Every year, millions of people who can’t afford a lawyer find themselves in court, facing the potential loss of property, money, or even their children. LawHelp Interactive is a web-based document assembly program that helps pro se litigants — or volunteer attorneys — prepare needed legal documents.

Managed by New York-based Pro Bono Net, the software helps litigants, — as well as pro bono and legal aid attorneys seeking to help more people in less time — create complete, properly formatted legal documents.

Users start by completing an interactive, online questionnaire. The system then analyzes the responses and generates the documents. (Think TurboTax for legal documents.)

For the full story from Law Techology News click here.

Friday saw the release of the 2,200-page report by Anton Valukas on the Lehman Brothers collapse.  Valukas was appointed examiner by the U.S. Bankruptcy Trustee probing the reasons for Lehman’s failure in September 2008.

Note: Examiners in bankruptcy cases are appointed to investigate accusations of wrongdoing or misconduct. Their job is to determine whether creditors can recover more money in these cases, and their findings often serve as guides for more lawsuits and even regulatory action.  Mr Valukas is a Jenner and Block lawyer who specializes in criminal law and business litigation.

The report took one year and cost $38 million and it paints a damning portrait of the role of Wall Street and London’s financial center and the off balance-sheet trades used to mask Lehman’s true financial condition.

The report is nine volumes and 2,200 pages but downloaded quite quickly to our iPad.  We are spending most of weekend reading it.

Repo 105

There is extensive media coverage of the report so we won’t labor through all the details, and as we have previously reported there are a large number of civil lawsuits and government investigations underway, all  employing a boatload of contract attorneys, accountants and forensics specialists.  Preparation of the report required 70+ contract attorneys.

But in summary, the big item is the revelation of a particularly aggressive accounting practice, known internally as “Repo 105” that Valukas said helped the investment bank mask the true depths of its financial woes.   Over hundreds of pages (all in Volume 3 by the way),  Valukas details the genesis of and the process behind Repo 105.  

Based on standard repurchase agreements (repo) — short-term loans commonly used by many firms for daily financing needs, in which borrowers temporarily exchange assets in return for cash up front — Lehman took a particularly aggressive accounting approach to these transactions.    The controversy stems from whether the agreements can be booked as a sale, or whether they should be treated as asset financings.  Lehman used repos to temporarily park assets off its books to make its end-of-quarter debt levels look better than they did — while calling them sales instead of loans.   So they temporarily removed securities inventory from the balance sheet, usually for a period of seven to ten days, and to create a materially misleading picture of the firm’s financial condition in late 2007 and 2008.

Repo transactions that Lehman (and other investment banks) use are normal to secure short‐term financing.  But with a critical difference: Lehman accounted for Repo 105 transactions as “sales” as opposed to financing transactions based upon the overcollateralization or higher than normal haircut in a Repo 105 transaction. By recharacterizing the Repo 105 transaction as a “sale,” Lehman removed the inventory from its balance sheet.  So they reduced its publicly reported net leverage and balance sheet.  Lehman’s periodic reports did not disclose the cash borrowing from the Repo 105 transaction – i.e., although Lehman had in effect borrowed tens of billions of dollars in these transactions, Lehman did not disclose the known obligation to repay the debt.   Lehman used the cash from the Repo 105 transaction to pay down other liabilities, thereby reducing both the total liabilities and the total assets reported on its balance sheet and lowering its leverage ratios.   Lehman never publicly disclosed its use of Repo 105 transactions, or its accounting treatment for these transactions. 

You can see why Repo 105 would be a tempting thing in the midst of a brewing financial crisis.  Leverage had become a focus of the ratings agencies and was widely thought to be an indicator of bank risk, which meant Lehman would have been hell-bent on reducing its leverage — at least publicly.  At the same time prices for things like CMBS and subprime loans were falling and/or illiquid – Lehman could not have reduced its balance sheet simply by selling things off without incurring large losses.  Hence the repo, which the bank increasingly used between 2007 and 2008 — even breaching its own internal cap on the repo’s use (about $22bn as of summer 2006). 

