Litigation Is Business
Litigation should be measured by the same principles as business decisions. In-house counsel must analyze the costs and benefits of filing or defending litigation and the ultimate objective of the litigation. In every case, the client has to consider the resources that it is willing to devote to the litigation to accomplish its objectives. Those resources are measured both in terms of personnel and dollars. In-house and outside counsel together must define the scope of the problem, the client's objective, and how best to meet that objective.
In defining the objective, counsel must ask whether the litigation is driven by money, a principle, or a statement of corporate policy. If the issue is pecuniary, the client might look to settle the case at the earliest possible opportunity as a matter of cost effectiveness, rather than spending money to prove its theories. However, even if a principle or policy is the primary driver of the litigation, the client must still balance costs against the benefits of a good or bad result.
In-house counsel should understand that there are five principal elements to every lawsuit affecting costs: outside counsel, opposing counsel, plaintiff(s), defendant(s), and the judge. If one of those elements is out of control, the cost of the litigation can also spin out of control. For example, if the opposing party or the judge is irrational or unpredictable, costs can skyrocket. In-house and outside counsel must have a full and candid discussion of all aspects of the case that are necessary to harmonize their respective understandings. This is obviously much easier when in-house counsel has litigation experience. If in-house counsel does not have litigation experience, a good outside litigator will help educate them.
The Creation and Implementation of a Partnership
The best relationship between outside and in-house counsel is like a partnership. It is a relationship to which each is asked to contribute, and it is a relationship that fosters a full and free exchange of ideas. The client, through management by in-house counsel, has to provide outside counsel with the tools necessary to prosecute or defend the litigation, including witness time, access to relevant records, and the assistance of knowledgeable information-technology personnel to mine all information that bears on the matter.
After outside counsel has interviewed pertinent witnesses and reviewed relevant documents and data, in-house counsel should expect a preliminary analysis of the case, including a statement of the applicable legal principles and a range of the probability of success or failure. In addition, in-house counsel should expect a reasonably detailed budget for the case. Litigation budgeting at an early stage amounts to little more than soothsaying and speculation about how long each of a number of unknown activities is going to take, the litigation style of opposing counsel, and a multitude of unforeseeable issues that creep into every litigation. In-house counsel should understand that unforeseen matters often form the bulk of the litigation costs and that an outside lawyer may not be able to predict the full extent of those costs at the case's inception.
Next, the client, in-house counsel, and outside counsel must align their philosophies about the manner in which the litigation will be handled. Does the client want to win at all costs or play it conservatively? If public perception is important to the client, it must communicate its philosophy and ethical standards to outside counsel. Outside counsel must also understand the client’s business to know how best to present the client's philosophy during litigation. In-house counsel should make a point of inviting outside counsel to visit the client's offices, plant, or other facility to better understand its business. In addition, it is useful for in-house counsel to furnish outside counsel with a copy of the client’s mission statement, ethics statement, or value proposition. Anything else in-house counsel can do to define the client for outside counsel is helpful in promoting the partnership.
The general counsel of a major U.S. company once said to a room full of lawyers that outside counsel are the enemy and that they cannot be trusted. Several lawyers in the room—partners in major law firms—later revealed that they had previously withdrawn from representing that very client because of its lack of trust. Building trust is central to establishing a lasting partnership between in-house and outside counsel. To this end, in-house counsel should provide outside counsel with a list of expectations that must be fulfilled during the course of litigation. Those expectations may address the frequency of communication with in-house counsel, periodic meetings, in-house counsel’s review of pleadings or briefs before they are filed, or attendance at hearings and depositions. They may also involve periodic budget revisions, the frequency of billing, and any manner of things that are necessary for the in-house attorney to do his or her job consistent with sound litigation management principles and the expectations of the client.
