Articles Posted in Non-Law Firm Costs

BusinessWeek, April 23, 2007 at 60, draws on data from Cornell Law School and the Hofstra Labor & Employment Law Journal to depict what happens – and the cost – to a typical set of 10,000 US employment suits. Of that group, 7,000 (70%) settle for an average cumulative defense cost of $10,000. Another 2,400 (24% of the original group; 80% of the remaining 3,000) are resolved by a motion for summary judgment or other pretrial ruling at an average defense cost of $100,000. Still, 600 go to trial (6%) with their average cost rising to a cumulative $175,000. Out of that group, 186 (14.3%) result in a win for the plaintiff employee, with costs which average for a five-day trial about $250,000 each. But, something like 22 of those pro-plaintiff judgments are typically appealed (12%) and nine are overturned; the remaining 13 have cumulative costs of defense of $300,000.

On these figures, the average cost of an employment lawsuit in the US, through trial, is $41,500. For about one out of seven trials the plaintiff wins, of which victories the defendant overturns about one out of seven. The costs of those infrequent cases of losses to employee plaintiffs – fewer than two percent – average in the low hundreds of thousands of dollars.

The choice of the carcinogenic term “metastasize” by Mark LeHocky, general counsel of Dreyer’s Grand Ice Cream, perfectly sums up his view about the disease of litigation run amok. He always tries to use ADR methods to forestall the waste of full-scale litigation. “More often than not, disputes go on longer than they should and become bigger than they need to be due to misunderstandings as to facts as much as legal issues. Sorting those items out as soon as possible is the best for everyone concerned and helps to avoid the unnecessary buildup of litigation fees and other costs.”

LeHocky’s profile in the Recorder, March 30, 2007, makes an excellent point. Not that you can force the other side to mediate or arbitrate, but at least you can promote those surgical interventions and try to stop the cancer of litigation before it spreads.

USI Consulting Group’s Legal & Compliance department monitors legislative and regulatory changes that affect employee benefit programs. The Group’s professionals analyze the potential impact of these changes and provide recommendations, all guidance that could help law departments respond to new developments (See my post of Sept. 5, 2005 on Countrywide and its efforts to track such developments.). The Group produces a monthly client newsletter, called Benefits InfoSource, and periodic updates.

What interests me is this netherworld: not a law firm, but more than a legal research firm. One can imagine all kinds of organizations that track legal developments, especially in heavily regulated fields, and provide practice guidance and interpretation, yet don’t practice law. Blogs exhibit some of this unclear quality of being professionally polymorphous. Offshore vendors could inexpensively go a long way with this kind of an offering. Law departments should seek out this additional layer of information and counsel.

As reported in the InsideCounsel, Sept. 2006 and 68, in 2005 Patrick Oot, formerly an antitrust lawyer, created an e-discovery practice group consisting of himself, an IT expert, another attorney and a support staff (See my posts of Oct. 1, 2005 about Pfizer and Marathon’s counterpart groups; Aug. 26, 2006 #1 regarding Cendant, Verizon and Pfizer; and Feb. 1, 2006 about Verizon and Altria.).

In February 2006 Oot and his group sent RFPs to 37 litigation support vendors and eventually chose one of them. “This resulted in a 50 percent reduction in data processing charges and a 70 percent reduction in hosting charges.” Many law departments could undertake a similar rationalization of litigation support services and enjoy comparable savings.

James Fallows, writing in the Atlantic, April 2007 at 132-133, explains that a new method of computer training has dramatically increased the quality of translations, even of very difficult languages such as Chinese, Japanese and Arabic. The software uses brute-force statistical analysis. Its designers search constantly for documents already translated by skillful linguists (patents, perhaps?). The software then compare the original to the translated document and the software gets better and better at matching the translation process. Even small numbers of paired documents train the software quite well.