But there was a catch …

One catch.  According to Valukas, no American law firm would sign off on its use.  Enter Linklaters (a highly respected British law firm) who gives Lehman the answer it wanted: so long as the repos were conducted in London through the bank’s European arm, and so long as the company took other cosmetic steps to make these transactions appear to be sales instead of financings, Linklaters determined that they would pass regulatory muster.

Linklaters reply to the report findings:  the firm was not contacted by Valukas and its legal opinions were not criticized in the examiner’s report as wrong or improper.

Valukas deems Richard Fuld (Lehman chairman and chief executive officer) “at least grossly negligent” in his role overseeing Lehman.  Fuld’s lawyer said my client “did not know what those transactions were — he didn’t structure or negotiate them, nor was he aware of their accounting treatment.”   Although elsewhere in the report there is discussion of  emails Fuld received with documents concerning the transactions,  Fuld’s attorney came up with what will be the #1 excuse for all CEOs going forward:  Fuld “did not use a computer” and “he cannot open attachments on his BlackBerry”. 

The e-discovery elements

But the most intriguing part of the report we have read concerns the sheer size of the data  and the search methodology/software  used in examining the documents.  Valukus’s report was a mammoth task involving e-mails, reports, data sets and interviews.  Answering the questions required an extensive investigation and review of Lehman’s operating, trading, valuation, financial, accounting and other data systems.  Interrogating those systems proved particularly challenging, first because the vast majority of the systems had been transferred and were under the control of Barclays (who took over a large part of Lehman operating units);  by the time of the Valukas’ appointment, Barclays had integrated its own proprietary and confidential data into some of the systems, so Barclays had legitimate concerns about granting access to those systems.

The second challenge was more daunting. At the time of its bankruptcy filing, Lehman maintained a patchwork of over 2,600 software systems and applications.  It was decided early on that it would not be cost effective to undertake the enormous effort and expense that would be required to learn and access each of these 2,600 systems. Rather, Valukas directed his financial advisors to identify and acquire an in‐depth understanding of the most promising of the systems.

How the review was conducted:

1. The available universe of Lehman e‐mail and other electronically stored documents is estimated at three petabytes of data — roughly the equivalent of 350 billion pages.
2. Valukus carefully selected a group of document custodians and search terms designed to cull out the most promising subset of Lehman electronic materials for review. In addition, Valukus requested and received hard copy documents from Lehman and both electronic and hard copy documents from numerous third parties and government agencies.
3. In total, the Examiner collected in excess of five million documents, estimated to comprise more than 40,000,000 pages. All of these documents have been converted to electronic form and are maintained on two computerized databases, Stratify and CaseLogistix.
4. Documents were reviewed on at least two levels. First level review was conducted by lawyers trained to identify documents of possible interest and to code the substantive areas to which the documents pertained; those so identified were subjected to further and more careful review by lawyers or financial advisors especially immersed in the earmarked subjects. In order to reduce the cost of review, the Valukus sought and obtained the court’s approval to retain contract attorneys.  A group of more than 70 contract attorneys, supplemented by Jenner & Block attorneys, conducted first level reviews.
5. All second level (and beyond) reviews were performed by Jenner & Block attorneys or Duff & Phelps professionals.  Valukus estimates that he has reviewed approximately 34,000,000 pages of documents in the course of his investigation.
6. The entire body of e-mail in the Stratify database —  4,439,924 documents, approximately 26 million pages— has been reviewed.   Approximately 340,000 of the CaseLogistix documents — roughly eight million pages — have been reviewed.
7. Although a large number of the CaseLogistix documents were not reviewed, that database is fully searchable, and Valukus is reasonably confident that the repeated and focused searches applied against that database have discovered most if not all of the most relevant documents.
8. In most cases, documents were produced to Valukus under stipulated protective orders, which are described in Appendix 5 of the report. Subject to those orders, the document databases created remain a resource for the bankruptcy estate and the parties. The database includes computerized tagging which will allow persons interested in making their own searches to narrow and focus search requests.

Note:  details of the expenses including the cost of contract attorneys and search costs are detailed in the bankruptcy fee filings which will we include in further updates to this post.  It will interesting to analyze what cost savings might have been possible had Valukas used such methodologies as Recommind’s predictive coding (click here and click here), or perhaps used Index Engines full content/metadata indexing platforms (click here and click here) to access each of Lehman’s 2,600 software systems. 

