Articles Posted in Outside Counsel

Legal bill auditors are necessarily pugnacious types and John Toothman is no exception. The website of his firm, The Devil’s Advocate, offers a 28-page document that discusses many aspects of managing outside counsel’s costs. Here’s one of his tough-as-nails ideas (at 11).

“To reinforce the importance of the budget, the retention agreement may provide that any fees over budget either will not be paid or will be deferred until the matter is over and the client is able to assess whether further payment should be made.”

A law firm that faces that hammer will, it goes without saying, propose as generous a budget as possible. This club notwithstanding, ultimately, the judgment of what ought to be done and for how much will return to the desk of the inside lawyer (See my posts of Nov. 6, 2005 on the uncertain efficacy of matter budgets; and Dec. 15, 2005 on the practicalities of such budgets.).

This statement in Canadian Lawyer Inhouse, Vol. 1, April 2006, surprised me. I have written before on engagement letters (aka retention letters) (See my posts of Aug. 24, 2006 that compare inside retention letters to outside counsel guidelines; Sept. 25, 2006 on the integration of retention letters and other guidelines and tools; May 19, 2006 on AXA Konzern’s concerns; Nov. 5, 2006 with a sample letter; and Dec. 18, 2006 with some egregious terms.). I had not realized these letters may sometimes be required by law.

My friend Bob Haig, a senior partner at Kelley Drye, explained to me in an e-mail that “Our Appellate Division rule requiring engagement letters in most circumstances is quoted and discussed in Section 9:4 of the 2OO6 Supplement to Successful Partnering Between Inside and Outside Counsel (West Publishing). Chapter 9 is the book’s chapter on engagement letters.”

The International Legal Technology Association (ILTA) published its 2006 Technology Survey, dated Aug. 2006. The survey received 491 responses from law firms around the world (an average of 90 lawyers each), with 90 percent of them from the US. One question (at page 12) asked the survey respondents to identify what litigation support tools their firm uses; it allowed respondents to choose multiple packages.

In declining order of mentions, here are the 18 named vendors: Summation (69% mentioned), CaseMap (49%), TimeMap (47%), LiveNote (41%), Trial Director (39%), Concordance (35%), MS Access (27%), Sanction II (24%), iCONECT (13%), Doculex and Real Time (7% each), DB Textworks and DTSearch (6% each), casecentral.com and Litigators Notebook (5% each), and FolioViews, Introspect, and Ringtail (4% each). Many law firms use multiple packages, for the reason that partners have individual preferences. No wonder there is turmoil in the litigation support software market (See my post of Feb. 9, 2006 on those vendors at the 2006 NYC LegalTech conference.)!

Is it appropriate for a law department to choose a preferred package or two and require their litigation firms to use it (See my posts of June 15, 2006 about meddling in firm management; and July 5, 2006 with several forms of such intervention.)?

I dislike the publicity given to findings about how many law departments have “fired” one of their law firms, yet have written frequently on the topic (See my posts of Oct. 30, 2005 on reasons: expensive, silent and stupid; Aug. 28, 2006 on a figure of less than 1% of firms fired per year; Jan. 24, 2006 on ambiguous data; Sept. 25, 2005 on Dial firing a firm for understaffing; May 4, 2005 on supposed statistics for loyalty; Oct. 16, 2006 about a significant drop in the fired percentage; March 17, 2006 on terminations for lack of diversity; and Jan. 14, 2007 on Accenture firing a firm for not completing a diversity survey.)

More tinder comes from ACC’s Seventh Annual Chief Legal Officer Survey at 2, which reports data from 837 respondents. Asked, “Have you fired any of your law firms this year,” 68 percent had not, while 32 percent had.

Of the one third that had fired a law firm during 2006, 20 percent of the firms had maintained “a significant relationship” with the law department. My smoldering confusion regards the 62 percent of the respondents who said that the question “Did any of the firms you fired qualify as a significant relationship” was “not applicable.” Does this mean that most of the law firms “fired” were not important to the law departments?

Surveyed in October 2006, 165 chief legal officers (60% from departments with 1-5 lawyers) participated in an Altman Weil/LexisNexis Martindale-Hubble survey. The CLOs preferred method of locating a firm to hire is through references from someone they know. If personal references were not available, the respondents provided some data on how long it took them to find a new outside counsel. Some could do so in “minutes” (5%), more respondents chose “weeks” (22%), but most chose “hours” (73%).

I wish there had been an option to choose “days” and I wish the question had distinguished between elapsed time and working time. The whole endeavor may take weeks, but only a few hours of actual effort during that elapsed time. Even so, the implication from this study is that even when an in-house lawyer does not know anyone to call and ask for a lead, it is not a time consuming process to find a new firm.

The website of The Devil’s Advocate contains a 28-page document that discusses many aspects of managing external counsel and their costs. A point made by the document’s author, John Toothman (at 9) makes sense and deserves reflection. Toothman points out that if a law firm can confidently and quickly prepare a budget for a potential matter, the firm evinces a commendable degree of experience with that kind of work.

Conversely a reluctance to prepare a budget that lays out its assumptions, timelines and adequate command of detail may convict a firm of inexperience. So, budgets not only serve as a cost control technique but also as an evaluation tool before retention (See my post of Nov. 7, 2005 on budgets and the references cited.).

Substantive legal issues impinge on law department management (See my post of Oct. 24, 2005 on a few examples of the intersection.). That is an ironic introduction, because obviously the legal work that needs to be done shapes fundamentally how an effective law department operates. Still, despite having managed to keep my license to practice law in the State of New York current, I treat matters of “the law” gingerly, infrequently or not at all.

Making an exception, I recommend a article in the NYS Bar Assoc. J., Vol. 79, Feb 2007 at 48, regarding the relationship between national counsel and local counsel. From the operations and budget standpoint of a law department, the best arrangement may be the thinnest arrangement — local counsel does as little as possible but still permits the national coordinating counsel to represent its client.

The article argues for a thicker representation, and quotes a 1990 New York decision where the court cautioned local counsel that an “attorney cannot present himself as an attorney-of-record and charge a fee for services without subjecting himself to the concomitant responsibilities.” A desire for cost control and centralized management by a national firm must not ride roughshod over local ethical rules of proper representation.

George Cunningham, President of the Pelli Group, an experienced consultant and co-author of the recent ABA/LPM book, The Lawyer’s Guide to Records Management and Retention, has agreed to become a contributing co-author on this blog. He will offer his observations from time to time and welcomes all comments or e-mails.

The website of The Devil’s Advocate contains a 28-page document that discusses many aspects of managing external lawyers and their costs. John W. Toothman, the author of the tract, writes about alternative fee arrangements (at 4). Specifically, he comments that for progressive law departments (“Third Wave Legal Management”) “alternatives [to hourly billing] are tested before implementation by firm and client to demonstrate feasibility and build trust.”

What does that mean? It isn’t possible to run a test lawsuit or prototype a lease negotiation. You can’t simulate a fixed-fee arrangement for reviewing termination agreements. How do you rehearse the future?

Part of the apprehension about alternative fees present on both sides of the table, inside and outside counsel, is that they significantly raise the level of unknown and thus the blood pressure. At the start you can’t know how the matter or assignment will work out or what the economics will be. Toothman’s statement and recommendation are toothless.

A consultant to legal service providers (sometimes referred to as vendors, and here as the cottage industry around law departments), Brad Blickstein has been an astute observer of the law department scene for years. Formerly the president of Corporate Legal Times magazine (now InsideCounsel), Brad will contribute posts from time to time on his area of expertise.