Some law departments spend significant sums on translation of patent applications as well as on various forms of agreements. As this genre of software becomes more capable, in-house translation costs should plummet (See my post of Feb. 9, 2006 about translation software for non-English speaking lawyers.).

The Wall St. J., Vol. 249, March 19, 2007 at A1, sensationalizes the elite expert witnesses and their munificent earnings. Styled as “An Economist’s Courtroom Bonanza,” the article provides some astonishing background on the enormous costs, and sometimes contributions, of notable experts. For example, the article cites Dan Cooperman, general counsel of Oracle, who “spent millions” bringing three economic experts into a major antitrust case.

The Journal lists five firms as leaders in this crowded sub-industry, four of which are publicly traded, and the 2006 revenue of those firms: CRA International ($350 million); Cornerstone Research (privately held, $100 million); FTI Consulting ($754 million); LECG Corp. ($354 million), and Navigant Consulting ($682 million).

For the record, the Client Advisory, March 2007 of Hildebrandt and Citigroup Private Bank at 11, notes: “In recent years, the numbers of contract lawyers employed by large firms has increased dramatically, with some firms using literally hundreds of such’ temporary’ lawyers every year.” Meanwhile, following my blast against contract lawyers paid $40 an hour who are charged out to clients at $120 an hour (See my post of Feb. 16, 2007.), I received two thoughtful e-mails and both writers agreed to let me quote them. A patent lawyer at Haynes & Boone, Craig Bohn:

Have you truly factored in the potential liability from contract attorneys? How do they affect a firm’s malpractice insurance? More importantly, how do they affect the risk management analysis for a primarily self-insured firm? I don’t think a 60% overhead factor is excessive, and one-third is seven percent more, which may or may not be a lot.

Warren Jacob, a partner with O’Melveny & Myers, also disagrees with me that substantial markups are excessive:

Ron Pol raises an interesting point in in-box of the ACC Docket at 14. He draws on J.H. Hope and J.R.T. Fraser, Beyond Budgeting: How Managers Can Break Free from the Annual Performance Trap (Harvard Bus. School Press 2003). Those authors cite studies www.bbrt.org indicating that up to 90 percent of managers think the traditional budgeting process takes too long and adds little value. They have also found that traditional budgeting doesn’t focus enough on strategic issues and can even cause dysfunctional or unethical behavior.

Law department managers probably feel the same way (See my post of Jan. 25, 2006 on demands for budgets months before a fiscal year begins.).

A more useful exercise is to do away with the rigid annual budget and replace it with three- or four-month rolling budgets. Update the budget as events happen and pay attention to trend lines.

By contributing author Brad Blickstein, Blickstein Group, on legal service providers:

Every year I read with interest the In-house Tech Survey in Corporate Counsel, Mar. 2007 at 73. This year’s story is titled “Playing Their Tune” and covers the quickly-increasing sophistication levels of in-house counsel vis-à-vis technology.

The most surprising number in this year’s survey–same as last year–is the number of law departments that have adopted electronic billing. Only 49 percent of law departments who responded use electronic billing. While this is a large increase from last year’s 35 percent, it’s still surprisingly low considering the clear return-on-investment from electronic billing.

Viacom’s law department, which has more than 100 attorneys, got approval from a state regulatory body to give CLE credits to its lawyers who attend its programs. According to Mark Morril, deputy general counsel at Viacom in InsideCounsel, Feb. 2007 at 62, the accreditation process is time consuming. His department had to show that its training materials were high quality and were accompanied by in-depth written materials. I assume the presenters also have to be shown to be knowledgeable. But the savings for a large department from accreditation can be impressive.

Rather than send multiple lawyers to CLE providers, and pay the registration fees as well as travel and lodging, the law department can meet some of the CLE obligations internally at a much lower cost. That choice only makes sense if the department has a fair number of lawyers that need training on a similar course or courses. Perhaps two or three smaller departments could combine to provide collective accredited training (See my post of Oct. 24, 2005 on collective action by law departments.).