Tech Gold Rush Strikes California Courts
SAN FRANCISCO (CN) - A new gold rush has come to California, with the state's massive legal system open for mining as courts and lawyers move to new technology. Warren Buffett's right hand man has joined in the race along with enormous software and publishing companies from around the nation. "It's truly the Wild West here in California," said an industry insider, "a land grab."
They are scrambling for a mother lode of multimillion-dollar contracts for software and licensing, vast additional sums for upkeep, and the right to set up a toll booth on Court Road for 38 million people.
The rush of deal-making follows the collapse of a half-billion-dollar, ten-year state project to develop a Court Case Management System for all California's 58 trial courts. Widely savaged by judges as a "fiasco" and a "boondoggle," the software developed by Deloitte Consulting was abandoned last year.
"When CCMS finally collapsed, the combination of pent up demand and deferred maintenance of local courts resulted in a vendor feeding frenzy that while strong today, will only grow over time," said an industry executive who asked not to be named.
In the ruins of the statewide project, a group of judges, tech staff and administrators wrote a model contract and selected three top bidders: New Mexico-based Justice Systems Inc., Texas-based Tyler Technologies and Pennsylvania-based LT-Tech owned by Thompson Reuters formerly West Publishing.
The deals have three basic financial components, licensing and installation for millions of dollars, yearly upkeep for hundreds of thousands of dollars, and, a golden egg, the right to charge lawyers a fee, generally around $5, for every document electronically filed.
In one big Southern California court, for example, about 750,000 documents are projected to be filed this year. That's in Orange County's civil section alone. Multiplied by a $5 fee, the flow of money would amount to $3 million a year.
Extrapolating based on population, total income from the per-document fees could easily rise to $40 million a year throughout the state, paid by California's lawyers. That's just for civil litigation and not counting the millions paid by the courts for software installation, licensing and yearly upkeep.
Helping to propel the technological shift, lawyers in California uncharacteristically have not resisted change. They have generally embraced electronic filing in large part because it is much cheaper than paying a runner to deliver paper documents.
A Better Typewriter
With the market heating up, Fresno in California's vast Central Valley became the latest to announce a deal. On Monday afternoon, the court said it had agreed with Tyler to replace its old software, including an early version of CCMS for criminal cases and the Banner system for civil cases. They will be replaced by Tyler's Odyssey system for $4.8 million.
"We have a very, very old civil case management system and it was nine versions behind and we could not update it anymore," said the court's head clerk Sheran Morton. "We referred to it as 'the typewriter.' That's how far out of date it was."
The central administrative office in San Francisco will pay about half of the purchase price and the rest will come out of the Fresno court's budget. The deal covers case management, e-filing, document storage and public access. Morton said the per-document fee charged to the filing lawyer has yet to be worked out.
"We knew we were looking at a good idea to get off this product and move on," said Morton. "We realized if we changed to a different vendor we could save money over time. We knew that was very, very important."
About two weeks earlier, Orange County had also announced a deal with Tyler, also for $4.8 million.
The Orange County announcement represented an about-face because the court's head clerk, Alan Carlson, has been a leading tout for the state-sponsored, Deloitte-developed software. Customized by the court's big IT staff, its version of the software served as a showpiece for other trial courts and was often exhibited at CCMS demonstrations around the state.
Carlson also praised the software regularly, for example telling the judges and officials on California's Judicial Council, "It works and we couldn't do without it."
But a change in the wind was felt about six months ago when the current head of the technology committee for California's courts, Judge James Herman, sent a letter asking the few CCMS courts if they wanted to spend about $340,000 to "enhance" the software to include family and juvenile law.
Meanwhile, the staff in Orange County had asked Deloitte for the software's source code, a request that was denied. The court's leaders then came in hard against any further investment in CCMS.
The new deal with Tyler covers exactly the same cases the enhancement was supposed to handle, family and juvenile law.
The clerk's office would not provide the financial terms of the new contract, recommending instead that a reporter make a public records request. So the maintenance costs and the per-document fee charged to lawyers are not yet known.
"I took a good degree of comfort from the fact that they were dealing with Tyler. I felt this should be a system that should work," said Judge Andy Banks, a member of the court's executive committee.
Banks said the $4.8 million contract includes an option to replace CCMS in all the court's sections. He said that option would be taken up if the court's future budget allows for it.
Two other courts made earlier deals for new software. The small coastal court of San Luis Obispo agreed late last year to pay Tyler $3.1 million for the Odyssey case management system. The Central Valley court of Kings followed, and will pay roughly $1.8 million to Tyler, depending on upkeep costs.
This summer, the court in the rural county of Merced became the only California court so far to sign a deal under the model agreement written by a committee of judges and tech staff from around California.
Merced will pay $2.2 million, including $1.2 million for installation and about $900,000 for the license, plus $193,000 per year for upkeep. The deal will cover software for case management, document storage, e-filing, billing and accounting, and public access.
"Our old Sustain system was very labor intensive," said Linda Romero-Soles, the head clerk in Merced. "Odyssey will streamline all of the court's processes."
She said the court is paying with what she described as "a lot of creative finance." "Every year we've been setting aside money," she said. "We've had reserves set aside as well as civil assessment money and old security funding."
Illustrating a central characteristic of fast-changing technology, Merced's old Sustain software was not that old. It was installed four years ago.
Sustain Technologies is owned by the Daily Journal Corporation. It publishes the Daily Journal, a legal newspaper in Los Angeles, and owns a string of smaller legal publications in the western states. The chairman is Charles Munger, a prominent Los Angeles lawyer who is often described in financial news as Warren Buffet's right hand man.
