Litigation Cost Control : Civil Litigation Lawyer & Attorney : Fred Fresard Law Firm : Alternative Billing, Retainer Contracts

Law department management expert Rees Morrison extolls the virtues of decision-tree budgeting in a    recent   post. Mr. Morrison is a recognized authority on in-house counsel cost control techniques, and his endorsement of this very effective cost containment tool speaks volumes. (Mr. Morrison also has an earlier post on the software available for creating these decision tree budgets.)

Virtually all corporate clients now require some kind of litigation budget for hourly work. As I have discussed in previous postings, it is a challenge to craft a budget that takes into account all the vagaries of high stakes litigation. The decision-tree method is an excellent tool for addressing these challenges. Decision-tree budgeting provides the client with a road map of the range of litigation costs she is facing. The tree breaks the case down into segments and allows the client to see what it will cost to get to various stages in the litigation.  The client can then strategize in advance how to respond to significant events, such as denial of a motion for summary judgment. The client thus gets predictability and control over her litigation costs, which is the goal of any cost-conscious litigation management professional.  

Decision trees also help the litigation attorney solidify his overall strategy in the case. When an attorney sits down and crafts a decision tree budget, the case plan takes shape. Future "if-then" decisions become readily apparent, and everyone on the case team knows where they are going. The entire case is now reduced to writing, allowing informed decision-making with regard to tactics and expenses.  Also, budget amendments can be limited to specific sections of the "tree," so both client and outside counsel have a clear understanding of what was changed and how much it changed.

Decision tree budgeting, then, accomplishes both goals of an effective litigation cost control program: it preserves the quality of the legal representation while allowing the client to predict and contain the costs of the litigation. And that's why people like Rees Morrison rave about it.  

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Step 2: Carefully prepare for the deposition -- logistically and analytically -- to minimize the downsides inherent in remote examination. The second step in conducting an effective remote examination of a deponent is the logistical and analytical preparation. That is, the attorney must ensure that all of the practical components are in place to ensure the deposition goes ahead as planned, while also preparing for the deposition differently than she would for an in-person examination. 

Initially, the examining attorney must decide if a telephone deposition is adequate, or if video will be required. Obviously, video-conference is preferred, but not always available. Although video-conferencing technology has come a long way, it still generally requires that the deponent go to a court reporter's office or other facility with video-conferencing capability. Video-conferencing also increases the likelihood of something going wrong, since more technology is involved. If the witness is important, though, video-conferencing is worth the trouble.   

Another practical consideration before commencing the examination is how to manage exhibits. In a big case, it is a rare deposition that does not involve the review of any documents. Accordingly, the witness must have hard copies of the the exhibits. A critical preparation step is to ensure that any exhibits that will be used at the deposition are sent to the court reporter ahead of time. The exhibits are then on the table in front of the witness when the examination commences.

If the examiner does not want to show her hand, an alternative is to use an on-line remote presentation site such as WebEx or Live Meeting. The exhibits can then be displayed on a screen for the witness to review while being examined. This method only works when there are few exhibits, and the documents are not voluminous. When confronted with a large document, a witness may request the opportunity to examine the entire document before further questioning. If the document is not available in hard copy for the witness, opposing counsel might cry foul. Another downside of electronically presenting exhibits is that the witness cannot be directed to annotate documents. This is particularly problematic with photographic exhibits. Often, a witness is asked to circle and initial specific points in a photograph. Although some software allows for annotation and printing, the process can be cumbersome. One solution is to send the court reporter actual copies of important exhibits that the examiner knows, in advance, she will want the witness to annotate.  

After preparing for the logistics of the deposition, the examiner needs to consider any modifications to the actual examination to account for not being in the room with the witness. A particularly evasive or difficult witness is even more difficult to control over the phone. So, the examination may need to be tighter and more forceful than usual. The parties also tire more quickly over the telephone, so the examination should be structured to get into the important issues early. Finally, not being present in the room allows the witness to communicate more with his attorney. The attorney and witness may use body language to give each other cues that they would never use if the examiner was present in the room. 

Remote examination should not be undertaken lightly. Not all witnesses are candidates, and more preparation is required than for a typical deposition. I have found that negotiating agreements with opposing counsel early on in the case can resolve many of the downsides inherent in remote examination. With these advance agreements and thorough preparation, phone and video-conference depositions can be very effective litigation cost control tools. 

