digital product lines have been acquired by Autonomy.

The attorney for the "relator" in the False Claims Act case told Sheppard that some J-M documents it had received from the government which had previously been turned over by J-M "appeared to be privileged."

Although McDermott worked directly with the Assistant US Attorney in the False Claim Act case to develop a keyword list to produce responsive ESI, the government returned the first production set after finding many privileged documents. The second attempt did not fare better. The complaint says McDermott and its contract lawyers produced a second data set again laced with privileged documents despite being filtered through a second keyword list.

J-M says "[McDermott]'s attorneys performed limited spot-checking of the contract attorneys' work, [and] did not thoroughly review the categorizations or conduct any further privilege review.”

Sheppard asked for the return of the privileged documents but the relator refused. It said McDermott had already done two "privilege reviews" before giving them to the government and that J-M had thus waived the attorney-client privilege. J-M alleges in its suit that 3,900 privileged documents were erroneously produced by McDermott as part of 250,000 J-M electronic records that were reviewed.

Source of McDermott's contract lawyers not revealed

The complaint does not identify the source of the contract lawyers that McDermott used for the document review for J-M. Nor does it say whether the firm used its own legal staff or hired temporary workers through a legal staffing or legal process outsourcing firm.

For McDermott, employing lower paid lawyers for document reviews and other e-discovery tasks is not new. In 2007, according to published reports, the firm established a second tier of lawyers that earn roughly 25 percent less than new associates to perform less appealing tasks like document reviews. The two-tiered system was a response to the proliferation of keyword searches and database maintenance of ESI. These tasks were consuming much of the time of the firm’s higher-paid associates who were on a track toward partnership.

J-M seems intent on making sure that McDermott pays an undefined price for its failure to supervise. For McDermott's alleged "breach of fiduciary duty," it also wants punitive damages awarded in a "sufficient amount to make an example of... and to deter future fraudulent, oppressive and malicious misconduct."

The complaint also requests that McDermott provide an accounting of the sums that it paid for contract attorneys and two vendors. It alleges that McDermott "marked up" the fees and costs it paid to contract attorneys and vendors and failed to disclose that to J-M.

Rafael Bernardino, Jr., of Hobson Dungog Bernardino + Davis, in Los Angeles, who represents J-M, declined to comment beyond citing the complaint. He was previously an attorney at the US Department of Justice in Washington.

Through its partner and general counsel Alan S. Rutkoff, McDermott would say nothing more than, "We believe this case is without merit and we look forward to defending the firm against these baseless allegations. We do not litigate matters such as this in the press and will not be making any substantive comments about this matter."

McDermott must respond within 30 days after being served with the complaint under California rules.

McDermott's malpractice insurer is not known. The firm is a member of the Attorneys’ Liability Assurance Society (ALAS), a self-insurance group of very large law firms. ALAS held a web seminar for members only last week on e-discovery malpractice risks and other hazards lawyers face.


http://aceds.org/news/amid-rising-fears-e-discovery-malpractice-huge-law-firm-faces-client-lawsuit-charging-misdeeds-#.TfZZ8mTmhm8;email

Author: Robert Hilson and ACEDS Staff
Additional research by Zachary Park