An Alternative Approach to Case Management

Controlling the cost of litigation, arbitration or dispute resolution is for the corporate client not unlike the dilemma our country faces with the task of controlling healthcare costs. There doesn’t seem to be a workable solution. No matter what approach we have tried costs have not been effectively controlled. Solve one aspect of the problem and a brand new aspect pops up. The law of unintended consequences has been hard at work. I have often been reminded of the use of a toy I had as a child. The toy was a small bench with pegs and a mallet. We all had them. We beat the pegs down on one side then turned the bench over and there were those pegs sticking up all over again. The process of beating down on the pegs was repeated over and over again despite the fact that there was no solution.   A child was only afforded the opportunity to try and find one and oh yes, the repeated opportunity to use a mallet to beat something thoroughly without getting into trouble. Children (of all ages) love this toy. Beating down on something continuously works for entertaining a child; it does not work for solving the problem of controlling the cost of dispute resolution.

           

            Many tactics have been tried in an effort to control the costs of dispute resolution.  I was in the corporate law department of one of the largest corporations in the world for 23 years and I saw a great number of them but even I can’t begin to catalogue (or for that matter recount) all the tactics that have been tried. Regulating the amount and manner outside legal counsel bill has been the most popular overall approach. Corporate legal departments have developed extensive polices in excruciating detail all designed to control costs.  They have failed because each attempt to control some aspect of legal billing simply created other cost causing problems to occur.  If the number of restrictions became too extensive or too minute the restrictions were ignored by in-house counsel/controllers or outside counsel (sometimes referred to as out-house counsel – but not by me) or both. Restrictions involved the hourly rates charged, the number of assigned counsel, expenses or charges incurred from things such as the use of taxis to the cost of copying, faxing, and so on and so on. We had approved lists of lawyers who agreed to discount their fees, agreements for flat fees, for flat fees with kickers and penalties, for blended rates – you name it.  When I think about all the ways that were introduced I just start laughing, or I would if it were funny, but it’s not.

            The solution to controlling the cost of the other component of the problem, the cost of the solution (ex legal fees and costs) has been equally elusive.  Principally the solution has been to hire lawyers that can out lawyer the other side.  When I think of that tactic I think of the scene in the movie Men in Black where the character played by Will Smith is sitting in his egg chair and a nice young (brilliant no doubt) officer stands up and demonstrably and ever so earnestly proclaims that the group of potential agents gathered there are “the best, of the best, of the best – sir!” Do I have to describe Mr. Smith’s reaction? If I had to use one word, that word would be sarcastically cynical. It was not uncommon for me to be in conversation with outside lawyers who were double Yalies or that other school to the north, or maybe they went to one and then the other.  Great. Sometimes it was Mr/s. Magic, the lawyer who could be counted on to never lose.  Funny thing was though the costs of resolution didn’t go down with the magic lawyer or the double Yalies or both.

            Now why is it that we have not lowered or even controlled the costs of dispute resolution despite extraordinarily creative controls on counsel and the selection of the best of the best, of the best?   The answer is to say that if the problem were a horse, we have been approaching it at the wrong end.

            Perhaps an explanation is in order.  When we finish a case and get a good result (or a bad result for that matter) by decision or settlement we in effect throw away what we paid for.  We tuck the files away, congratulate each other (or swear never to hire that lawyer/law firm again) and then we are done with it.  There have been some half hearted attempts to learn from cases but nothing effective or substantial on a system wide basis. Neither inside nor outside counsel were motivated to do something effective with what in reality,  is the real asset we purchased.

            Lawyers are first and foremost analysts. Ultimately what we pay for is the analysis of counsel, not advocacy.  Yet advocacy is what we think we are buying. In truth lawyers are modest at public speaking which is all right because the real help lawyers can give us comes in successfully analyzing the facts and law and telling us the results of their analysis.  Trial lawyers often talk about success at trial hinging on the development of a successful theme for trial and conveying that theme to the judge or jury.  I suggest that a successful theme is nothing more than the correct analysis of the facts and law.

            When I state that we throw away what we paid for I don’t mean we don’t utilize this analysis, we do – in the resolution of the case at hand.  We don’t use it to save costs effectively (a point I think I have pounded sufficiently). The real way to save costs is by learning not to do “it” again. The perspective in approaching a dispute is backward (hence the analogy to the approach of the wrong end of a horse).  We think that it is the solution of this case that should be emphasized and that is so very wrong.  To save costs I propose that we speak to the other end of the horse and teach the horse not to do “it” again. Therein lies the solution to controlling costs, reverse the emphasis.