Fees and Alternative Fee Arrangements
Companies that view litigation as a regular part of their business have reconciled the fact that attorney fees must be paid and, presumably, have made all necessary agreements with their outside counsel to obtain the most cost-effective fee arrangements. When a client that does not regularly litigate is drawn into a suit, fees can become a major issue where the cost of litigation is substantial. Litigation may not be a line item on the corporation’s budget and, consequently, its cost can have a significant impact on a client's bottom line. In-house and outside counsel should discuss fees at the time of engagement and again at the time that outside counsel presents the initial budget.
The type of fee arrangement for any given case depends on the case, the client, and outside counsel. Typical alternative fee arrangements include contingency fees, a hybrid fee that is part hourly and part contingency, a fixed fee for the entire case or fixed as to various segments of the case, or an arrangement that is best described as "let the client decide."
- A contingency fee arrangement may be appropriate where the client is the plaintiff and the claim is for an award of a sum of money. The percentage of the contingency is usually dictated by community standards and may vary from community to community. Contingency fees in a high-exposure case could result in the client paying a greater fee than might be paid under an hourly-fee arrangement. For example, if the plaintiff's claim at the outset has a high probability of success, the client may be better off paying an hourly fee because the total estimated fees may be less than under a contingent arrangement. Defense contingencies, which are used less frequently, are based upon the savings produced by the lawyer as against the plaintiff’s original demand. In short, if the issue for the client is one of risk shifting, then a contingency arrangement may be most suitable.
- Under a hybrid arrangement, a portion of outside counsel's fees is paid hourly, and the remainder is paid by a contingency fee. Frequently, hourly fees are billed at one-half of regular rates, and the contingency on recovery is set at one-half of the normal fee. This arrangement is a hedge for both the client and the attorney, and is useful if the outside counsel and client believe the litigation will be protracted. A plaintiff would likely use this arrangement more frequently than a defendant would.
- Some cases lend themselves to fixed fee arrangements. Those are typically cases that are referred to as "cookie-cutter" cases that are highly repetitive in character and scope. In more complex cases, it is not unusual to break the litigation into segments where the parties agree on a fee for getting past a motion to dismiss, for example, or for the work associated with a motion for summary judgment, or for an evidentiary hearing on a subsidiary issue.
- There are other variants of alternative fee arrangements. Some firms present their clients with the "suggested" fee and leave it to the client to increase (which has happened) or decrease the fee as the client sees fit. This arrangement can only work for outside counsel if he or she knows the client well and trusts the client. The website LinkedIn has a very active daily discussion of alternative fee arrangements, and it is a recommended read for in-house counsel.
If inside counsel and the client agree to an hourly billing or even a hybrid fee arrangement, in-house counsel should insist that outside counsel bill according to the Uniform Task Based Management System (UTBMS) adopted by the American Bar Association. UTBMS presents billing in discrete categories of work or tasks performed that makes bill review much easier and more meaningful. Second, the bill and the activities described are more transparent, and accountability is enhanced. In-house counsel should never accept a bill from an attorney or law firm that is merely a chronological listing of services that sets forth the time expended for each task and the value, because a chronological bill is difficult to review and analyze.
Some jurisdictions mandate mediation before trial. In other jurisdictions, mediation is voluntary. If you are in a jurisdiction that provides for mediation, in-house counsel should inquire of outside counsel of the advisability of early mediation. In-house counsel should (and, in some courts, must) attend mediation. Attendance at mediation helps each party understand what it is that is driving the opposing party. It is a time of free discovery and an opportunity to look the opposing party in the eye and possibly resolve the case without the need for further litigation.
The first ingredients of every effective in-house/outside counsel relationship are trust and confidence. Trust and confidence arise from an identification and communication of expectations concerning what each brings to the table and realistic expectations about the outcome of the litigation. The relationship between in-house and outside counsel can be rewarding, but only if it is built on a set of fair expectations that are candidly communicated in advance.
Keywords: litigation, corporate counsel, outside counsel, attorney fees, alternative fee arrangements
Harry Payton is a trial lawyer in Miami, Florida.