Valukas smoothes way to legal action

The Valukas report has armed the regulators and the plaintiff bar with vital information.  And we still haven’t seen the separate SEC report due out shortly.   But there is little doubt his report will make it easier and cheaper for others to build their cases.  The SEC  and DOJ investigators have already indicated the Valukas’ work will speed up the completion of their own report.    They can analyse what the evidence shows or proves rather than cope with the burden of simply collecting the evidence — often the hardest task in a case of this size.   This will help them to make a concrete determination whether there were false and misleading statements about Lehman’s financial condition and whether or who they should charge, either on a civil or criminal basis.

The report may also help determine whether the Lehman bankruptcy estate can sue individuals to recover some of the firm’s losses on behalf of its creditors. Litigation specialists suggested that the report might embolden the trustee for Lehman’s estate to sue professional firms in an attempt to recoup losses suffered by creditors.  Posse List members will recall that after the 2005 collapse of Refco, an examiner’s report helped prompt lawsuits against a number of the defunct commodities broker’s legal and accounting advisers, as well as against individuals in the company.

One interesting note:  Valukas met the SEC and the two US attorney offices (New York and New Jersey) investigating the case to establish protocols for clearing proposed interviews so as not to interfere with any ongoing investigations.   

Still to come …

The report makes fascinating reading on many levels.   We are continuing our read.  We will amend this post as more information is obtained especially anything we find regarding the e-discovery aspects.

Reported by:  Gregory P. Bufithis   Founder/Chairman  The Posse List

On the regulatory front, several new federal privacy rules go into effect this year. By June 1, 2010, many financial institutions and creditors will need to adopt written programs, pursuant to the Federal Trade Commission’s Red Flags rule, that are designed to identify, detect, and respond to red flags of identity theft. By that same date, securities broker-dealers, investment advisers, and other entities registered with the Securities and Exchange Commission will need to develop compliance approaches under Regulation S-AM, which limits the ability of SEC-registered firms to market customers based on data obtained from their affiliates absent a notice and opportunity for customers to “opt-out.” In addition, banks and other financial institutions now have the option of using a new model privacy notice to inform customers about their privacy practices. Firms electing to use the new form notice, which was adopted in December by the FTC, SEC, and federal bank regulators, obtain the benefit of a regulatory safe harbor.

For a very complete analysis from Corporate Counsel click here.

There is a good article in today’s National Law Journal about the positioning going on by plaintiffs lawyers in the mounting litigation arising from the “sudden unintended acceleration”  problems in vehicles manufactured by Toyota.  For the full article click here.   As we have reported, Toyota has since announced a plan to fix the problems. In the meantime, Congress has been holding hearings into whether Toyota knew about the problems earlier and whether the recalls are solving the problem (see our previous post by clicking here). 

Here is a summary of the article which includes some info from our other sources: 

1. The U.S. Judicial Panel on Multidistrict Litigation (MDL) has scheduled a hearing in the Toyota litigation on March 25 in San Diego.
2. Some 100+ lawyers are expected to converge for the MDL hearing. The lawyers had until this past Monday (March 8^th) to ask the MDL panel for permission to speak during the hearing.
3. The purpose of the MDL hearing is to centralize all the litigation into one district for discovery, motions, depositions and so forth. 
4. One of the most popular districts under consideration is the Central District of California in Los Angeles, near the headquarters of Toyota Motor Sales USA Inc.   A number of products liability attorneys favor this location as well as Toyota’s lawyers, Alston & Bird.  
5. Besides its proximity to Toyota headquarters, the reason Toyota’s lawyers want all the cases transferred to the Central District of California is because that court is presiding over about a dozen cases against Toyota.  And the judge (Howard Matz) has experience handling MDL proceedings.
6. Another group is advocating for Kentucky, where Toyota operates its largest manufacturing plant outside Japan.
7. A third group is pushing for the Eastern District of Louisiana in New Orleans, which recently heard MDL proceedings involving Merck & Co. Inc.’s painkiller drug Vioxx.
8. Last Friday approximately 150 lawyers assembled at the InterContinental Chicago hotel to discuss sharing experts and legal strategies in the Toyota litigation, which now exceeds 80 lawsuits. Many of the lawyers have broken into camps based on which jurisdiction they believe should hear the multidistrict litigation against Toyota — and, perhaps more importantly, which judge should decide the cases.

