Mr. McLaughlin is regarded as one of the nation's leading experts on in-house discovery management. He speaks regularly at corporate legal conferences and general counsel roundtables on the subject of in-house discovery policies, practices and compliance. Mr. McLaughlin previously served in-house as consulting counsel at Qwest Communications, where he was responsible for the company's discovery efforts in connection with a number of high-profile criminal prosecutions and bet-the-company civil suits. He also served as outside counsel for Qwest and several other large companies while in private practice at Sherman & Howard L.L.C. in Denver.
Editor: Please tell us about Falcon Discovery and your involvement.
McLaughlin: Falcon Discovery is a technology and legal services firm focused on in-house discovery and compliance. Falcon's InsideOut model delivers significant and sustainable cost savings through an end-to-end in-house discovery capability. InsideOut delivers a fully integrated, co-sourced solution for managing discovery in-house, from forensics and collections to dedicated in-house discovery attorneys and litigation support professionals. I founded Falcon in 2007 to address limitations in the traditional discovery process.
Editor: What are some of the limitations in the traditional discovery process?
McLaughlin: Traditionally the discovery process has been managed by a separate law firm for each matter, with each firm using its own process. Based on my in-house and law firm experience, this is inefficient, risky and expensive for companies routinely involved in litigation. The more efficient, less risky and less costly solution is to create an in-house discovery process that can be replicated across matters, and that uses enabling technologies and a dedicated team to manage the process and the technology. While many corporate legal departments now realize this, the problem for legal departments is (1) understanding how to create that process, (2) selecting and implementing the right technologies and (3) building a scalable team to manage the process and technology across matters. Falcon's InsideOut model delivers this very solution.
Another problem with the discovery process is that discovery costs often get out of control. Our dedicated co-sourced attorney teams are responsible for ensuring that the scope and costs of discovery are closely monitored and kept under control. What this means is that with InsideOut, the legal department has its own dedicated team to ensure compliance with the company's discovery process and a whistleblower to monitor expansive and perhaps unnecessary discovery.
Editor: In light of the headlines around discovery sanctions and spoliation, isn't it risky for companies to manage discovery in-house?
McLaughlin: No . Sanctions decisions over the past five years tend to demonstrate the exact opposite, showing that failure to proactively manage discovery creates the greatest risk of sanctions. In fact, Symantec just released its 2011 Information Retention and eDiscovery survey of 2,000 legal and IT professionals, which supports this view. In our experience, managing discovery in-house reduces risk of sanctions because (1) the company clearly understands where information is stored and how best to preserve it, (2) there is a turn-key process for collecting and culling discoverable information quickly and efficiently and (3) the process is managed consistently across matters.
Editor: What is co-sourcing and how does it relate to Falcon's model?
McLaughlin: Co-sourcing is the combining of services from within and outside of a company to achieve the same goal. Falcon's InsideOut model is our co-sourced solution whereby we work with our clients to develop and implement a tailored in-house discovery process in which Falcon's attorney and technology teams collaborate with the client to manage across matters. We work either on-site or off-site to perform custodian interviews, legal hold verification, collections, search and analysis, document review, production, deposition and trial preparation and database management. Importantly, our teams scale up and down to meet a client's fluctuating litigation demands. Scalability is a critical feature for companies with limited full-time litigation support staff, and our model solves this issue.
Editor: Who is on your staff and how is InsideOut priced?
McLaughlin: Ourmanagement staff consists of senior attorneys and technology specialists that have served in-house at Fortune 500 companies, top-tier law firms, software companies and consulting firms. Our dedicated client teams consist of senior litigation attorneys and certified technology specialists who, given their experience and training, hit the ground running when implementing InsideOut.
Our pricing includes hourly and hybrid fixed-fee options, depending on a client's preference and whether Falcon is managing the client's technology or providing the technology and infrastructure.
Editor: What sort of cost savings are realized with co-sourcing?
McLaughlin: Based on industry cost figures, our co-sourced InsideOut model delivers cost savings of 50 percent or more compared to outside counsel managing outsourced service providers. The blended hourly rate for Falcon's teams is typically one-third the hourly rates of outside counsel. Remarkably, in a case study where a company's legal department required outside counsel to use offshore attorneys to conduct document review, our model would have yielded over 50 percent cost savings. Based on this one case study, InsideOut would have saved over $1.4 million compared to using outsourced providers and sending the document review offshore.
Editor: How is Falcon's model different from a corporate legal department selecting preferred providers to perform outsourced services like document review and database hosting?
McLaughlin: InsideOut is different because we are using a repeatable process created with, and tailored for, each client according to the client's internal dynamics and infrastructure. As such, our model ensures consistency in the way the discovery process is managed across matters. With traditional outsourcing, each provider uses processes that are different from the company's processes, which creates inherent inefficiencies and risks of inconsistent handling of the company's information.
