E-Filing Deals: the Devil is in the Details

By Andrew Zangrilli, 

Because electronic court filing solutions perform such a critical function, extra care must be taken when defining relationships with EFSPs.

Perspectives on Security

Security is a major issue surrounding e-filing, and it is also an issue that means different things to different groups.

Certainly, electronic court filing technology vendors have taken great efforts to ensure the technical integrity of the data. E-filing solution providers boast of their product's daily security audits, multiple firewalls, load balancers, and redundant networks. While this type of security is best understood by engineers, attorneys should know that there are several different models of e-filing available with varying levels of vendor control. Each have their particular strengths and weaknesses that a firm technology committee should evaluate carefully in conjunction with its CTO.

Courts have also given serious consideration to e-filing security issues in a two notable ways:

First, courts have established rules of court that are security-focused. In California, for example, court rules address the multi-pronged issue of access to e-filed materials, including authorized parties (Rule 2073(c)), limiting remote access (Rules 2050-2060), and sealing documents (Rules 2070-2076). These rules are not completely abreast of the new technology, however, and Hon. Terrence Bruniers of the Contra Costa County Superior Court of California points out that courts may need new rules that: 1) limit the inadvertent disclosure of sensitive information; and, 2) limit the court's classification as a "publisher" under current defamation or unauthorized disclosure theories of tort liability.

Second, federal court technology committees have established security-conscious e-filing models. In a March 1997 Discussion Draft, Leonidas Ralph Mecham, director of the Administrative Office of the U.S. Courts, made reference to a centrally funded and supported model electronic court filing system that would "provide standard core capabilities and have a modular design to facilitate staged implementation, tailoring, and enhancement at the local court level." While the report established standards and protocol for internal court systems, it left the private sector to the devices of technology vendors. Mecham recommends a "reliance on private industry to develop e-filing modules that the law firms and public will use" to connect with the court's e-filng system.

Now that courts are mandating electronic filing in more and more litigation areas, firms are coming under increasing pressure to implement e-filing systems. Unfortunately, most law firms do not have the benefit of the same extensive research and analysis used by the courts when deciding on an e-filing system. Law firms that wish to e-file must contract with private e-filing service providers (EFSPs) at an arm's length, much in the same manner as other technology vendors. Unlike other technology providers, however, EFSPs and their solutions play a critical role in the judicial process. Because EFSPs facilitate the official filing, notice, storage and access of litigation documents between the judges, clerks, law firms and the public, extra care must be exercised in defining relationships with EFSPs.

E-Filing Issues For Law Firms

There are plenty of business issues a firm should think about when contracting with an EFSP, such as: 1) disclosure to clients that their affairs may be partially accessible to the public via the Internet, and 2) the impact on work processes, like paper to image conversion, staff training and "e-Advocacy."

One practical security issue discussed here at length is what happens when the vendor-law firm relationship goes sour?

EFSP Liability: Fiduciary or Agent?
Although firms are required to maintain a permanent paper back-up record of all documents filed electronically, difficulties could arise if the EFSPs do not perform their data functions as promised. Missed deadlines, un-served documents and non-accessible online filings are just a few of the potential hazards This issue is particularly poignant when dealing with an EFSPs that hosts the data on its servers, outside of the firm's control. When an EFSP exercises enough control over electronic documents and data, that vendor takes on a role of special trust. As contractors of law firms that transmit, deliver, receive, host and store vital information on behalf of the firm, an argument could be made that an EFSP is a fiduciary of the firm.

A fiduciary is a person entrusted with the property of another, and an implied fiduciary duty arises when the contracting parties clearly intend to create a relationship of special trust. It seems logical that law firms do intend to create such a relationship with an entity that is entrusted with their litigation documents. Similarly, an EFSP could also be construed as a special agent or transfer agent of a law firm, imbued with limited powers to conduct one or more specific acts under particular instructions. As the fiduciary or agent of a law firm, an EFSP could be held to rigorous legal standards of liability.

To contradict the finding of a fiduciary duty or agency relationship, an EFSPs would most likely say that, like a courier, they are simply facilitating the exchange of data, and should therefore bear diminished liabilities similar to other Internet Service Providers (ISPs) and common carriers. Additionally, heightened fiduciary duties are usually found to exist in the realms of real estate, trusts and corporations, as opposed to transferors of electronic data. A judge would most likely weigh the level and quality of control that an EFSP retains over the electronic filings in conjunction with the details of contractual language to determine the appropriate level of liability.

While this is an unsettled issue, a firm in the market for an e-filing system may want to perform further analysis in this area before signing a deal with an EFSP.

The Devil's in the Details

Although the following issues may seem like doomsday scenarios, the dotcom implosion of 2000 showed that these extreme situations do indeed occur. Here, then, are some additional potential trouble spots and possible solutions (the proposed solutions are simply food for thought and warrant additional legal research):

a) Breach Due To Non Payment. Can the EFSPs retain the firm's e-filings in lieu of payment (like a mechanic's lien)? Spell out exactly what happens to the filings in the event of non-payment. If necessary, demand that a backup of the data be held in escrow, to be accessed in the event of a dispute

a) Intellectual Property . What if the vendor's systems and/or are the subject of a patent infringement action? Insist that the vendor will either procures rights or modify/remove the infringing features.

b) Obligations Upon Termination. Carefully think about termination procedures, and what happens to the services and data hosted by vendor in the event of a dispute. Try to ensure the smooth transition of files when the relationship is over.

c) Ownership. If the vendor marks up your document with Legal XML, who owns those markups? Depending on how the contract is worded, any coding that the vendor performs on the data could belong to the vendor. Basically, Legal XML is necessary for the court to process the e-filings within its internal systems. Make sure the Legal XML is deemed property of the client, and that it is not stripped out of the data upon termination of contract.

d) Marketing & Privacy. Can the EFSP use the data to "help enhance its client services"? This is standard language that means the EFSP may be able to use any submitted data for internal or external marketing purposes. Most firms will probably want to limit the EFSP's access to the data to essential purposes only.

d) Bankruptcy. What happens to the data and services when a law firm becomes insolvent? Most likely, the EFSP will not be able to terminate the contract due to the automatic stay of bankruptcy and must continue to perform e-filing services.

d) System Downtime. Since third party hosting may be on an outside system, contracting clients would be wise to get a Service Level Agreement that covers downtime. Given the success of recent attacks on ISP "backbone" connections, it's only a matter of time before another attack temporarily disables a wide radius of Internet connections, which in turn could affect the administration of an e-filed case. It's also advisable to understand local court rules that govern missed deadlines due to EFSP interruption. Specifically, does Internet outage or EFSP failure constitute good cause for delay under the rules of civil procedure?

e) Force Majeure. Theoretically, a massive attack on the Internet could be construed as force majeure that excuses the EFSP's performance under the contract. One possible solution is to exclude Internet outages from the force majeure clause.

Concluding Thoughts

E-filing has substantial advantages over traditional paper filings, and the full-scale adoption of this efficient process will lead to even more radical changes in the judicial system. The outlined considerations are not intended to hinder the contracting process between law firms and e-filing vendors. Rather, they are intended to educate buyers and stimulate beneficial discussions which will hopefully lead to a level of comfort that permits the widespread adoption of electronic court filing systems by law firms.

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