EFFECTIVE EARLY ASSESSMENT AND RESOLUTION PROGRAM:
Creating an Early Resolution Program that Works, Saves Money, and Reduces Risk
By: Gardner G. Courson and Deborah D. Kuchler1
OBJECTIVE
An early case assessment program that approaches a lawsuit as a business
problem rather than a legal one can lead to significant rewards to both client and outside
counsel, reduce the exposure of each to risks inherent in the legal process, and achieve a
greater overall efficiency through the application of alternative fee arrangements. Thus,
creative legal strategies developed and employed at the earliest stages of a claim can
often lead to earlier, more favorable and cost-effective solutions. To employ these
strategies, both corporate counsel and outside counsel must “think outside the box,”
expanding their horizons to include non-traditional legal and business solutions both to
the litigation, itself, and to the relationship between inside and outside counsel.
When the client’s expectations are defined at the initial stages of the defense, a
litigation strategy and accompanying alternative fee arrangement may be developed
whereby client and counsel become partners in a lawsuit, giving counsel an opportunity
to be rewarded for successful outcomes in exchange for sharing the risk of a sub-optimal
outcome. The performance or outcome for determining “success” should be gauged not
only in terms of traditional concepts like “win” or “lose,” but also in terms of adherence
to a budget, cycle time, practical impact upon the business unit, etc. By sharing the risks
and rewards, the early case assessment and adoption of an alternative fee arrangement
increase the efficiency of the legal process, and outside counsel who implement these
strategies become attractive to business managers seeking cost-effective solutions.
This paper provides an overview of early case assessment strategies and discusses
the partnering relationship between corporate counsel, the business client and outside
counsel that both creates efficient business solutions to legal problems and distinguishes
the alternative fee approach from the traditional system of hourly billing.
INTRODUCTION
Early case assessment (ECA) defines at the outset the client’s goals and suggests
milestones that can be expected to mark the progress of the lawsuit. With such
milestones in place, alternative billing strategies can be designed to reward outside
counsel for meeting or exceeding intermediate goals, or almost as importantly, alert the
1
Gardner G. Courson is Vice President and General Counsel of Tyco Fire and Security in Boca Raton,
Florida. Deborah D. Kuchler is a shareholder of Abbott, Simses & Kuchler in the firm’s New Orleans,
Louisisana, office. The authors wish to acknowledge the assistance of Geoffrey MacArthur in the
preparation of this article.
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parties that another look must be given to the desired outcome in the end so as to prevent
out-of-control costs. Without an ECA to define what “success” will be, attorney and
client have no means of either rewarding efficiency or applying corrective action to
inefficiencies by outside counsel. Likewise, without an ECA to define what outcomes
should be avoided, there is little to stop the long, protracted and expensive march towards
trial. The combination of an effective ECA and an alternative fee arrangement provides
incentive for the outside counsel to give the most efficient services he can, secure in the
knowledge his efficiency will be rewarded. The client, likewise, knows that realistic
goals have been set through the ECA process and through the alternative fee structure
knows that he receives value based upon paying for results rather than for time alone. A
“success goal” based on a desired outcome and realistic budget should be the aim of the
early case assessment.2
DETERMINING THE DESIRED OUTCOME OF LITIGATION
One of the primary goals of the ECA should be to determine the intrinsic value of
the case.3 When seeking a creative business solution, the question should be, “What
approach best serves the client’s business objectives?” Answering this question will
involve analysis of both the costs of litigation and the potential exposure the client faces.
Of course, these will vary depending upon the individual case. The client and its outside
counsel will have to assess the business in which the client is engaged, the current legal
climate, the specific jurisdiction in which litigation is pending, and the likelihood of
success in the litigation.
For example, in a case where the client has an ongoing and lucrative business
relationship with the opposing party in a lawsuit, although there may be no actual liability
on the client’s part the client may wish to quickly resolve the matter in the interest of
continued, good relations. On the other hand, where an industrial client repeatedly faces
frivolous suits based upon the same general allegations, that client may wish to adopt an
aggressive “take no prisoners” approach in an attempt to stem the flow of additional
lawsuits.
One thing is certain: the ECA process needs to be more fluid and creative and
less traditional and rote. It should involve the free-flowing exchange of information and
ideas among corporate counsel, the business client and outside counsel. And, the
ultimate issue should not be how to manage the litigation so much as how to craft a
business solution that meets the needs of the client. That business solution may bear little
resemblance to a traditional approach to defending a lawsuit.
Consider this hypothetical scenario. Local Transportation Company (LTC)
contracts with Fortune Five Hundred Company (FFC) to provide trucking services on a
relatively small scale. Due to an unexpected change in FFC’s plant production in the
affected vicinity, FFC no longer requires the trucking services and stops calling upon
LTC. LTC files suit against FFC claiming breach of contract and seeking multi-million
2
3
Law Practice Today, Interview with Rick Simses, November 2004.
