The tsunami of legal work and e-discovery work to come

 

23 April 2020 (Brussels, Belgium) – First, a wee bit of history so you understand the sources of my information.

When I began The Posse List in January 2002 it had a simple mission: to help attorneys find temporary work until they found permanent gigs. The e-discovery industry was just coming into its own (ah, remember “The Condordance Era”?) The name “Posse” came from that Old Western trope: the classic image of a posse, a group of armed cowboys on horses, pulled together at the last minute by the local sheriff, all in pursuit of an outlaw.

So, yes. Pretty much how document reviews are thrown together.

NOTE: originally the term was posse comitatus, Latin meaning “the force of the country”. Today, the word posse is used most often to refer to a group of friends or people with some common interest, in a somewhat joking way, like “your posse that gets together to hit all the pubs”.

So with 33 people as my starting group (the contract attorney team at my first-ever document review, in D.C., at Morgan Lewis, that January 2002 so long, long, long ago) I began to canvass staffing agencies and law firms (I was semi-retired and so I had a lot of time) to look for document reviews and litigation support positions and send out job notices to my growing posse.

The rest is history. We added paralegal positions, forensic positions, project management positions, compliance positions, general counsel/assistant general counsel positions, intellectual property audit reviews/patent prosecution, M&A due diligence reviews, contract review, analysis and drafting, general corporate housekeeping – pretty much everything across the legal employment field. Membership grew beyond contract attorneys, paralegals, and litigation support personnel to include in-house counsel, law firm partners and staff attorneys, solo practitioners, e-discovery tech vendors and staffing agencies, legal media entities, law school recruitment offices and numerous legal support professionals. Jobs and information posts now go out to every region: U.S., Canada, South America, Europe, Middle East, Persian Gulf and Asia Pacific.

I then added a unit to handle special projects, legal surveys, and news analysis/metrics about the legal market which is provided to our legal vendor/staffing agency clients and our law firm/corporate clients. That work has only spiked.

The information technology/informatics/legal services/legal technology sector still comprises 82% of our job postings and 60% of our membership base.

NOTE:  The Posse List is a unit of my holding company The Project Counsel Group which hit a milestone this year: 120,000+ subscribers. That’s across all of our listservs world-wide which, outside of the information technology/informatics/legal services/legal technology industry sector, includes advertising, artificial intelligence, cyber security, journalism and TMT (telecommunications-media-technology)

I am no longer involved in day-to-day Posse List operations, but stay on as ex officio Chairman. I will put my hand on the tiller when required … such as now, when the “kids” need a bit of guidance in this Bizarro World. But because of my digital media work I leverage The Posse List network to continue to built news analysis/metrics about the legal market. We use such software and apps as DataDog, Factiva, GovLab, Intrinio, Slator RFP, etc. to track the legal industry. We then use a marvelous piece of artificial intelligence for text analysis, a technology that data mines a database and pulls snippets out of related documents. I’ve written about it before and I will discuss it at length later this week in a post that discusses what technology will actually stick after COVID-19 has forced us into this technological experimentation. All those legal tech software engineers in quarantine have had a lot of time to tinker.

Plus I access many of the 2,300 legal vendors, corporations, law firms, etc. posting jobs through our listservs, and the 100+ e-discovery staff attorneys and e-discovery in-house counsel my team chats with on a regular “no names” basis to see what the market is doing. But more important are the 75+ industry trade groups to which we belong and they have been buzzing with video chats on COVID-related legal issues affecting numerous industries. Add to that my personal 5,000 Linkedin connections.

Also in the mix: the myriad legal and legal tech webcasts over these last few weeks on what is going on during COVID and what might happen post-COVID.

So the following is a mash-up of phone chats, document analysis, and webcasts.

DANGER, WILL ROBINSON!! BANKRUPTCIES AHEAD!!!

Just as public health officials tried flattening the curve of Covid-19 to avoid straining U.S. hospitals, bankruptcy practitioners are thinking of ways to slow the spread of financial distress to ease the burden on the U.S. bankruptcy system.

Bankruptcy practitioners told me the U.S. bankruptcy system risks being overwhelmed by a wave of previously healthy companies hurt by the coronavirus seeking relief all at once in the months ahead. The bankruptcy process wasn’t designed for problems of this order of magnitude. If there are suddenly thousands of filings, it’s just going to flood the system. All of them say the bankruptcy system will need new tools to respond to today’s unique challenges, like standstill agreements for stressed businesses, and better lender incentives. Moreover, a huge increase in bankruptcy court staffing.

The conventional wisdom: the uptick in filings will start three months from now, small business likely to file first, followed by larger companies seeking reorganization under Chapter 11 which are more complicated affairs. Chapter 7 and Chapter 13 filings from consumers are likely to come much later, after stimulus checks run out and the bills really pile up.

