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Court Slashes Vendor Bill Filled with Double Billing and Data Recovery Charges – eDiscovery Case Law

As reported by ACEDS (Vendor’s massive bill triggers suit with client, then wrath of judge: subscription required), in Lanterman and Computer Forensic Services v. Afremov, 27-CV-12-22089 (D. Minn. July 17, 2014), Minnesota District Judge Philip D. Bush slashed over $700,000 from the plaintiff’s disputed invoices for eDiscovery work performed on behalf of the defendant, leaving an award of just over $103,000 for services rendered.

Case Background

Computer Forensic Services (CFS) had provided previous eDiscovery services in a case where the defendant, Michael Afremov, was a party.  The Receiver assigned to the case directed CFS to acquire e-mail servers and other computers, perform diagnostic tests, produce documents requested by parties to the lawsuit, and retain custody of data related to the case.  CFS billed and was paid about $1 million dollars for its work over a few years.  After the case settled, the defendant was indicted on federal criminal charges and his criminal defense counsel called Mark Lanterman (CEO of CFS) to inquire about obtaining documents related to the case, stating in a letter that the defendant “will pay any costs, including reasonable attorney’s fees, that you incur in connection with responding to this request and the forthcoming subpoenas.”

Work Performed and Billed by CFS and Billing Dispute

At the initial meeting, Lanterman and Afremov’s counsel all believed the data was stored on CFS’s server in ready to access format (at that time, CFS was charging $7,400 per month for allegedly storing the data on its secure server).  As noted in the judge’s order, “[e]ven though it would massively increase the cost the project (by over a half million dollars), Lanterman and CFS never advised Afremov’s counsel that the AGA data had allegedly been removed from CFS’s server and would have to be reloaded.”

On June 15, 2007, CFS issued an invoice in the amount of $674,861.08, which included $628,737.33 for CFS’s services and $46,123.75 in attorney fees for privilege review by an outside counsel firm.  Shortly after the invoice was issued, Lanterman and CFS were told to stop working on the project by Afremov’s counsel. CFS stopped work around June 25, 2007.  On May 7, 2008, CFS issued a second invoice in the amount of $178,850, accompanied by a letter stating that the invoice is “for work performed after June 15, 2007.”

When Afremov refused to pay the bills, CFS sued for breach of contract. A jury awarded CFS $105,568.75, but Judge Bush held a subsequent court trial on equitable claims to obtain additional testimony.

Judge’s Analysis and Ruling

Only three people at CFS worked on the data for Afremov, one of which worked at most 20 hours per week.  As Judge Bush noted, CFS destroyed all of its “alleged” time records even though “(a) Lanterman had billing disputes in the past and (b) the prospect of a billing dispute with Afremov was plainly evident less than two months into the project.”  CFS charged $275 for both analyst time and computer run time, though the invoices did not distinguish between the two.  CFS offered no testimony that it is reasonable in the industry to charge separately for computer run time.

With regard to the billed work, Judge Bush provided several observations, including:

  • Services associated with the first invoice occurred over a time period of at most 59 days, so the first invoice, on an hourly rate, would have called for the two full time workers to each have worked 17.9 hours a day on the project for 59 days straight with no break, for weekends or holidays (22.4 hours when including the second invoice).  As Judge Bush noted, “Working 22.4 hours a day for weeks on end is not credible.”
  • CFS charged a flat rate fee for loading, decrypting, and verifying data from the various devices, but the first invoice also included 68 hours of analyst time for “data load, decryption, and verification.”  Lanterman couldn’t explain the justification for the 68 hours billed.
  • CFS charged $1,000 apiece for 84 “hard drives” to upload data to its server, even though some of the “hard drives” were, in fact, memory sticks.  When asked to identify on a device spreadsheet the 84 “hard drives” that were allegedly uploaded, Lanterman was only able to identify at most 62 devices.
  • The first invoice included a charge of $424,600 for extracting 386 mailboxes at a flat rate of $1,100 per extraction; however, it also included a charge of 278.25 hours of time for “Data Analysis: Email compilation” at the rate of $275 per hour for a total charge of $76,518.75.
  • CFS billed the client for six hours of “[d]ata analysis” and one hour of “[d]eliverable preparation” for a total charge of $1,925 for simply copying a disk and providing it to outside counsel.

Judge Bush stated that “The Court has significant doubts about Lanterman’s credibility about billing issues based on the lack of disclosure, the lack of documentation, the apparent double billing (i.e., charging a flat rate fee and an hourly fee for loading, decrypting, and verifying data), the significant questions raised by what little documentation does exist…and other factors. There are additional reasons to question Lanterman’s credibility.”  He also noted that “In a federal court proceeding regarding the disputed invoices, Lanterman testified to a federal Magistrate Judge that he had 11 people working on the Afremov project. It has since been established that only three people were working on the  Afremov project.”

Ultimately, Judge Bush disallowed $99,475 in flat rate fees for data load, decryption, and verification and disallowed $424,600 for allegedly extracting 386 mailbox extractions at a flat rate fee of $1,100 per extraction on the first invoice, as well as disallowing the entire $178,850 for the second invoice.  Judge Bush did allow the balance of the first invoice (minus outside counsel fees) of $104,662.33, minus 6 hours for IRS data analysis that was not performed, for a total of $103,012.33 awarded to CFS.

So, what do you think?  Was the judge right to disallow the charges?  Or did he go too far?  Please share any comments you might have or if you’d like to know more about a particular topic.

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