Joseph J. Ortego and Glen M. Vogel, Practical Litigator, May 2002.
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dollar damages. FFC has two options in defending the lawsuit: (1) the traditional
approach; and (2) the non-traditional approach.
Under the traditional approach, FFC’s corporate counsel retains Outside Counsel
(OC) on an hourly billing basis. OC seeks an extension to file responsive pleadings, then
prepares and files responsive pleadings, and begins the routine discovery process. OC
propounds extensive discovery upon LTC. LTC, likewise, propounds written discovery
upon FFC. Six months pass before any meaningful activity takes place.
OC eventually begins the painstaking ritual of gathering documents and
interviewing company witnesses. OC prepares extensive objections and engages in
motion practice defending those objections, seeking to protect privileged documents, etc.
Voluminous documents are ultimately produced, many reflecting internal
communications among FFC’s employees acknowledging breach of the contract.
Corporate witnesses are prepared and presented for deposition. OC also engages in
extensive discovery of LTC’s damage claim.
Two years pass before the case comes up for trial. Sixty days before trial OC
transmits a pre-trial report to FFC recommending that FFC consider settling the case for
some fraction of the amount sought. While settlement is being considered, pre-trial
preparations are ongoing. Mediation is conducted over a two-day period, and, finally, a
week before trial, the case settles. FFC paid a substantial sum to LTC for the breached
contract, and OC made a hefty fee for two and a half years of work. In addition to OC’s
fees which totaled $220,000, FFC had incurred other transactional costs associated with
the retention of witnesses, imaging and management of documents, discovery expenses,
etc. FFC also suffered the business interruption associated with the document sweep and
depositions of its employees.
Now, entertain a non-traditional proactive approach where the corporate counsel,
the business client and OC work together from the outset to address the problem. As
soon as the Complaint is served upon FFC, corporate counsel hires OC on an alternative
fee basis. Together corporate counsel and OC agree to set goals by which OC’s
performance will be judged. OC will charge her traditional hourly rate but 20% of that
rate will be held back until performance is assessed. If OC does not meet the
performance goals, she will earn only 80% of her hourly rate. If OC meets the
performance goals, she will receive the held-back amount and “be made whole.” If she
exceeds the performance goals, she will receive the held-back amount plus a bonus of
three times the hold back.
Corporate counsel gathers the key documents, including incriminating e-mails,
and quickly makes those documents and key company witnesses available to OC for brief
telephonic interviews. It is immediately apparent to corporate counsel and OC that the
contract was breached. They consult with the business client and learn that in the time
that has passed since the original breach, the business climate has returned to its original
position such that FFC could now honor the contract.
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Discovery requests have now been served upon FFC by LTC. Rather than
routinely beginning to prepare responses, OC calls LTC’s counsel to begin a dialogue
designed to achieve an early resolution of the case and obtains an indefinite extension of
time to respond to those discovery requests. OC also learns, during the course of these
informal discussions with LTC’s counsel, that LTC very much valued its relationship
with FFC. Because LTC was a small company, it cherished the ability to list FFC among
its clients, seeing this as a distinct marketing advantage. OC explores the possibility that
the contract could be revived, thereby meeting LTC’s business and marketing needs and
ending the lawsuit. Ultimately, LTC agrees to provide the transportation services to FFC
for a 5% reduction off the original contract price, and FFC agrees to utilize the
transportation services at a rate that would provide a nice profit to LTC. The business
clients at FFC and LTC are both happy.
OC exceeded her performance objectives because she resolved the lawsuit quickly
and for minimal expense. She received the performance bonus and, in the end, earned
significantly more than her hourly rate for the work she did. FFC’s corporate counsel and
the business client were happy because the total legal fees amounted to $20,000 and were
so satisfied with the results of her work, they will certainly send her additional cases.
FFC ended the litigation without producing any documents, without putting up any
company witnesses for deposition, and without paying any money in settlement.
This was truly a win-win situation for all involved – a win that would never have
occurred without a meaningful ECA and an effective partnering of inside counsel, outside
counsel and business client. But, of course, there is no “one size fits all” approach to
effective litigation management.