The real driver behind bankruptcy? Breach of contract. Everybody is going to be in breach. Bankruptcy lawyers are already working with the American Bar Association to provide a model standstill/tolling agreement to present to the bankruptcy courts so that sole proprietors, landlords, business owners, and vendors could use it to hit “pause” until the virus emergency has passed.

And they are preparing for the flood.

Phones are ringing for bankruptcy lawyers across the country. Everybody’s fighting for the work. These cases bring whopping legal fees for law firms that win the representation of the bankrupt companies: pre-filing and all the work in bankruptcy courts. And the large cases involve a boatload of e-discovery work. So the restructuring world has gained big time status in hundreds of Am Law firms as scores of corporate lawyers are repurposed to assist debtor-side bankruptcy partners, and restructuring-type practices gain injections of new life.

We even see it at The Posse List:

– job posts have spiked for attorneys with bankruptcy practice and bankruptcy litigation experience. There is a price war going on for top talent, both full-time attorneys and part-time attorneys.

– staffing agencies and e-discovery vendors are assembling contract attorney teams with bankruptcy experience to be ready to bid on the work-to-come

– contract attorneys are using their downtime to learn bankruptcy (at least the basic concepts, structure and terminology) as they track down online bankruptcy tutorials offered by organisations like Khan Academy and Pacer.

And there is a fair amount of law firm politics, too. The Chapter 11 process often brings on management changes, meaning that law firm allegiances can become newly up for grabs. Law firms that guide those companies through the process may have a leg up to remain after the crisis. Said one:

If management teams change we want to be in front of them and say, ‘We did a great job in connection to the restructuring and got you where you are and we have a full interest in making sure that we continue to support this relationship’. There is the potential to add large streams of business.

 

The real big fights to come: “business interruption” claims. And maybe an opening for litigation finance?

 

Ah, the big print giveth, and the little print taketh away. Few ever read the volumes of small print in an insurance policy. But that is a major danger today, including most contracts into which people blindly enter. “Business interruption insurance” was always an easy one for insurance to underwrite. It fell into that “existential risk” bucket. Easy takings … well, until the “big hit” arrives. Get out the popcorn. This will be showing in your legal industry theatre for decades to come.

I sort of backed into this issue via the restaurant business. I own a taverna in Greece, and I have many extended family members in the U.S. who own restaurants. The National Restaurant Association (which represents more than 380,000 restaurant locations) as well as other similar trade associations have had “COVID legal news” events and the restaurants vs. the insurers battle is shaping up to be a big fight. Restaurants are lobbying the government to force insurance companies to pay “business interruption” claims, even on policies that excluded losses from pandemics.

While insurers do offer coverage, those policies are significantly more expensive than standard business-interruption policies, and according to several restaurant owners and I spoke with, plus some restaurant chain reps, few restaurants carry them. But restaurants and some U.S. lawmakers say the business-shutdown orders in states and cities should constitute business interruptions under their existing policies. And there is a full-court-press in Congress to make that happen.

Obviously insurers are pushing back hard with the help of some Republican senators and conservative groups, saying retroactive changes to coverage policies and threats of lawsuits from restaurants could undermine the nation’s insurance system. One insurance company attorney told me “look, we know exploiting this crisis with litigation profiteering is a given so we are starting to line-up our outside counsel for the coming onslaught”.

There is no question that the US begins to face the resolution of Covid-19 with an overwhelming share of the world’s insurance litigation resources. Part of that is the natural endowment of having 50 states and several territories with independent insurance regulators. Also, there is the widespread conviction that “justice” or “fairness” is best sorted out with aggressive courtroom contests over interpretations of civil law and contract language. “Thar’s gold in them thar hills!! “

But because of variance in contract wordings and uncertainty over the ultimate scale of losses, the potential insured business interruption losses for Covid-19 are hard to estimate. According to the American Property Casualty Insurance Association, a trade group which is providing a “COVID Brief” for in-house counsel at insurance companies, the prospective cost of paying business interruption coverage just for businesses with 100 or fewer employees would be in the range of $255bn to $431bn per month, or up to $5.2tn per year. Such payments would eliminate the entire capital position of the industry in short order. Capital and surplus for the US industry was about $860bn at the end of 2019.

Staff attorneys at several Am Law 100 firms told me the work is pouring in. The insurers must now start preparing a defence in depth. For instance, they are reviewing the updated contract language. In 2006 after the Sars epidemic, (most) insurance contracts added boilerplate contract additions called “new endorsements filed to address exclusion of loss due to virus or bacteria” intended to defend insurers from claims such as those for post-Covid-19 business interruption. Two law firms I know about have retained contract attorney teams to review 1000s of previous litigations plus hundreds of business-interruption policies for eventual review by the firm’s lawyers … using some of the contract analysis technology e-discovery vendors have been touting. These teams are also constructing spreadsheets showing premium volumes, and policy limits. All in preparation for e-discovery.

