SF Court Expands E-Filing With|One Vendor in Control of Gateway

     SAN FRANCISCO (CN) – An across-the-board electronic filing mandate takes effect today in San Francisco Superior Court, accompanied by controversy and litigation over the power of a single private vendor to control the court’s electronic gateway.
     The only private vendor currently able to file directly into the court’s electronic file manager – the e-gateway into the court – is File & ServeXpress which holds a hand-me-down contract from Lexis Nexis.
     As of today, lawyers must file all civil unlimited papers, after the initial complaint, directly through FSX or indirectly through three “third party filers.” Those third party filers had to be approved by FSX, must file through FSX, and must pay for the privilege.
     As a result, FSX is the only private outfit that can retail the filing service and it is also the only outfit that can wholesale it. That combination gives it practical control of the gateway.
     The market for e-filing in San Francisco, greatly expanded by today’s mandate, represents a big pot of money. It is worth roughly $8 million to $10 million a year.
     The court has belatedly set up its own e-filing portal to comply with California statutes designed to avoid monopoly control by one private vendor. But the public court inexplicably charges a substantially higher price than the private vendor, making the court portal unlikely to be used.
     On that court-run e-filing portal, the posted phone number takes a caller to a receptionist for a company called Imagex, which appears to be primarily a document scanning operation. In response to a question about who designed the portal, the receptionist took a message, which has not been answered.
     A December document request from Courthouse News along the same lines has not yet been answered by court officials.
     The San Francisco court’s arrangement favors one private vendor to such an extent that a competitor took the rare step last week of filing a petition in the California Court of Appeal, seeking an injunction against e-filing expansion until San Francisco Superior complies with California statutes seeking to prevent monopolies.
     The petition written by Gary Watt, Jeffrey Hamerling, Robin Chang and Tiffany Gates with Archer Norris in Walnut Creek was made on behalf of One Legal, an attorney service that files in every court in California and has e-filing contracts in Orange County and San Diego.
     The petition says the San Francisco court stalled in providing specifications that would allow One Legal to use the e-filing gateway, and is still stalling. Watt argues that through its actions, amplified by its public endorsements, the court has granted a monopoly to Lexis-Nexis’s successor.
     FSX has taken full advantage of its dominant position by sending publicity emails to recruit lawyers practicing in the court. And the private vendor, says the petition, bolstered its position by refusing to provide service lists to competitors — or even to the court.
     The court has also enforced an unusual condition imposed by the private vendor on the third party filers using its portal, a condition that locks out One Legal or any other big competitor.
     “The Superior Court is conferring upon FSX the kind of exclusive access, power, and resulting revenues the Legislature sought to prevent,” said Watt’s petition. “On December 8th, FSX will become a de facto monopolist in all civil case types (except small claims and limited jurisdiction unlawful detainer), because it is the only outside vendor with the capability of actually e-filing documents with the Superior Court.”
     