DIFFERING APPROACHES TO LITIGATION: COMPANY STORIES
Toro Company
Toro Company, the lawn equipment manufacturer, has adopted a strategy
whereby every effort is made to settle products liability claims immediately.4 Prior to
1988, Toro had the type of scorched-earth litigation policy espoused by many major
corporations. However, after being faced with a $1,000,000 jury verdict that year, the
company evaluated its litigation department and found that it was paying an average of
$115,000 per claim in legal fees, settlements, and judgments. In an effort to reduce this
amount, Toro adopted a strategy whereby claims were aggressively settled – in most
cases before a claimant filed suit. Upon receiving notification from a dealership or
distributor of a customer’s injury, Toro dispatches an engineer and a paralegal to the
injured customer’s residence to investigate the merits of the claim. The Toro paralegal is
vested with the authority to make a settlement on the spot for the customer’s actual
medical expenses and pain and suffering, usually in the mid-five-figures. The roughly
30% of cases not resolved in this manner are sent to mediation. In the handful of cases
for which even mediation is not successful and suit is brought, all claims to date have
been dismissed on summary judgment. Not only has Toro reduced its average payout to
4
Ashby Jones, “Bullish on Settling” September 24, 2004. See http://www.law.com for further details.
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$35,000 – a savings of $80,000 per claim – they “have not set foot” in a courtroom since
1994. The head of Toro’s settlement program, Andrew Byers, insists that the aggressive
settlement policy is neither a failure to stand by Toro’s workmanship nor an admission
that the company is a “soft target.” According to Byers, “You can think you have the
best case in the world, but if a jury thinks otherwise, you get killed.”5
Ford Motor Company
At the other end of the spectrum is a corporation such as the Ford Motor
Company.6 In an effort to change the law regarding punitive damages in products
liability, Ford has adopted a strategy of “creative and aggressive litigation” to harness the
power of courts to make law. For a company like Ford, such a strategy may be best
because of the considerable amounts of their products in use around the world and the
likelihood of facing the same litigation on a repeated basis in different venues. Coupled
with the lack of standards regarding punitive damages or an ability to predict the amount
of such awards, the cost of ongoing litigation for Ford may be worth the benefit of
bringing certainty to this area of the law.
DuPont
DuPont specifically tailors its litigation strategy on a case-by-case basis or by
families of cases after analysis in the ECA process.7 DuPont views litigation decisions
as being fundamentally similar to other business issues. There is neither an insistence on
defending lawsuits at any cost nor an emphasis on settling whenever possible. Rather,
business principles such as “risk” and “cost/benefit” are very much applicable in the ECA
process as the team assesses what constitutes a favorable resolution of each case. While
that could mean litigating a case through verdict, it might also mean an early resolution
through settlement, mediation, or arbitration. ECA defines what it means to “win” a case,
and then charts an appropriate strategy designed to meet both business and litigation
objectives.
For several years DuPont has used advanced statistical processes such as Six
Sigma to measure quality. This has made it possible to accurately measure the success of
early assessment programs. The DuPont Legal team joined with the accounting firm of
Deloitte & Touche to evaluate the effectiveness of Six Sigma in managing the DuPont
ECA program.8 The study revealed that the key factors in achieving a successful
outcome were the timeliness and comprehensiveness of the ECA itself, having a clearly
expressed strategy and budget, and documentation for the process. The disciplined use of
ECA resulted in an average 28% reduction in the cost of litigation, in addition to
increased satisfaction of the business client.
5
Id.
John M. Rintamaki and Theodore J. Boutrous, Jr., “Successful Partnering Between Inside and Outside
Counsel” Chapter 80, December 2004.
7
“The Competitive Edge: The Growing Power of the DuPont Legal Model, 4 th Edition” by Thomas L.
Sager and Julie S. Mazza (E.I. DuPont de Nemours, 2005).
8
Gardner G. Courson and Thomas L. Sager, “Metrics for Success in DuPont’s Legal Risk Analysis” (May
2002).
6
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THE CASE AGAINST HOURLY BILLING
Paying outside counsel by the hour incentivizes the opposite behavior that clients
need and want in their lawyers: it rewards those who take longer to get the job done and
financially penalizes those who do the work quickly and efficiently. 9 Rather than
encouraging outside counsel to resolve cases quickly, hourly billing financially rewards
counsel for engaging in a protracted process because the law firm, and presumably the
individual lawyer, are compensated not according to the result but according to the
number of billable hours recorded. Apart from the outside lawyer’s desire to retain the
client’s business, what incentives are built into the hourly billing paradigm to foster
creativity and shorten the life cycle of litigation? The billable hour essentially leaves the
risk of litigation on the client’s shoulders and allows counsel to achieve a profit without
putting any “skin in the game.”
THE CASE FOR ALTERNATIVE BILLING
Alternative fee arrangements provide an intriguing way to restructure the basic
philosophy by which litigation is managed.10 They insist that outside counsel be placed
at some risk – apart from the risk of losing the business for exceptionally inefficient or
unsuccessful performance. Under a creative fee agreement, outside counsel have greater
reason to reduce costs and implement efficient and effective litigation strategies: doing
so will directly impact their bottom line.