            In 1990 I did just that for my firm. It so happened that in January of that year I was reassigned from the law department to a business unit that had a terrible problem with disputes of all kinds. Disputes with clients, with vendors, with employees, you name the category and we were getting into that kind of a dispute with that kind of person. Based on an industry study we were the worst in terms of the costs of dispute resolution. I was given the task of ending that problem, quickly, or else.  I describe the system that I came up with in the paragraphs that follow, a system that was successful (dropping overall costs by 90 percent within a year). The secret to my system was its 180 degree reversal of its emphasis.  I am not saying that the construct of my system is the best but I am saying that the direction it approached cost control for dispute resolution was head and shoulders above anything else I have seen.  I took all of my resources including outside counsel and business partners, pounded away and constructed what at the end of the day was a feedback loop to the business. Because we tracked and accumulated that feedback information it increased its power to positively affect business practices.  In effect the system became a feedback pipeline which lowered costs of dispute resolution by a factor that was not anticipated, even by the system's architect.

            In order to adequately describe the system it is necessary to discuss certain components and describe their significance. Others that worked with me in the operation of the system disagree but I think the keystone of the system was what we came to call the “Letter.” At the end of the resolution of each dispute the lawyer assigned to “hands on” handle the matter was required to write a letter to me. The form and content of the letter were strictly controlled.  The Letter had to starkly state what we did wrong that caused the dispute to arise and what we did wrong that caused the specific resolution result.  Counsel was not allowed to take evidentiary problems (such as the existence or lack of documents or witnesses) into account.  The Letter had to describe the ultimate, down and dirty, bottom of the barrel, operative facts as to the underlying dispute and our initial reaction to the dispute once it was brought to our attention. It had to be less than a page and a half in length. It also had to suggest how we should have done things. I was brutal in rejecting proffered Letters that I did not feel were sufficiently well thought out or sufficiently frank or succinct.  Final bills were not paid until I accepted the Letter. I ran this aspect of the program with an iron fist, one with a mallet in it.

            Without the proper preparation and emphasis the quality of the Letters simply would not have been good enough to have an effect on costs.  The preparation and emphasis that did occur resulted from the structure of the system we put in place to assign and supervise the dispute from initial receipt through resolution.

            In designing the system I drew on my experience as a young associate lawyer in private practice.  In those days I was assigned the task of carrying the boxes and briefcases which held the documents necessary to try a case to court.  The courthouse I visited most often was an elegant courthouse in Denver, Colorado.  Its hallways were extremely spacious and along the walls of the hallways were wooden benches where people could sit while waiting to enter a courtroom.  Since I was the junior lawyer assigned to the case I was not encouraged to talk to our client at that point.  I was expected to make sure the boxes and documents were where they were supposed to be and on time.  I was then expected to be a loyal assistant to the lead attorney on logistical matters.  As a result when not engaged in hauling documents I was able to observe the goings on in the hallways of the courthouse.  What I learned helped me design my system. Far more often than not upon arrival outside the designated courtroom the lead trial lawyer for a client would sit the client down on a bench just outside the courtroom away from people but often in full view of the jury pool (for the case) which was usually huddled in the hall waiting to go into the courtroom when called by the bailiff.

            The lawyer would then have the “moment of truth” talk with the client.  The client, while listening to the lawyer, would be looking at the members of the jury pool and having heart palpitations. What the lawyer said sunk in with the client like never before.  This was it, put up or shut up.

            Given that we had a trailing docket in Denver, cases took a very long time (years) to come to trial and I often thought watching this moment of truth talk go on, what a tragedy this event had to happen so late in the process.  It would be best if it could happen with the same impact early in the process.  With that thought in mind I came up with my case management system.

            Under my system each case or dispute was logged in on a spreadsheet and for all but trivial disputes a “hands on” lawyer was assigned to handle the matter.  The “hands on” lawyer and the business head responsible for the unit that “owned” the dispute were then connected in a conference call with me. No such call would go forward without both people on the line. The reason for that requirement was that each person needed to hear what I was telling them and know that the other person was hearing the same thing at the same time.  I ran the call and during the call we agreed on an agenda of events.  The lawyer was informed that s/he was given two weeks to review the file, preliminarily review documents and conduct interviews as s/he would like and then carefully prepare a budget for the cost of completing the trial of the dispute. Counsel was not given a list of billing restrictions but simply informed that the construction of a budget proposal was up to her/him and that my business partner and I would decide whether we could afford the budget.¹  We scheduled the date and time for a second conference call to discuss and agree on the budget.   At the same time we scheduled a third conference call, to be 60 days after the second call.  This third call was very important and I stressed to counsel it was to be approached with meticulous preparation. In preparation for the call counsel was to review documents and interview witnesses as they deemed appropriate to permit them to answer certain specific questions.  In my system this call was called the “60 day call.”  The call was very structured.  Each call began with counsel telling us the answer to three questions I had identified in my first call (a) what’s it going to cost to try this case from here on out – no explanation of the figure was permitted at that point of the discussion (b) were we going to win or lose at trial and anything but a defense verdict was defined as a loss and (c) if we were to lose, what would be the most probable size of an award and what was the highest and lowest award we could reasonably expect. The dates of the previous calls and the 60 day call were recorded in our spreadsheets and so were the answers to these questions as well as the budget figure given by counsel.