Significantly, Sustain software is also in place in the Los Angeles branch courts.
In an apparent effort to strengthen its position, the Daily Journal Corporation announced last month that it had bought another tech company, ISD Corporation, for $16 million.
ISD is one of the small outfits that were starved nearly out of existence by the massive undertaking between Deloitte and the Administrative Office of the Courts that absorbed almost every cent in the state's court technology budget.
Even thus diminished, the company kept up contracts for case management systems in four substantial California courts, Riverside, San Bernardino, San Mateo and Contra Costa that together cover 6 million people.
It also handles electronic payment software for most of those courts plus Santa Cruz, Sacramento, El Dorado and Mono, and of potential significance, it has a small contract with the court in Los Angeles for resource projection.
The existing contracts would likely provide the company with a leg up as those courts move to new cases management systems and electronic filing. That advantage was demonstrated last year in Riverside when, without fanfare, the court agreed to an addendum to the ISD contract to cover electronic filing.
Riverside's head clerk at the time, Sherri Carter, moved over this summer to the same position in the neighboring Los Angeles court system.
Los Angeles, where 10 million live and sometimes litigate, is the biggest court in the nation. It would represent the jackpot of all tech deals, but it has not yet moved to filing through the Internet.
The Holy Grail and The Public Record
The recent shifts in technology have come hand in hand with the politics of austerity.
In the last few years, California's governor Jerry Brown has cut hundred-million-dollar chunks out of the courts' allotment in the states budget. As a result, trial courts in a state with 38 million people have been under intense pressure to cut staff and generate some separate income.
With courts in that vulnerable position, technology entrepreneurs see the prospect of a wonderful marriage.
"Electronic court filing, document portals, case alerts, and calendaring features can all now be monetized in ways never envisioned before. Savvy court bench officers and executives are beginning to experiment with these new potential business models to fund their courts going forward," said the industry executive.
From the court side, filing through the internet has been pitched by administrators as a sort of Holy Grail, able to produce little short of a miracle. It will, it is said, allow courts to fire a large number of court workers, save enormous amounts of money, make everything more efficient and even improve public access.
But those promises have proved illusory.
Where courts were able to fire low-paid clerical workers, they were also forced to hire extra highly paid IT professionals. Where old docket systems were cheap, the new software systems cost millions for the set up and drain hundreds of thousands per year for fixes. And public access often rolls backwards, as the ability to see public documents is delayed and, on regular occasions, cut off entirely.
A second source of damage to the public record has come from contracts that allow a software provider to control and exploit the public record. Most of the tech deals in California have sought to prevent that exploitation.
For example, Merced's contract does not allow what in essence would be a second toll booth on the information road. It allows Tyler to charge lawyers who file into the court, but does not allow the company to charge lawyers, journalists and others who are taking information out of the court by looking at public records.
"Under the terms of this e-File Agreement," says Merced's contract where the court is called the client. "Tyler has no additional ownership rights, including any right to resell, recombine, reconfigure or retain the documents, information, information database or original documents transmitted to or from the Client."
But, the industry insider warned, the prohibition could be undone.
"The court is required under the California Rules of Court to be designated as the official record and not the vendor," said the insider. "So, many of the contracts reflect that language. But that doesn't mean the court won't let you resell documents. There would just be a new agreement."
But past efforts in other states to control the public record have led to the loss of a vendor's franchise.
In Colorado, for example, Lexis Nexis, owned by Reed Elsevier, was given control of mandatory, statewide e-filing, a true cash cow. It charged for e-filing documents, for serving them and then turned around and sold the same documents and data back to lawyers, in addition to special reports based on data filtering. The public and press were in practical terms shut out.
The Colorado judiciary ultimately retook control of the public court record from the international publishing conglomerate after a close and bitterly-fought legislative battle two years ago.
A Better Yugo
Over the last two decades, software contracts have represented a constant drain on California court budgets.
In the early years of computer technology, courts adopted primitive versions of case management systems, some that still relied on the antiquated DOS programming language and only had space for a limited number of characters in fields such as those for party names.
The trial courts held back on replacing them as the central administrative office promoted the Deloitte-developed system and helped pay for its installation. Individual trial courts that did not go along were punished financially if they tried to buy something else. As a result, they were stuck in limbo, distrustful of the software pushed by the central office but unable to pay for another system.
The massive CCMS project was deep-sixed last year by the Judicial Council under pressure from the Legislature, after the Administrative Office of the Courts had spent $520 million in taxpayer money over ten years on a project that was nowhere near completion and carried a projected price tag of $1.9 billion.
"The failure of CCMS created a vacuum of opportunity for private sector vendors offering the likes of case management systems and document storage systems," said the industry executive. "CCMS was so large and consuming, it created its own weather system that basically kept innovation in the local courts at bay for over a decade."
"Vendors were continually told that it was only a matter of time before they wouldn't be needed anymore, that in essence CCMS would put them out of business if they didn't diversify elsewhere," he added. "Smart money knew better because all the warning signs were there -- they just needed time."
For unfathomable reasons, software systems in California have often been compared to cars. Depending on the viewpoint, CCMS is a hot Ferrari sitting in a garage, a new SUV waiting to be taken out for a spin, or a broken-down wreck from the Eastern Bloc.
"Instead of trying to take a 1995 Yugo that we've made better by customizing it and trying to bring it on for these new types that don't have case management yet, it was a pretty intelligent and reasonable decision to go with someone who is building cars now," said Judge Banks. "It's always struck me as reasonable to go with Tyler. It's a wise, good decision rather than try to do something with CCMS, which from my standpoint was a bad development all along."