Other points: 

-         Most of the suits assert fraud claims against Toyota on behalf of consumers seeking compensation for the loss in value of their vehicles. A smaller number of cases involve physical injury or death, although plaintiffs lawyers said that many more are in the pipeline.

-         The panel could decline to consolidate the cases or split the personal injury and wrongful death suits from the economic class actions.

As far as work for e-discovery vendors, staffing agencies and contractor attorneys — the work has begun.   There is a small contingent of contract attorneys working on various parts of the case in LA,  plus a contigent now in Japan.  As we indicated in previous posts, the Toyota litigation will follow the pattern of previous MDL cases that employed legions of contract attorneys on both the plaintiff and defendant sides such as the Bridgestone/Firestone tire case, the Vioxx cases, the asbestos cases, the bankruptcy cases, etc.

The article cited above lists a number of law firms involved.  We have been collecting the names of firms and we are also attending the MDL hearing on March 25th.   We shall publish a roster of firms involved in the case as soon as possible.  

Note:  there will be a large demand for Japanese fluent attorneys.   Any Toyota litigation project work we hear about will be posted to both the master foreign language list (to subscribe click here) as well as the Japanese language list (to subscribe click here). 

    Sound project management is vital to any eDiscovery matter.  Without it, data can be overlooked, budgets overrun, deadlines missed, and defensibility compromised.   To ensure that your eDiscovery matter is managed properly, you need more than just a good project manager; you need a well thought-out process that incorporates quality assessment and control.

To find out how ways you can streamline the eDiscovery process, avoid missed deadlines,  and minimize the potential for costly errors and challenges by opposing counsel, please join LDMglobal for a webinar on “The Keys to eDiscovery Project Management”.

The webinar will be held Thursday March 11th at 11:00 AM EST, 4:00 PM GMT, and will feature Maura R. Grossman, Counsel at Wachtell, Lipton, Rosen & Katz. 

LDM Global is a company we know well.  It provides services to some of the world’s largest companies.   They have an enormous footprint in the pharmaceutical industry vis-a-vis e-discovery work.   We have been working with them in both the U.S. and in Europe in their search for project managers.   They “get it” as far as the fact that different countries and courts require different formats and strategies for crafting responses.   We met their team at LegalTech New York this year, and we are meeting them again in a few weeks in London.   They have great resources in all aspects of discovery, from regulatory compliance to complex litigation support.

Maura Grossman is a member of The Sedona Conference® Working Groups on Best Practices for Electronic Document Retention and Production, and on International Electronic Information Management, Discovery, and Disclosure.  She assisted in drafting and editing The Sedona Conference® Commentary on Achieving Quality in the E-Discovery Process (May 2009).

This past fall The Posse List saw Maura give a brilliant presentation on the challenges of search at the Georgetown Law Advanced E-Discovery Institute (click here).  She is on the faculty of the Georgetown Law E-Discovery Training Academy where this year she gave a presentation on the mapping of the steps of the e-discovery process, an exploration of the full spectrum of procedures and strategies that might occur during the e-discovery process.

Maura is a powerhouse in the e-discovery world and this event will be well-worth attending..

You can register for this webinar by clicking here.   If you require any further details about this webinar, please contact Rebecca Dealtry, on rdealtry@ldmglobal.com  or +44 (0)20 7613 1160.   

On Thursday, March 11th, at 1:00pm Catalyst is sponsoring a webinar discussion exploring recent e-discovery trends regarding privileged documents, including the Facciola-Redgrave protocol for privilege analysis and best practices for creating privilege logs.

This presentation will include:

* Analysis of key aspects of the Facciola-Redgrave Framework for avoiding a document-by-document privilege review. 

* Assessment of ways to integrate enhanced privilege search and culling into your e-discovery strategy;

*  Review of key elements of privilege reporting and practices to document effectively.