California Law
     California’s Code of Civil Procedure requires that, “The parties shall have access either to more than one electronic filing service provider capable of electronically filing documents with the court, or to electronic filing access directly through the court.”
     That means that when a court forces electronic filing, it must allow two or more private vendors to use the electronic gateway. Alternatively, a court can provide its own portal, allowing lawyers to file directly with the court.
     In Orange County Superior, another California court that mandates e-filing, a total of thirteen electronic providers have been allowed to go through the court’s electronic gateway, after paying about $75,000 each. In San Diego, five electronic vendors can go through the gateway.
     In both of those courts, the gateway was built at state expense to hook into the Court Case Management System, an enourmously expensive software project that is now defunct.
     In San Francisco, faced with complaints from vendors and the requirements of state law, the court belatedly established its own e-filing portal in late November. But court officials priced the public portal at $10.80.
     As a result the court’s price is one-and-a-half times more than the $7 price charged by FSX, and it is more than double the common price of $4.95 in other e-filing courts in California, which is also the price offered by One Legal.
     Crucially, the court’s portal does not allow a filer to serve another party with a copy, which is a required element in the filing process. The court’s portal would then be a paper tiger, a competitor in name only.
     Late last week, with today’s deadline fast approaching, San Francisco officials held a hurried set of training sessions at the San Francisco Bar Association headquarters. Questions were shouted out by members of the audience, mostly lawyers.
     One question shouted by a reporter asked why the court was charging so much more for its portal than FSX.
     “I don’t have information on all the filers,” said a court IT manager running the session’s power-point presentation.
      But FSX employees were seated near the front of the audience and took over the presentation towards its conclusion. In addition, court officials have been working extensively with FSX, and through a document request were able to provide Courthouse News with the vendor’s price list.
     At the same time training session, head court clerk Michael Yuen forcefully defended his court’s actions.
     “Not only do we have a direct e-filing portal for you, which is frankly all we need to do, we’re keeping the option of having vendors available to you, as well, because we believe in competition,” said Yuen.
     His voice rising, the clerk also addressed the petition from One Legal.
     “We made the decision a couple of months ago that we need e-filing now, we can’t wait any longer,” said Yuen. “We’re not going to wait the additional three months to March 2015 for One Legal to get on board to be our second vendor. That’s why you’re seeing the court-hosted e-filing portal.”
     
Mystery of the EFM
     In order to file through the electronic gateway, which is called the “electronic file manager,” a vendor must know a fair amount about it. But key aspects of San Francisco’s electronic file manager remain a mystery.
     A November document request from Courthouse News and a follow-up asked who built and installed the electronic file manager. But those questions remain unanswered.
     In addition, while the court told e-filing vendors that it was building the e-gateway itself, the vendors are still in doubt as to who actually wrote the required computer code. And Imagex, the operator of the court’s portal, did not answer the question.
     According to its budget documents, the court has a limited technical staff of 16, a relatively small IT department compared to Orange County, for example. And the San Francisco court’s IT manager left earlier this year, suggesting that at a minimum the staff would need some help in setting up its own portal.
     While the originator of the court’s current electronic file manager remains behind a veil, the history of e-filing in San Francisco would point to legal publisher Lexis Nexis as the designer of the original gateway roughly 15 years ago.
     And as far back as 2010, when e-filing expansion was first planned, the court appeared to be steering the business to a sole provider, Lexis. That would have given the legal publisher complete control of the e-filing gateway.
     That position had been exploited in Colorado, where Lexis controlled e-filings for the entire state. The publisher put out news that it gathered from the gateway before the information was made public, giving it a jump on any other news organization.
     The San Francisco court’s direction brought a letter from CNS expressing concern over a similar potential advantage in San Francisco.
     At the time, Lexis, a huge and lucrative division of the Dutch-English conglomerate Reed Elsevier Inc, held a series of contracts with California courts to handle particularly voluminous categories of civil filings. In the vendors’ lingo, those categories are called “swim lanes.”
     Lexis Nexis File and Serve held contracts in San Diego for the construction defect swim lane, which ballooned in volume after a construction boom in San Diego decades ago. The company also held contracts for eviction actions in small Northern California courts, and in San Francisco for complex cases.
     The great majority of the cases designated as complex were asbestos cases, which were filed en masse and involved dozens of defendants. The e-filing requirement was a boon to the plaintiff bar which was able to cut the cost of paper-filing thousands of documents.
     But what looked like a great business opportunity at the time became less lucrative as more companies jumped into the field, in particular Texas-based Tyler Technologies. Tyler has been dominating the court technology contracts for the last couple years in California and elsewhere.
     Lexis, primarily a legal research database, decided to get out of the e-filing business and sold its contracts to FSX which is based in Irving, Texas and owned by MMC Group, LP, Strait Lane Capital and Rosewood Private Investments. The company claims 39,000 law firm clients.
     While FSX does not appear to have a contract with San Francisco Superior, Lexis signed a renewal contract with the court to take effect in September 2012. The very next month, Lexis sent a letter to the court assigning its rights to the smaller vendor.
     Soon after that assignment, a new presiding judge, Cynthia Ming-Mei Lee, began her two-year term in January 2013. “E-filing is one of my goals that I set in early January 2013,” she told the San Francisco Bar Association. “It will enable us as a court to save money and conserve our resources.”
     Today’s deadline for expanding e-filing to subsequent documents in all civil unlimited cases is just 20 days before the end of Lee’s term as presiding judge.