There are many varieties of alternative billing, limited only by the imaginations of
those involved in formulating them. They can range from the simple to the sublime –
from flat fee agreements to complicated structures of discounts, hold backs and bonuses.
All, of course, need to comply with ethical constraints.11
Wal-Mart
Many corporations are reluctant to adopt simple flat fee arrangements. At one
time, Wal-Mart had flat fee relationships with outside counsel – firms would be given
exclusivity in certain markets in exchange for a flat fee per case. The rationale for this
approach was the belief that hourly billing did not promote value in legal work. So, WalMart “desired to eliminate hourly billing completely, not just in Wal-Mart, but the legal
9
See, e.g., Theda C. Snyder, Incentive Legal Billing in Litigated Cases, L. PRAC. MGMT., Apr. 1998, at
25, Thomas L. Sager, All Corporate Lawyers Should Embrace Alternative Billing, CORP. LEGAL TIMES,
Aug. 1997; Peter D. Zeughauser, Using Alternative Fee Arrangements to Improve Client Relationships,
Law Firm Profitability and Results, L. PRAC. MGMT., Apr. 1997, at 22; Dick Dahl, Share the Pain, Share
the Gain, 82 A.B.A.J., June 1996, at 68; Darlene Ricker, The Vanishing Hourly Fee, 80 A.B.A.J., Mar.
1994, at 66.
10
See, James D. Shomper and Gardner G. Courson, “Alternative Fees for Litigation: Improved Control and
Higher Value, ACCA Docket (May 2000).
11
See, e.g., Lee A. Watson, Note Communication, Honesty, and Contract: Three Buzzwords for
Maintaining Ethical Hourly Billing, 11 GEO. J. LEGAL ETHICS 189, 197 (1998); ABA Informal LEO
1389 (July 14, 1977); ABA Formal LEO 373 (April 16, 1993).
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profession in total.”12 Use of a fixed fee raises the specter that a law firm could cross an
ethical line between efficiency and “cutting corners” because it is in a firm’s economic
advantage (at least in the short-term) to perform the work in as little time as possible and
by junior associates with lower hourly rates. Today, while Wal-Mart remains open to the
use of alternative fee arrangements with outside counsel, it is avoiding the flat fee system
because of concerns that the professionalism of outside firms may be strained.
FMC Technologies, Inc.
FMC Technologies, Inc. (FMCTI) employs a risk management approach to
litigation. Jeffrey Carr, Vice President, General Counsel and Secretary of FMCTI
considers himself “. . . a business person with legal training who should be helping the
company make money."13 To accomplish that mission, FMCTI’s law department looks
for its outside counsel to bring to bear resources commensurate with the risk. According
to Carr, “We don’t need, can't afford, and will not pay for a 100% effort on all issues."14
In addition to applying only as much resources as the risk dictates, FMCTI uses and
insists that its outside counsel use technology to drive efficiency in the management of
legal issues. Of course, to define the risk and develop a suitable plan to address that risk
requires skillful early case assessment. To provide structure for the process, Carr
developed a proprietary management system called Alliance Counsel Engagement
System or ACES™ (patent pending). It combines essential early and ongoing case
assessment with an alternative fee structure that forces outside counsel to put their money
where their mouth is.
ACES™ involves a two-prong approach to litigation: First, FMCTI must
formulate a definition of success taking into account the specifics of the legal issue at
hand. At this stage of the early case assessment process, FMCTI and its outside counsel
come to a “meeting of the minds” as to what the goals are and how they are to be
achieved. Second, ACES applies a performance-based fee structure to reward the
achievement of the stated goals and to tax their under-achievement. Under this paradigm,
not only is outside counsel handsomely rewarded for exceptional performance of the
client’s goals, they are held financially accountable for budget overruns, poor
performance, and inefficiency.15
CONCLUSION
Critical to the successful resolution of a legal problem in a cost-effective
businesslike manner is a prompt evaluation of the problem itself and along with
assessment of the best solution. Whether that solution is to defend the suit at all costs or
reach a quick settlement or any solution in between, a quality Early Case Assessment
Thomas C. Ewing, “Successful Partnering Between Inside and Outside Counsel” Chapter 79, December
2004.
13
John O. Kelly, FMC Technologies Case Study: Adding Value Through Alignment of Corporate Goals
and Legal Service Provider Objectives, Legal Thought Leader, Vol. 2, Issue 1, Jan/Feb 2002.
14
Id.
15
Corporate Legal Times, April 2002.
12
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program will ensure that a case is properly valued and that alternative fee arrangements
are considered to reach the most cost effective solution.
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