To register for the program  click here.

There has been much discussion about privilege, how the volume of information produced by electronic discovery has made the process of reviewing that information, to ascertain whether any of it is privileged from disclosure, so expensive that the result of the lawsuit may be a function of who can afford it.    Judge Facciola and  Jonathan Redgrave  (cochair of the Georgetown Law Advanced E-Discovery Institute and a partner with Nixon Peabody) published an article in the Federal Court Law Review which presents “The Facciola-Redgrave Framework”.   

They submit that the majority of cases should reject the traditional document-by-document privilege log in favor of a new approach that is premised on counsel’s cooperation supervised by early, careful, and rigorous judicial involvement.  That cooperation, having first led to an agreement as to what categories of information will be eliminated from any privilege review because the information is so clearly not privileged or so clearly privileged, will then focus on categorization of the information that must be reviewed.

The article in the Federal Court Law Review can be accessed here.

The Morgan Lewis eData team and Recommind are sponsoring what looks to be a very informative live seminar on March 18th (next Thursday) at 4:00pm in the New York offices of Morgan Lewis.   The seminar will focus on successfully leveraging technology to improve early case assessment (ECA), preservation, collection, and document review.

For the Morgan Lewis team:  Stephanie “Tess” Blair and Denise Backhouse

For Recommind:  Craig Carpenter

Both Morgan Lewis and Recommind are powerhouses in the e-discovery area.   Morgan Lewis and Tess Blair (a partner in Morgan Lewis’s Litigation Practice and leader of the firm’s eData Practice) were doing e-discovery before it had a name.   And Recommind and Craig Carpenter (Vice President of Marketing for Recommind who oversees all aspects of marketing at Recommind) have become the leaders in search-powered information risk management (IRM).

We profiled Tess, Denise and Morgan Lewis in an extensive interview (click here for the full interview), as well as Craig Carpenter and Recommind (click here for the full interview).

Seats for the seminar are limited so reserve as soon as possible.  To register click here.

This seminar will provide best practices and guidance for complex litigation and regulatory investigation responses. Get a firsthand look at customer case studies that demonstrate the power of sophisticated techniques such as concept grouping, advanced analytics, pre-collection ECA, and computer-generated review (i.e., Predictive Coding™).

We all know about the paradigm shift in the legal industry.  It has been well chronicled by Richard Susskind,  Jordon Furlong, Ron Friedmann and many others.  The legal industry melt down, the deep and rapid technological advances (of the disruptive kind), our relentless connectivity and burgeoning electronic legal marketplace — all have led to major threats to various aspects of the traditional law firm business model. 

But Susskind’s “decomposition of legal tasks” into component parts that can be delegated to various sources — in-sourcing, relocating, offshoring, outsourcing, subcontracting — has had its biggest effect on contract attorneys who are a large part of our membership base.  And the problem is that for the majority of contract attorneys the bulk of their work is not substantive legal advice but highly structured/repetitive functions such as document review, research tasks and processing.   And while they benefit from outsourcing/subcontracting they also can suffer from it.   When firms find themselves in a financial pinch they slash those that they consider most dispensable: the contract lawyers, part-time lawyers, and support staff. 

Note:  as we have noted, most contract attorneys face two horrendous problems — the enormous debt incurred in attending law school, and the lack of opportunity.  People are racking up an average $92,000 in debt because of the implied promise of a high-paying job at the end, and industry predications indicate that there are likely to be less than 30,000 legal jobs available per year — with some 45,000 people graduating from law school every year.  Many blogs focus on the massive portion of law school applicants who are extremely ill-informed about the career prospects resulting from a law degree and nobody has covered these issues better than the Tom the Temp blog (click here) and the Third Tier Reality blog (click here) where both blogs provide statistics and links.  

But there is another side to all of this and that was recently observed by our industry colleague Gabe Acevedo, founder of Gabe’s Guide (click here).  In addition to blogging on his site, Gabe is also legal technology contributor to Above the Law, the doyenne of online legal tabloids.  Gabe has a knack for picking up on stories you’d probably miss on other sites, offers good comment, and has a large following … which is probably why ATL hired him. 

