E-Discovery Update: Resolving Client-Vendor Disputes

No e-discovery project ever goes smoothly from start to finish, and seasoned practitioners have learned to schedule extra time to cover the inevitable missed express mail deliveries, defective DVDs, and extra processing time that would otherwise derail a document review and production. Sometimes, however, a legal matter may have such tight deadlines that little if any spare time is available to recover from these mishaps. Outsiders to a legal action can argue that no lawyer should ever promise the impossible to opposing counsel or to a judge, but the facts of a case may make it difficult to deny an opponent's demand for extraordinary performance. The only problem, of course, is what to do when the train comes off the tracks.

The recent lawsuit and countersuit between the law firm of Sullivan & Cromwell ("S&C") and the e-discovery service provider EED provide a convenient summary of common problems that can arise when processing electronically stored information ("ESI") on a tight timeframe. Sullivan & Cromwell's lawsuit is unique in that these disputes between client and vendor have traditionally been resolved quietly, but the issues are universal.

Sullivan & Cromwell's Lawsuit

Based on a review of Sullivan & Cromwell's complaint, the court in a complex action ordered fact discovery to be completed on a tight and apparently inflexible schedule. After a vendor due diligence process, the law firm signed an agreement with EED to load potentially responsive ESI onto its online review platform and generate Bates-numbered single-page TIFF image files based on the designations made by the document review team using the review platform. However, according to the complaint, the law firm experienced problems with this project from the start.

S&C's complaints are familiar to anyone who has worked on a discovery document review project:

  • Delays in loading ESI onto the review platform, reducing the amount of time available to the review team to complete its tasks;
  • Unscheduled server outages that prevented the review team from accessing its documents;
  • Delays in completing processing of selected ESI for production (in part compounded by late completion of review team tasks);
  • Creation of production sets bearing incorrect confidentiality designations;
  • Delivery of production sets that contained material errors, such as omitted documents or duplicative productions;
  • Inclusion of documents into document productions that should have been excluded on grounds of non-responsiveness or other subjective coding performed by the document review team;
  • Poor communication throughout the process, including broken promises regarding deadlines and the quantity of materials being delivered; and
  • Lack of internal tracking for which documents had already been produced and in which wave of production.

As compensation for these alleged deficiencies in performance, Sullivan & Cromwell's lawsuit seeks a declaratory judgment that EED has materially breached the contract and is not entitled to further payment on its invoices.

EED's Countersuit

Shortly after S&C filed its initial complaint in U.S. District Court for the Southern District of New York, EED filed its own countersuit in Washington State Court. In its complaint, EED alleges that it entered into a valid contract with the law firm of Sullivan & Cromwell, that it provided services pursuant to the contract, and that S&C breached the contract by refusing to pay EED for services rendered. Under both contract and equity law, EED claims it is entitled to compensation for its work at contract terms, plus pre- and post-judgment interest and attorney's fees.

Preventing And Minimizing Vendor Disputes

The extremely public conflict between Sullivan & Cromwell and EED will likely hurt both litigants. Other e-discovery vendors may now be more reluctant to work with S&C because of the firm's use of litigation to resolve what it perceives to be vendor performance issues. And EED, for the foreseeable future, will be asked to defend itself from a very public accusation of incompetence and mismanagement every time it writes a proposal for a new project. In an industry full of direct competitors, a poor reputation could cost EED much more than the contract amount in dispute.

For the rest of the legal community, this dispute also contains several important lessons about managing e-discovery and other third party vendor relationships. Sadly, this is unlikely to be the last time that a law firm takes legal action against a vendor, but a few simple strategies will reduce the chance that it's your law firm filing the lawsuit.

A. Get All Contract Terms In Writing

Most litigation support service provider contracts start out as standard forms that are edited to fit the specific circumstances of a project. In the heat of litigation, however, some legal teams are tempted to rely on oral representations by a vendor and execute the generic contract terms with few or no changes. While this may be adequate when everything goes smoothly, the dispute between S&C and EED demonstrates the problems that can arise when a contract fails to specifically address key issues.

For example, while it is likely that EED's statement of work ("SOW") described in general terms the services that it would provide, it appears that neither the contract nor the SOW included a description of how quality of the work would be measured. In its complaint, S&C cited generic language in the contract that promised that EED's work would be performed "in a professional and workmanlike manner and in a manner consistent with industry standards." However, this language provides no objective criteria that either contracting party could use to assess the quality of work. In addition, since ESI processing problems are the norm, not the exception, a cynical observer could also argue that at least some of the problems that arose during the contract term are sufficiently common within the industry that EED's alleged performance was still consistent with industry standards.

S&C also complained about poor customer service, including delays in making source documents available for review. As with criteria for measuring quality, a service contract can easily be amended to include specific descriptions and guarantees of response time. Such language protects both client and service provider. A client that requires "time is of the essence" service—and who is paying a premium for that level of performance—should have a clear understanding of minimum and maximum acceptable response times. Similarly, a client that agrees to a more leisurely response time in exchange for better pricing should have a clear, written, expectation of how a vendor will respond to its needs.