Lucrative Market
     The push to expand e-filing during her tenure started with an effort to bring on board a second electronic file service provider, presumably to satisfy California’s pro-competitive laws on e-filing. In December 2013, One Legal won that contract.
     But shortly after the deal was signed, something changed.
     In early January, court officials issued a news release announcing an initial expansion of the case categories for e-filing that also said, “File & ServeXpress (formerly LexisNexis) will continue to serve as the vendor for the program’s expansion.”
     FSX followed up with a mass mailing to lawyers practicing in San Francisco, urging them to register with FSX, and attaching the court’s news release to make sure they got the message.
     “To ensure your firm’s smooth transition to e-filing and e-service, we have enclosed the following material: San Francisco Superior Court’s Press Release, Registration lnformation, Training Opportunities, Service List Verification Process, Pricing Sheet,” said the mailing, included among the exhibits to the petition.
     On its website, FSX says, “Our low fees start at $7 to e File and $8 to e-Serve. It’s the smart way to increase your firm’s bottom line by reducing costs, increasing efficiency and improving productivity.”
     Civil filing statistics for the court show a steady increase in the number of civil filings affected by the e-filing expansion, reaching about 200,000 for 2012-2013. With a price at $7 for filing and $8 for service, that would represent a market of roughly $3 million per year.
     But about 70% of the judges in San Francisco also require delivery of an extra “courtesy copy” to their chambers. FSX’s price list shows that it charges $25 for each courtesy copy. The resulting math shows an additional income of $3.5 million from courtesy copies.
     That means that the total pot from the expansion of e-filing amounts to $6.5 million a year, plus the income from a host of related services that include faxing, copying dcouments and retrievals. About three fourths of the market is made up of new business, the result of today’s e-filing mandate.
     Significantly, the court’s January news release that began the market’s expansion, and in effect endorsed FSX, made no mention of any other vendor. And thus, according to One Legal, began its long travail.
     Over the next few months, court IT personnel delayed in providing technical specifications and the “policy file,” which sets out the protocol for e-filing documents, according to the petition filed by Watt.
     In the beginning of May, the court’s IT manager delivered a set of specifications, and One Legal asked follow-up questions. But by the end of May, the IT manager had retired.
     Things continued to go downhill, until the court provided an updated policy file in late August. Concerned that it was running out of time, One Legal asked that it be allowed to file through the only portal likely to be available in December, the FSX portal.
     In September teleconference, FSX rejected the idea. And in the same conference, court officials said they did not have existing service lists for the filed cases, lists that are required in order to successfully file a document and notify all the parties.
     “Although FSX had developed these e-service lists through its own platform during its long-standing relationship with the Superior Court,” said the petition, “FSX stated it was unable to make e-service lists available to One Legal or the Superior Court.”
     That meant that a competitor could not file into a case previously handled by Lexis or FSX in their 15-year domination of complex cases, because FSX would not provide the services lists, even to the court itself.
     The petition also said the court was reserving FSX’s old swim lanes in asbestos and complex cases even though there is no reason for such exclusive designations when e-filing is opened up across the board.
     