Additionally, Falcon most often integrates with and uses the company's technology and infrastructure, which ensures that the company's information is more secure and stays within the company's control. There is one team that is managing the company's information in an environment dedicated to the client.
Conversely, when a company selects separate providers for document review and database hosting, each of the providers stores the company's information on its own network, which is outside the company's control. This creates an inherent risk that the company's information will be distributed externally.
Finally, based on my in-house experience, there is generally a cost premium associated with using multiple providers. Because InsideOut is managed as a repeatable in-house business process, it is priced lower than traditional consulting or outsourcing services.
Editor: How should companies consider using technology to better manage discovery and investigations in-house?
McLaughlin: In-house technology is a critical part of managing eDiscovery and investigations, and serves an integrated function across matters. Companies should consider using technology to mitigate areas of particular risk, such as the enforcement of legal holds and preservation obligations in general. For any company routinely involved in litigation, in-house collection and searching technology eliminates the cost, inefficiencies and security and operational risks of sending corporate data to third parties.
Technology can also be used to search and analyze data, facilitating in-house review to support both internal investigations and initial stages of discovery review. This is critically important because of the expanding volume of information generally and increased demand for electronically stored information during litigation and investigations. Outsourcing these functions compromises the company's ability to access and evaluate information quickly, understand risks and make strategic decisions early in a matter.
Bringing technology in-house also eliminates redundancy and minimizes the cost premium associated with using different technology solutions across cases. Each solution carries its own cost and profit margin, and fixed costs can be leveraged more efficiently when a company licenses technology once and then uses it repeatedly across matters. I realized this while in-house at Qwest, and, since founding Falcon in early 2007, we were one of the first firms to successfully implement and manage solutions like Clearwell and Relativity in-house for Fortune 500 companies. In 2011, we completed a four-year analysis of the return on an investment in Clearwell for one of our clients, and the return was over 400 percent.
Editor: What are some of the challenges companies face in implementing discovery technologies?
McLaughlin: A key challenge is selecting the right tool that will satisfy legal department needs - independent from the needs of other departments, such as IT or records management. Legal should identify its specific needs around investigations and discovery, and these criteria must figure into the technology selection process. The legal team should test prospective solutions before the company makes a long-term technology investment, both for obvious practical reasons and also to increase the likelihood of a positive return on the company's investment.
Additionally, we often see companies license in-house technology but then struggle with managing the technology across matters and integrating it with outside counsel. This can be overcome by identifying a senior champion within the legal department who supports the use of the technology. It is also critical to select the right management team, which we believe must include senior discovery attorneys, and clearly delineate responsibilities among in-house departments - legal, IT and records management - and outside counsel, as appropriate.
Editor: It sounds like this process is an opportunity for various corporate departments to collaborate.
McLaughlin: Most definitely. Collaboration is the key to ensuring that operational and legal needs are understood, that critical security issues are addressed and that the technology meets global corporate requirements. Specifically, when legal departments have the opportunity to explain the problems and risks they face, this information adds a perspective that, in our experience, wouldn't naturally occur to technical departments.
Editor: What are the respective roles between outside counsel and Falcon's dedicated discovery teams?
McLaughlin: Outside counsel continues in the role of representing the company and providing strategy for the company's in-house team in handling the substance of any case. Falcon's teams are tasked with handling the nuts and bolts of discovery using the company's discovery process, including overall project management, custodian interviews, collections, tracking, search and analysis, document review, production and database management. In addition, Falcon's senior discovery attorneys are responsible for ensuring that the scope and costs of discovery are closely monitored.
Editor: Please discuss corporate concern over spoliation and the resulting complexity of determining preservation policies.
McLaughlin: Concern over spoliation is a primary reason that companies increasingly opt to internalize certain discovery functions. The volume of stored information makes it impractical for a company to turn over the discovery responsibility, on a per-case basis, to outside law firms. Bringing these functions in-house fosters consistency with the corporate records retention policy, facilitates the application of expiration schedules and enables quick response to investigations and discovery requests. Quick response allows companies to suspend any document purge practices as soon as matters arise, thereby minimizing the risk of spoliation.
Editor: Is there also a compliance aspect?
McLaughlin: Compliance is an area of particular risk that will accelerate under the Dodd-Frank Act and its associated regulations. As a result of the Act, it will be critical for many companies to bolster internal reporting, compliance and investigative capabilities, which will allow companies to understand risk issues early and demonstrate compliance with the requirements of the Act.
Editor: Please summarize the three key takeaways companies should consider when bringing discovery functions in-house?
McLaughlin: First, it is critical to identify a senior champion who understands and supports the initiative to gain better control of corporate information, risk and legal costs. Second, the company should both work toward creating a process that complements the internal dynamics within the company and designate a dedicated in-house and co-sourced team that closely manages that process. Third, a company should select and optimize the use of technologies that facilitate rapid discovery and investigations across matters.