A final problem with the S&C / EED contract is that, based on the pleadings of the parties, it contains no procedures for addressing complaints so that they can be resolved. Contracts that include specific criteria to measure performance can easily include liquidated damages provisions. Similarly, contracts can also require mediation or arbitration before either party is permitted to commence formal litigation. Such solutions encourage unemotional, objective resolution of disputes—something that likely would have benefited both litigants in this dispute.

B. Build Multiple Sources Of Competent Project Management Into The Project

While a well-crafted contract can help reduce the time and expense of calculating reasonable compensation for a project gone awry, it's even more important to reduce the risk that these problems occur in the first place. A review of S&C and EED's respective lawsuits suggests that neither side was particularly effective at communicating with the other over the course of the project. In Sullivan & Cromwell's eyes, EED provided little or no notice that processing or deliveries were delayed. Some status reports were allegedly inaccurate, forcing the law firm to scramble when they received different information. In turn, it appears that EED production staff may not have given the correct priority to some of the source material that the law firm provided them. Both sides, most likely, blame the other for some (or much) of the project's disorganization.

Law firms work engage outside vendors and contractors to focus on a particular aspect of a litigation matter so that the legal team is free to concentrate on other parts of the case. However, it is the legal team that certifies the adequacy of a document production or that must answer the questions of a curious or angry judge. And as such, the legal team bears the ultimate responsibility for discovery problems, even when they are caused by a third party. The law firm may have separate contractual rights against the vendor, as Sullivan & Cromwell is asserting against EED, but that relief may pale in comparison to the damage caused to the underlying substantive case.

Law firms should strongly consider adding additional sources of project management to those provided by the vendor. In a best case scenario, these alternates will have little to do. More commonly, though, additional project managers outside the e-discovery vendor will be kept busy providing detailed status reports and ensuring that re-prioritized tasks are completed on time. Increased project management will more than pay for itself as more resources will be available to chase down loose ends and keep projects on track. Better information on a timely schedule, in turn, will help the legal team adjust its strategies and staffing to maintain steady progress.

Project managers can come from several different sources. Law firm practice or litigation support professionals often have valuable project management expertise, and a number of independent consultants also offer project management services on a vendor-neutral basis. Some law firm clients, too, may have in-house project managers who are available to help the legal team. As with any task, though, the legal team should ensure that project managers understand the work they are supervising. An otherwise wonderful project manager who lacks e-discovery expertise may not be able to take correct action when projects fall behind or encounter unexpected problems.

C. Negotiate Language About Transferring Projects To Alternate Vendors

It's very helpful to work with vendors on a long-term basis. Such vendors accumulate significant knowledge about the needs of the legal team that makes it easier to bring new projects up to speed quickly. Many vendors also offer discounted rates to clients for whom they have done past work. However, law firms and law firm clients alike should not permit such relationships to trump objective measurement of the vendor's performance. At times, it may be necessary to transfer a project from one vendor to another.

Vendors can become overwhelmed by the amount of work they are processing on behalf of multiple clients or projects. In such a crush of equally demanding work, vendor communication with clients often becomes erratic and vendor quality control measures may be applied less consistency. Most vendors are able to recover from "crunch time" conflicts, but some may never get back on track.

Changing vendors in the middle of a project is not a task to be undertaken lightly. However, in some circumstances, it may be the only way to salvage a project that cannot otherwise be completed. One way to reduce the challenge of moving a project is to ensure that the vendor contract contains provisions that guarantee full cooperation in the even that a client decides to transfer a project to an alternate vendor. Without such contract language, vendors have little incentive to assist a client with moving potential income to another organization. Indeed, some e-discovery vendors have been known to demand early termination fees or hold data hostage until all pending invoices have been paid in full.

Conclusion

Though they are interesting reading, Sullivan & Cromwell and EED's suit and countersuit do not answer the question of why this dispute could not be resolved without resorting to litigation. Performance under the contract took place over at least a ten-month period, and neither complaint speaks to any remedial steps that EED took during this time to address performance issues that might have cropped up early in the project. Similarly, neither complaint cites specific contract language that describes exactly what services EED was to have provided and at what quality level—crucial information for establishing expectations and measuring performance. Finally, it is readily apparent that the contract did not specify procedures for escalating and resolving complaints or for mandatory mediation or arbitration prior to moving to full litigation.

However, for all of its complaints about EED's performance, Sullivan & Cromwell was able to mobilize other resources to compensate for problems in EED's work product. As a consequence, it appears that the law firm was able to complete essential work on a sufficiently timely basis to avoid sanctions or other potential penalties for failing to meet its discovery obligations. However, by the same token, it appears that EED complicated, rather than simplified, the legal team's development of its client's substantive case. Practitioners would do well to avoid such situations in their own matters.