The Catch
     Just two months ago in October, apparently concerned about California’s anti-monopoly requirement, the court asked for applications from “third-party e-filers” that would file through the FSX portal, just as One Legal had been proposing.
     But there was a big catch.
     The superior court was enforcing an FSX lock out of any business that already had an electronic filing contract with another court. That excluded One Legal and any other big e-filer.
     The FSX contract with the third party filers baldly requires that the filer “acknowledge that it does not currently have and is not currently building its own technology to e-File directly with the Court.”
     Court officials backed up that condition.
     When asked about it in an online question and answer session with potential vendors, an unnamed court official answered, “The terms have been determined by File & Serve Xpress, which is making access to the portal available to selected third parties.”
     Court officials then rejected One Legal’s application to become a third party filer. “The Superior Court notified One Legal by letter of the disqualification,” said Watt’s petition.
     The court’s public information officer wrote by email that the condition was imposed in order “to address proprietary technical and business concerns inherent to allowing third party vendors access to the proprietary e-Filing portal.”
     Follow up questions wanting to know specifically about the “business concerns” were not answered. Nor has the court provided any documents relating to the reasons behind that condition in response to the November document request from CNS.
     For reasons that are also not explained, the court put yet another condition on the third party filers, limiting their total number to three. Combined, the conditions ensure that a very limited number of small vendors, with little technological ambition, are given indirect access to the e-filing market in San Francisco.
     But the problem, from the point of view of competing vendors, does not end there. The court appears to have enforced the conditions selectively.
     The first two third party filers are indeed fairly small operations, Freewheelin’ Attorney Services and Nor Cal Courier & Legal Services. But the third vendor approved by the court, Nationwide Legal File & Serve, is clearly listed on the Orange County Superior Court website as an electronic filing service provider.
     It thus breaks the very condition that was enforced against One Legal, the requirement that a third party filer not have a contract with another court.
     “One Legal will be powerless to stop FSX from leveraging its dominant market position to capture One Legal’s existing customers,” said Watt’s petition. “This is not merely an issue of public access and fairness, a there are immediate and significant economic consequences. FSX will wield a dominant competitive advantage over the nascent legal e-filing market at San Francisco Superior Court, with benefits akin to a government monopoly.”
     
‘Setting the Record Straight’
     There is one other player in the mix, a company named ISD that is owned by the publisher of the main Los Angeles legal newspaper, Daily Journal Corporation.
     ISD also has a contract with the San Francisco court to become an electronic file service provider, and is expecting to be operational some time next year. However, ISD does not retail service to law firms and would only serve as an indirect competitor to FSX. In essence, it is a wholesaler.
     “That’s our business, we facilitate these other attorney service firms,” said Ron Beach, founder of ISD. “We’re the only company that does it this way.”
     But he refused to say what price the company would charge. “We don’t share that information,” he said.
     At last week’s training session, the court clerk said he wanted to set the record straight about complaints over the system his staff has set up.
     “I do want to set the record straight on some things that have been percolating in the legal community,” said Yuen. “There are a lot of customers who have chosen to be customers of other service providers but are not yet on board yet, mainly One Legal and ISD. One Legal, and I’m just going to be frank, One Legal has informed us they will not be ready until March 2015. In fact they will not even start working on tying into our system until January 2015.”
     But the petition and emails from the court suggest the delay is coming from the court itself.
     An email from a court IT employee sent in November to One Legal says, “I will be in a better position to respond to the latest set of questions after the first of the year. Thanks.”
     “On November 13, 2014, the Superior Court informed One Legal that it would not address One Legal’s questions and requests for information and connectivity until ‘after the first of the year,'”said Watt’s petition. “And the e-filing to commence on December 8th would only operate ‘through a single vendor portal, not the multi-vendor portal in development.'”
     “It
now appeared,” he concluded, “that the Superior Court would preclude One Legal from participating as an electronic service provider until sometime next year, if ever.”
     But his petition fell on deaf ears. In a brief Court of Appeals docket entry on Friday, a clerk typed, “The petition for a writ of mandate and the related request for a stay are denied.”

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