Early feedback? Two very interesting points:

1. Many contracts have incredibly clumsy wording so arguably COVID coverage is given.

2. As I noted above, the exclusion of coverage for pandemics was introduced after the SARS outbreak in 2006.  Many standard policies commonly sold to small businesses include (in capital letters) : “EXCLUSION OF LOSS DUE TO VIRUS OR BACTERIA.”

And no, the claimants and their lawyers are hardly deterred. One story we have all seen splashed across the press: The Business Interruption Group, composed mostly of celebrity chefs such as Daniel Boulud and Jean-Georges Vongerichten, had a conference two weeks ago with Trump to make their case. He took their side.

Why? Because almost every Trump property incorporate outside restaurants. As Trump said to the cameras: “When these businesses finally need it, the insurance company says, ‘We’re not going to give it.’ We just can’t let that happen. We need insurance companies to do the right thing and save millions of jobs”.

Oh, and on the other side, even more firepower. More than 20 conservative groups, including Americans for Prosperity founded by billionaire Charles Koch and his late brother David Koch, signed a letter sent to Congress last week, urging limits on lawsuits stemming from the pandemic. Congress must come in and “settle” these disputes:

“While the rest of America has come together to fight this pandemic, some trial lawyers have instead plotted to line their pockets. If trial lawyers’ predatory, self-serving agenda succeeds, it will hobble our nation’s insurance system and economic recovery”.

Some state lawmakers are even pressing for retroactive changes to existing policies to cover pandemics … which might be, uh, unconstitutional? Not that the U.S. Constitution matters much anymore. It’s pretty much in tatters. They want the federal government to reimburse insurance companies for claims they voluntarily cover, even if the business didn’t have pandemic coverage.

Oh, almost forgot. This week the media has been reporting on a big move to press Attorney General William Barr to issue an advisory opinion stating that the coronavirus created dangerous work conditions, automatically triggering claims.

PHEW! Lots of stuff for lawyers to litigate over. But reassuring that many lawyers will be prospering over the next year or two as the rest of the world goes to pieces.

My cynical solution? If lawyers would start their own insurance companies they could collect all those enormous premiums and then also sue themselves to make even more money.  Win-win, yes?

I’ll leave the last word on policies to one of my staffers, Glen Chaski:

Think of it this way. An insurance policy is a contract. And a contract is basically a container or “tube” that keeps something inside, but it also keeps other things outside. While the tubes themselves may be similar, what they contain can be radically different. I don’t know about you, but I look at each and every tube before I put it on my skin or in my mouth. The last thing I want to do is confuse what’s inside a toothpaste tube with a hemorrhoid cream tube. Individually they are good and useful, but you certainly don’t want to get them mixed up. The results could be startling at best, disastrous at worst.

My end point on this section? The knock-on effects. If insurance companies do not pay claims, an extraordinary amount of small businesses will go belly up which will in turn cripple cities for lack of sales tax, raise unemployment and forever change the business landscape. Insurance companies are going to need to pay these claims with possibly a backstop provided by the federal government.

Earl Nemser is an experienced litigator against insurance companies and now an independent adviser to the Dechert law firm. He has been quoted a lot. He says the current insurance industry defenders “miss the point. The virus didn’t cause the loss. The loss was caused by a government directive – not enforcement of a government order, which would be excluded. That will be the primary defense.”

It is why third-party litigation finance companies are cautious about financing the business interruption claimants. Says Jonathan Molot, chief investment officer of Burford Capital which is one such business:

Certainly we would finance a claim by a policyholder who has been unfairly denied payment on a claim clearly covered by its policy, but insurers typically can be expected to pay those claims without need for litigation. That’s how it works.  We would not fund a claim by a policyholder where there is unambiguous contract language that clearly excludes coverage, or where it is not clear what generated the loss. This is a very tricky area for us.

What REALLY interests the litigation finance people, apparently, is all the other litigation that will come out of the post-Covid-19 economic crisis (see section immediately below). Because this is an existential moment for business insurance. Insurers and policyholders will litigate to their death, or beyond. Which many lawyers hope for. But finance it? Nah.

 

The coronavirus COVID-19 has already directly or indirectly initiated significant litigation with defendants across multiple industries. Long-time mate Chris Spears, a legal industry analyst at McKinsey, said the major exposure breaks out into these categories:

– Potential product liability in industries with heavily impacted supply chains such as auto, semiconductors, and retail

– An increased frequency of financial events such as bankruptcies due to the business interruption impacts of coronavirus

– Systemic medical malpractice lawsuits due to lack of experience with coronavirus-specific safety protocols in hospitals

– Labor and employment

We are already starting to see consumer actions against airlines, cruise lines, delivery services, and retailers. Staff attorneys have confided about 6 such cases across D.C. and NYC.

