Tulsa firm foresees growth meeting demands: New civil rule changes escalate lawyer, company risks.
12-21-2006, The Journal Record - Kirby Lee Davis
TULSA – The issue places such need and risk on law firms that Gavin W. Manes expects meeting the demand will quadruple revenue at his Tulsa firm in one quarter.

In preparation for potential civil lawsuits, new federal e-discovery rules that took effect Dec. 7 require companies to keep better track of employee communications – whether it involves e-mail, instant messages, spreadsheets, faxes or any other such documents. The Supreme Court’s administrative arm approved these rules in April following a five-year review.

Attorneys representing clients who fail to preserve such evidence at its earliest stage – which Manes admits remains a wide gray area – would share in whatever judgment the client receives. According to a survey by LexisNexis Applied Discovery, many in-house lawyers remained unprepared for this as late as October.

When Manes heard about the rule changes, the University of Tulsa professor knew his firm Oklahoma Digital Forensics Professionals Inc. stood in the right place at the right time. Since launching in 2003 while Manes was still working on his doctorate at TU, Oklahoma DFP has broken ground in the Oklahoma sector by providing digital forensics services to the business and legal communities, investigating and retrieving information from hard drives and other digital devices.

“For three years we’ve been struggling to get into law firms,” he said, “and now, in the last two months, they’re flocking to us.”

With 60 customers across five states, most of them law firms, Manes said his company should end 2006 with $120,000 in revenue. He expects four times that in the first quarter of 2007 even as he works to double his customer base, building toward projected annual revenue of $2.2 million.

“And we bring it all back to Tulsa,” he said. “I find it’s cheaper to work here.”

Meeting that demand should also double the size of his Mid-Continent Tower company to 10 employees.

Such growth would mirror national expectations. Halliburton has estimated the nation’s “e-discovery vendors” already number in the hundreds, with 2006 revenue of about $1.6 billion. James Wright, the firm’s director of electronic discovery, estimates that could double next year.

This projected growth reflects more than attorneys or companies seeking to cover their backs. Manes noted the Oklahoma Bar Association’s “The Digital Evidence Project” found electronic media compose more than 90 percent of documents and communications in today’s business world – and seven out of 10 never appear on paper.

The sheer magnitude of managing such information not only increases the difficulty and expense of preserving the data, but also the effort to produce it in court in a timely manner.

“These changes bring the use of electronic evidence to the forefront for every legal professional across the nation,” said Manes, who not only wears the president’s hat but also that of director of research. “Not only is it beneficial to their cases, but it helps the electronic discovery and forensics industries assist at the beginning of the process, rather than a last resort.”

Recognizing the difficulty in deciding just what to keep and what to toss, Oklahoma DFP helps companies set communication and equipment usage policies. This includes not just company-owned hardware and storage procedures but also rules concerning use of employee devices on the job, such as personal cell phones, digital cameras, memory cards or MP3 players. It also advises firms on when such rules may go too far and infringe on privacy rights or employee efficiency.

Customers may hire Oklahoma DFP to retrieve or copy data from any computerized device, with a turnaround time of two days or less. Fees may range from $500 to $750 per laptop, or $250 to $500 per phone. Such costs escalate dramatically if someone tried to erase or destroy the data.

“You can’t destroy digital information,” said Manes, noting his firm has withdrawn files from broken, burned or buckshot-riddled hard drives. “Most people don’t know how to delete things to where we can’t recover them.”

In past times, Manes said companies have often sought to destroy incriminating evidence rather than see it used against them in court. They also recognized that retaining extensive records also could invite lawsuits and costly discovery.

But with these new rules, as illustrated by recent cases involving UBS Warburg or Morgan Stanley, Manes said the judges saw not presenting extensive documentation as signs of guilt.

“You must now prove your innocence,” said Manes. That may create another revenue stream for his company, evaluating a potential client’s systems before a lawyer accepts a case.

Manes understands that many firms may balk at his firm’s fees – until they realize how vulnerable they could be, standing before a judge with no precautions taken. He expects many large firms remain in a self-examination mode, trying to determine their risk. Others may not yet understand their danger.

With workplace cases, for example, Manes said two-thirds of lawsuits that go to trial are lost by the employer, at an average cost of $600,000.

“Cost is a burden that the defendant can look at,” he said, “but they must also look at what their exposure could be.”