In his recent post for ATL entitled “BigLaw’s Status Issue” (click here) Gabe uses a post by Orrick partner Patricia Gillette as a jump to make the following points: 

1.   The wholesale termination of attorneys, based solely on their status, ignores the paradigm shift in the legal industry.   

2.  The rising, new demographics of the contract attorney market:  ex-BigLaw associates, former trial lawyers and government lawyers, retired law professors, and even some former partners. 

3.   Part-time lawyers, contract lawyers, and lawyers who don’t want to be partners but have a wealth of experience can provide an alternative, cost-effective way of accomplishing a lot of traditional legal work, echoing the thoughts of Richard Susskind and the other members of the “paradigm shift” mob. 

4.   The growing power of litigation support managers, many of whom are attorneys and — in fact — former contract attorneys. 

As Ron Friedmann has noted, one of consequences of the paradigm shift in the legal industry is that “what is bad news for law firms could be good news for legal technology managers and legal technology professionals.”    Law departments must act to reduce legal spend.  If GCs don’t, CFOs and CEOs will step in.   Law firm partners like Patricia Gillette “get it”:  firms have lost pricing power and face a battle for market share.  Winning that battle will require that firms offer clients more value.  To do so, firms will get serious about process improvement, project management, outsourcing, and alternative fees.  

As Gabe mentions in his post and as he has noted several times on his blog, law firms must deploy new technology and new expertise but also use old technology more effectively.   This will require more business and technology professionals, in temporary/contract capacities.  And the existing contract attorney base — and its newest members — provide that. 

We can support Gabe’s observations.  In the last year we have seen a spike in our membership coming from ex-BigLaw associates, former trial lawyers, government lawyers, forensics consultants, and others.   And more contract attorneys moved into project management roles. 

And it is the reason that our job posts for substantive temporary legal work has increased dramatically.  For those on our job lists, you know that the legal recruitment industry is characterized by an enormous surge in demand for temporary legal professionals.  This was recently highlighted by Adecco (click here).  Some of the most sought after temporary legal positions require candidates to have the experience of having worked in a corporate legal division or law firm.  We have also seen it in straight document review projects where law firms and corporations have asked for the requisite substantive experience to work on a project.  Our job lists have greatly expanded in both geographic range and subject areas (for our job lists click here). 

And one thing Gabe and I agree on:  in spite of all the challenges we face we are working in a part of the legal industry that is unusual because it is open to sharing and collaboration, through publications, quality conferences, and trade shows, and peer networking organizations.  Use these resources.   We profile them constantly on our various pages.

Gregory Bufithis, Esq.   Founder/Chairman  The Posse List

The prospects for an accelerating global economic recovery were supported on Wednesday as Adecco, Swiss-based and the world’s largest temporary staffing group, said employment trends had been improving in recent weeks.  Adecco’s legal division includes contract attorney staffing agencies Ajilon Legal and Special Counsel, the latter of which it acquired through its acquisition of the MPS Group last year.

The group’s comments followed upbeat sentiment from Manpower (U.S.-based) and Randstad (Netherlands-based), the world’s other two dominant “temping” groups.  The three companies are seen as economic bellwethers,  their fortunes reflecting demand from big industrial and service sector clients around the world.   As a spokesman for Adecco said “in downturns, such customers first reduce contract labor, before cutting full-time workforces. Similarly, when demand rises, they take on temporary staff before starting to rehire permanent labor”.   Now that most countries have emerged from recession, employment, which lags a recovery, should follow – first with temporary placements and then with permanent hires.    Adecco suggests this process has begun in the legal markets.

But this uptick in contract attorney work is also due to the paradigm shift in the legal industry which we and other sites have well chronicled which includes a movement toward the use of temporary/project attorneys for substantive work at both law firms and corporations.   It is the reason that our job posts for substantive temporary legal work has increased dramatically.    Last month, Manpower reported improving trends in all temporary worker markets, including legal.  

But Adecco’s fate is increasingly intertwined with that of  North America, especially the U.S.   Last year the continent contributed 15 per cent of the company’s revenue and the acquisition of MPS is expected to increase that amount to almost 20 per cent.