Given the exponential growth of electronic discovery in even the most routine of litigations today, most law firms have turned to third-party vendors to process electronically stored information (“ESI”) for review and production.  

Inevitably, disputes over the quality of vendors’ services will arise, particularly given the unexpected technological challenges litigants often face during ESI production. In a first-of-its-kind litigation between a major law firm and a leading vendor, Sullivan & Cromwell LLP (“S&C”) commenced a lawsuit in federal court against its electronic discovery vendor, Electronic Evidence Discovery Incorporated (“EED”), for EED’s alleged “untimely and inaccurate electronic discovery services.” In response, EED filed its own legal challenge against S&C in state court.

The parties ended their dispute earlier this year with a confidential settlement. However, this law firm-vendor litigation is not likely to be the last of its kind.

S&C required the services of an electronic discovery vendor for its representation of a client in an unnamed litigation for discovery to be completed within a 30-day period. After S&C and EED entered into an agreement, S&C experienced numerous problems with EED’s performance. S&C commenced litigation in December 2007 against EED in the Southern District of New York to obtain a court order that EED could not collect on any unpaid bills that S&C owed under the parties’ agreement.

First, S&C claimed that EED’s poor performance included delays in loading electronic data, failure to keep S&C informed of when data would be ready to review, and missed deadlines for delivery of processed ESI to S&C. For example, EED informed S&C by email onMay 15, 2007 that a production of CD-ROMs was scheduled for delivery to S&C’s office on May 17, 2007. On that date, however, and only after S&C inquired about the status of the CD- ROMs, EED informed S&C that there had been a delay, but that the CD-ROMS would be delivered the next day. Later, EED informed S&C that only a small part of the promised production would be available on May 18 and that the bulk would be delivered several days later. The inconvenience to S&C was compounded by the May 30 discovery cutoff for the matter, less than ten days later. On another occasion, on May 23, 2007—one week before the discovery cutoff—EED informed S&C that it was unable to load any additional data or deliver any production because EED’s servers were down.

In addition, S&C claimed that EED either did not perform any quality control on the production of documents, or failed to discover errors during the course of their quality control review. For example, S&C advised EED that a certain category of documents could not be produced without an additional level of review by S&C personnel. Despite this instruction, S&C claimed that five CD ROMs, 19 DVDs and two hard drives were improperly marked, and, if not for S&C’s own quality control, would have been produced without an additional level of review. This error was aggravated by the fact that the delivery of these documents occurred the day before the discovery cutoff. S&C also claimed that EED failed to provide an accurate list of bates numbers for electronically produced material and mismanaged the production of documents already reviewed by S&C—producing documents S&C had designated as non-responsive and failing to include proper confidentiality designations.

In response to S&C’s complaint, EED commenced its own action against S&C in New York Supreme Court. EED did not dispute any of the charges in S&C’s complaint, but sought payment under the contract theory of quantum meruit, arguing that EED was entitled to the value of the services it had provided. EED sought the amount S&C owed under the parties’ agreement, plus accrued interest, totaling $718,608.24.

Before the courts had the opportunity to weigh in on the merits of these disputes, S&C and EED reached a settlement. However, it may be only a matter of time before the next lawsuit between a large firm and an electronic discovery vendor is commenced. The high cost of electronic discovery—EED’s invoices for its work on S&C’s matter totaled over $1 million—the growing reliance on ESI, its importance to litigation, and the demands and deadlines of modern litigation all indicate that conflicts are bound to arise between law firms and vendors. This likelihood of litigation may lead to an increase in the already high costs of electronic discovery, as vendors begin to take on additional insurance to protect themselves.