            At this point in the 60 day call counsel was permitted a brief recitation of the case and then was permitted to tell the business head in a succinct manner “here is what is going to help you, here is what is going to hurt you and here is why its going to come out the way I stated.”  This was a very formal call; no idle chat was tolerated or permitted.  Counsel had been told of the structure and requirements of the 60 day call and had been warned to be prepared.  In doing so I was able to have my courthouse chat with the business head under conditions that approached those faced by the client when staring at the jury pool.

            The business head was then allowed to ask questions and probe a little.  They did and counsel was totally prepared to meet and answer those questions almost as if they were on that bench, ready to go in that courtroom and try the case.  Counsel was asked to indicate fees and expenses incurred to the date of the call.  I indicated the balance left of the budget and reiterated something I had earlier said and that was, that the budget was not meant to be in effect a turn key price for representation but that the budget would be followed.  If it needed to be revised then counsel was to contact me and we would agree on an adjustment with the business head.  I warned counsel that absent such a call and agreement charges which exceeded the budget would not be paid. During the 60 day call or at any time when it came to our attention that the budget needed to be revised (for any reason) my business head could decide that trial could not be afforded if a reasonable settlement was possible.²  At the conclusion of the 60 day call we were ready to discuss our plan for the resolution of the matter.  If that plan included possible settlement as it most often did I had a meticulously prepared lawyer and a fully briefed business partner involved in the development of our settlement plan.  All of this was accomplished only a little over 10 weeks after the case was logged in.³ The plan of action, including settlement as well as any settlement authority granted in the call were logged in to our spreadsheet. Counsel was then asked to schedule any calls that s/he deemed necessary as the case progressed.

            As I have previously mentioned, as each case progressed and then was disposed of we tracked the information we gathered on an episodic, cumulative and trend basis. As a result all kinds of feedback information became available in addition to the information conveyed in the final Letter from counsel.  By way of example once this program had been in place I was able to do some forecasting⁴ for my business unit including the rate at which disputes would accrue under normal conditions and the overall cost of disputes in a future time frame. In addition we were able to use the tracked information to evaluate the efficiency of counsel⁵ and well the accuracy of initial budget proposals and the answers to the 60 day call questions.  Outside counsel proved to be extraordinarily accurate in their predictions and highly efficient (when properly motivated).  In just two years I was able to reduce my business unit’s dispute resolution costs by 90 percent.

1.  When you buy a significant item do you really care how much a component costs?  No you care how     much the item costs. If outside counsel wants to get the business with an acceptable budget proposal (knowing that their budgets are being compared with those of other counsel) they will take care to exclude all the “fluffery” for you – amazing.

2.  We had in house and outside counsel operate as hands on counsel.  The system was adjusted slightly for the lack of fees that would be charged should a case be handled by inside counsel.  It became apparent less than year after the system was implemented that the effectiveness of the system was not affected by the selection of inside or outside counsel. I argued somewhat unsuccessfully that with this system in place it was unnecessary to carry a large staff of in house hands on attorneys.  In my view they were a fixed and not a variable cost and therefore less desirable.  I believe institutional inertia was the real reason for the reaction to my argument.

3.  As my department received each bill from outside counsel the amount of fees payable and the amount of costs incurred by counsel on our behalf were separately recorded on appropriate portions of our spreadsheet. The total bill was recorded as well.  We tracked this information among other ways, versus the budget. Outside counsel at first asked us to inform them of the “balance” but then began to track it themselves.  This later development was in effect a self policing action on the part of outside counsel and in my view dramatically improved the quality of original budgets that were submitted. It was also a development that I had not anticipated.

4.  We quickly determined that our settlement tactics became much more successful. Not only were our settlement tactics based on a more complete analysis of the facts and law and an educated and motivated client but we arrived at that state before our, if you will, adversary.

5.  I conducted a review of one aspect of the system for the general counsel of my firm. After the first several 60day calls we determined that we could set a reserve during the call under FASB 5.  We began to do so.  Setting a reserve at that point exponentially decreased the resistance my business partner had to authorizing a settlement amount. In fact it dramatically improved settlement discussions and the determination of tactics.  As a result the reserve setting discussion was advanced during the call and occurred immediately after the three questions were asked and the briefing and question period had terminated.

6.  Efficiency here relates to accuracy of budgetary and outcome projections and to comparative costs of outside counsel. To further improve efficiency we let counsel know how “efficient” they were.