Articles Posted in Outside Counsel

Of the 97 lawyers in WellPoint’s legal department, 27 of them make up its litigation department. That nearly one out of three lawyers in that department litigate puts it at the very highest end of the range of litigation lawyers as a percentage of all lawyers (See my post of Aug. 27, 2005: litigation staff as a proportion of law department staff.).

Last year the department spent approximately $48 million on outside counsel, about 55 percent of its total legal spend. That ratio is completely typical of large U.S. companies. What proportion of it goes to litigation is not disclosed (See my post of Oct. 24, 2007: cascade of 60% for components of legal spending.).

All the above we learn from Corp. Counsel, June 2011 at 73, plus “Half of WellPoint’s litigation matters are handled internally.” That is very unusual (See my post of Feb. 27, 2008: litigation loads and handling cases in-house through trial; and June 30, 2010: number of cases handled and number of outside counsel managed per inside litigation lawyer.). The article quotes the head litigation lawyer, Deputy General Counsel Ray Umstead: “Last year the litigation department was able to achieve at least a partial dismissal in more than 100 cases.” Here we have an example of a key performance metric.

The matter cost-control firm Legalbill surveyed some 16,000 lawyers who use its matter management software at one or more of his law department clients. More than 600 responded. One question described a typical invoice and asked the lawyers: “On average how many different UTBMS litigation codes will you use?” Roughly speaking, the distribution of responses fell evenly in the four buckets of 1-4 codes, 5-8 codes, 9-12, and more than 12.

This survey has developed very interesting empirical data about UTBMS codes. Legalbill’s Managing Partner, Stephen French, is still processing the results, but he was kind enough to let me see some of the early data. Reach out to Steve if you are interested.

On this one particular finding, I was surprised. I would have thought that fewer codes were necessary for a given case during a normal month, since how many different tasks of a law suit take place in that narrow window? Nor was the average size of the invoice very large, which might have accounted for the wide distribution of task codes used. The distribution and amount of codes used tells me that law firms pay attention to their time records and draw on the full range of UTBMS codes even for a typical, relatively modest invoice.

This blog tries not to market particular offerings of services or products, but this post cites one to describe an approach that law departments ought to know about. A glossy of Pillsbury Winthrop Shaw Pittman describes PEARL™ — Pillsbury’s E-Discovery Alliance of Resource Leaders. The firm has strategic alliances with ACT Litigation Services, Discovery Services LLC, Integreon, Ji2, Protiviti and TransPerfect Legal Solutions. PEARL combines these firms’ capabilities with Pillsbury’s and offers clients what it calls integrated, unit-pricing on electronic discoverey.

I have no knowledge of how effectively this ensemble plays together, how qualified any of them are, or whether indeed this is a novel offering. I do suspect that law department litigators might like to sign on for a single-source, single-price package. In the complicated world of e-discovery, where finger pointing and jostling and coordination among vendors creates nightmares, this approach might be attractive. It might inspire law departments to push their favored litigation firm to assemble complementary talent in a similar fashion.

Expensive litigation and a cost-oriented arrangement led me to make several points. As described in Litigation 2011 at 40, Medela, a Swiss-based company that is the world’s leading maker of breast pumps, hired Dechert to defend it in a 2006 class action. Three years later, “with Dechert’s fees piling up and no end to the litigation in sight, Medela president Carr Lane Quackenbush persuaded [the Dechert partner in charge] to switch to an alternative fee arrangement.”

For each of the half-dozen key tasks remaining, the partner created a budget. Under the fee arrangement, if the firm’s costs exceeded the budget for a task, Medela paid 35 percent and withheld the rest in a hold-back pool, “to be paid out later if the firm met various success metrics in the litigation.”

Of note, the client negotiated this fee arrangement three years into the case. The article does not indicate whether the client threatened to shift the remaining work to another firm or what leverage it exerted, but the fact remains that clients do have the ability to alter terms mid-course. Clients are not locked in.

At a SuperConference session on litigation management, a lawyer from CapitalOne said that his department allocates a portion of its spend on outside counsel to firms that are not on the preferred partner manifest. He said “It’s partly training them and partly assessing them to see if they might become a preferred firm.” Those are good reasons. Reasons with more bite could be added.

As I see it more competitively, no law firms deserve to feel entitled to a flow of work, locked in, guaranteed a place at the trough. Legitimate competition waiting in the wings keeps everyone honest. For that reason, give some work to contender firms.

For the most part, the general counsel’s team can and does decide which law firm makes sense for a particular matter. Sometimes, it must be admitted, that exclusive privilege bends a little – or a lot – if others with more power or influence want to direct the retention. My latest article in the National Law Journal, June 13, 2011, discusses three pressures that can change the course of a retention. Download the selection pressure article here.
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Robert Pozen practiced law, among his many distinguished careers in business, government and academia. He was a partner at the Washington, D.C., law firm of Caplin & Drysdale, where he led its banking/securities department from 1981 to 1986.

Pozen wrote an article in the Harvard Bus. Rev., May 2011 at 127, about six principles for a more productive work life. Under principle 2, “It’s Not the Time You Spend But the Results You Produce,” he urges readers to recognize that “Your success should be measured by the results you produce, not the number of hours you log.” Sounds like grist for the AFA mill.

Then Pozen recounts how he realized at his law firm that charging clients for hours worked made no sense. In his words, after a few years, once his clients knew he was efficient, he tried a new tack. “I sent them a letter explaining that in the future I would bill them for double the time I actually spent on their work – unless they objected. Not one client did.”

A speaker from Baxter Laboratories said at a SuperConference panel that they have instituted some disciplines to keep matter budgets relevant. Every month outside counsel must certify that the matter is on budget and inside counsel must do something similar to show that the budget is on track.

Certification can be a rubber-stamp exercise with no meaning or it can be a genuine reflection that thought was given to the assumptions and circumstances. Even more striking to me is Baxter’s insistence that inside counsel must be accountable; they must keep up with the progress of the case and the associated costs; they must use budget review as a tool to manage the case; they must do something affirmative to show this level of attention.

“A claim is said to be objective if its truth or falsity can be settled as a matter of fact independent of anybody’s attitudes, feelings or evaluations; it is subjective if it cannot. For example, the claim that Van Gogh died in France is epistemically objective. But the claim that Van Gogh was a better painter than Gaugin is, as they say, a matter of subjective opinion. It is epistemically subjective.”

John Searle wrote this in a book review in the NY Rev. of Books, June 9, 2011, at 50. The distinction applies to judgments of value delivered by law firms – note the telling word “judgments.” Too many consequences and interpretations and subjective views permeate any legal services for a value to be assigned to those services “as a matter of fact independent of anybody’s attitude.” The value of all legal services remains subjective and beyond conclusive (epistemically objective) proof.

When I heard this statement from a keynote speaker, I felt the urge to stop, drop and role. I was fired up, smoke coming out of my ears!

The statement fails utterly to recognize the huge differences that can follow from a cost-plus operation by law firms where everything spent is house money (the corporate client’s) to a my-own-dime is on the line of a flat fee. Assuming the law firm believes the set fee is fair and assuming the firm understands that some fee arrangements bring profit and others loss, a flat fee could (and should) significantly alter many aspects of how they staff and work matters. A flat fee is a dramatic alternative to hourly billing and its effect should go far beyond that of a budget. That comment burned me up.