But lawyers I spoke to said there is something quite different here, say when the financial crisis hit in late 2008/early 2009. Because the courts remained open and it was business as usual in the courthouses around the country. Now, pretty much everything is closed for anything (I am generalising) but a true emergency. So, in general, in the federal and state courts, you have dates, return dates, trials, court appearances, etc. put off into the future so we’re going to have some built in lag time. The litigation business is going to be adversely affected for some period of time. But then … maybe three months from now … a wave of litigation.

But many cases have started. Preliminary filings have been made. Litigators tell me it is pretty clear where the initial wave will come: major commercial disputes, people who couldn’t perform or claim they couldn’t perform because of the crisis; people who will be defaulting on loan and lease obligations, people who will just stop performing because, government order or otherwise, they can’t continue to perform. Said one:

You will see a flood of force majeure claims. We have scores of clients asking us to go through all their contracts and check out what that language is in there. And separate from force majeure will be defenses of impossibility or commercial impracticability. In addition to major commercial disputes, I think you’re going to see a lot of litigation on the insurance side. I think you’re going to see a lot of litigation potentially on the products liability side. I think you’re going to see a lot of litigation on the labor and employment side, a flood of litigation on the bankruptcy side. There will also be securities type cases, class actions and the like.

All of these are areas our clients are asking about now in anticipation of future litigation. We are at the starting gate. We already started suits asserting coverage for business interruption. And our firm is hardly alone.

I’ve addressed many of these issues above so I will not repeat them here. But two points I raised above were noted in an interview for this section. Said the law partner:

Lots of these claims will be tricky. They depend on the language in insurance contracts because insurance contracts tend to have very restrictive language. We are actually finding in many of these policies language that it is not “business interruption” because of a “government shutdown”. I was surprised. 

And, yes, unfortunately, it’s a financial crisis and there are going to be many, many bankruptcies. But bankruptcy always has the umbrella of both corporate work and litigation work. So at our firm, at least, all of our restructuring lawyers, corporate lawyers, and litigators will be more than fully employed.

And in answer to your question, yes. We have been contacting our regular e-discovery vendors to prepare because with the host of claims, of work, I fully expect we really need to be prepared on the discovery side.

Another area that will loom large: a host of employment claims or employment litigation. Many employers are left with no choice but to have layoffs and the like, so there will be contractual issues, collective bargaining issues, and whether the manner in which such layoffs or furloughs have occurred is consistent with other contractual obligations. Also, employee safety issues. These have begun, too. Employers will argue there was no way anyone could expect or prepare for such sweeping consequences. Many employment law attorneys think employers will be in a position to defend themselves from this unprecedented occurrence but still expect a lot of litigation that comes out of it.

One particular area ripe for litigation: OSHA violations, meaning the Federal Occupational Safety and Health Administration or the state agency responsible under section 18 of the OSHA Act. For example, there is a general duty clause which is a catchall safety provision to protect workers from “recognized hazards”. But a pandemic? Can it be a “recognized hazard” or at some point does it become that? Have there been epidemics before or even pandemics before? One law firm I spoke with says they have a team looking at this (on behalf of employers) and their position is going to be this is a “once in multi-generations” occurrence.

And as the media focuses on the location of these COVID deaths, the question will be can nursing homes or hospitals or other facilities be vulnerable to suits for negligence or wrongful death? It is a particular focus in New York City, because there’s the potential for litigation about efficacy and effectiveness. But again: given the incredible dedication of hospital and health care workers under extraordinary adverse circumstances, will there be litigation that comes out of those issues? Yes, said most attorneys I spoke with. Because America has “the most litigious society in the world”.

One type of case we’ll probably not see? securities litigations.

And those ambitious and novel class actions against China, “engaged in a campaign of misinformation and lies”? They make for a great PR strategy but not a great legal strategy. You’ve got a sovereign immunity bar that is going to likely be huge as a threshold matter in these cases, and then you have your variety of other problems with that theory. Since this involved government conduct in a foreign country, it probably wasn’t focused on what the ramifications would be in South Florida (which is where the first of these cases was brought). Issues of foreign relations and political questions are involved but, just as importantly, you have causation issues that could be a gating issue for these kinds of cases: duty of care issues and whether any duties were owed by a foreign government acting within its discretion towards individuals in the United States. Plus jurisdictional issues, standing issues. Lots of issues. Dead in the water.

Side note: I will address this in more detail later this week when I discuss my views on what technology will stick/will not stick after this period of forced technological experimentation. But several attorneys I interviewed said “remote” is the new “in person”. Remote depositions may be new to many attorneys but they have slowly developing over the last few years. Several very sophisticated vendors have been connecting parties to remote depositions for a decade and counting. Their expertise in mobile video conferencing means you can expect a more efficient and streamlined litigation process. More later this week.