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Robert C. Mattern of Mattern & Associates LLC has an excellent piece on Law.com about how well-managed firms can survive and thrive in the current climate.  In his article, entitled How to Face a Triple Threat: The impact of economy, cost recovery and alternative billing on Big Law, Mr. Mattern outlines the three threats facing firms today, and how a nimble management structure can allow a firm to take advantage of these challenges:

While everyone is talking about the current economic situation and the impact it has had on attorneys, it is only one facet of a three-pronged attack on the operational side of law firms and how they manage the practice of law. The other issues law firms are facing are the changes in the cost recovery landscape, and the increase of alternative fee arrangements. As with the current economic situation, both of these areas represent opportunities for the firms that embrace and adapt to the changes that are occurring in the marketplace.

Mr. Mattern notes that in the current economic climate, firms must gear their services and use of technology to respond effectively to the ups and downs of turbulent financial conditions.  He also points out that while many firms have moved to scanning and printing documents rather than copying them, most firms have failed to institute new cost recovery programs to recover the cost of scanning and printing.  Finally, he discusses the challenges in dealing with cost recovery under flat fee and performance-based billing arrangements.

Mr. Mattern's article captures three of the serious challenges being faced by law firms today. Add to these burdens inflated associate compensation structures, ever increasing outside vendor costs and decreased matter volume, and it is clear that law firms have their management hands full.  

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Step 1: In consultation with your client, asses the witness and their potential testimony to determine whether remote examination is appropriate. The suitability of a deponent for remote examination depends on the importance of the witness to the ultimate outcome of the case, and the potential length and complexity of their testimony.

In every case, the witnesses vary in importance to the outcome of the litigation. Often, several witnesses who must be deposed whom the attorney knows in advance are unlikely to have much useful information. These witnesses are prime candidates for remote examination. A very minor player, such as a firefighter who merely directed traffic at an accident scene, is typically an ideal candidate for remote examination. Those decisions are easy. As we move along the spectrum to more important witnesses, such as family members, scene witnesses, and even some treating physicians, more judgment is required. But those witnesses are still very strong candidates for remote examination. The decisions start to get harder and require very careful consideration and judgment as we move to critical eyewitnesses, major treating physicians and experts. It may be that the need to lay eyes on these witnesses far outweighs the benefits of cost savings.

The second factor in determining the suitability of a deponent for remote examination is the potential length and complexity of the examination. If it is anticipated that the examination will take much of a day, dozens of hundreds of exhibits, and review of numerous photographs or video, the deponent is probably not a good candidate for remote examination. Oftentimes, the importance of the witness and the complexity of the examination are aligned, making the decision fairly straightforward. Other times, it’s a tough call. In any event, careful judgment and consideration of the risks is always required.

During this period of assessment and consideration, and before the final decision is made, consultation with the client is required. Part of giving value to clients is to keep them involved in decision making on cost cutting measures. As I have discussed in many previous postings, imposing cost saving measures often requires some risk taking by both client and lawyer, and a high degree of mutual trust. Involving the client in the decision about which witnesses to depose by telephone or video conference enhances the level of mutual trust, and allows both parties to feel that they have shouldered the risk equally.

My next posting on this topic will discuss Step 2: Carefully prepare for the deposition -- logistically and analytically -- to minimize the downsides inherent in remote examination.

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Conducting depositions by telephone or video-conference, which I call “remote examination,” is becoming increasingly popular. Clients and their outside counsel are changing the way they practice to control their litigation costs, and one of those changes is to seriously look at using remote examination to save on time and travel costs. While the cost savings are substantial, it is critical that you take three necessary steps to protect your client's interests when conducting remote examinations.  Follow these three steps, and you will increase the likelihood of conducting a thorough and high value examination:

1. In consultation with your client, asses the witness and their potential testimony to determine whether remote examination is appropriate;
2. Carefully prepare for the deposition -- logistically and analytically -- to minimize the downsides inherent in remote examination; and
3. Conduct the deposition in a manner that maximizes the effectiveness of your examination despite the limitations of not being present in person.

Following these three crucial steps will allow you to conduct a robust and effective examination of the witness while saving you and your client money. This is the first of a series of four postings. The next three postings will discuss these steps in more detail, so you and your client can garner the efficiencies of remote examination without compromising the defense or prosecution of your case.

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In my July 9, 2009, post Overbilling Is Billing Fraud And It Hurts Us All, I lamented the fact that clients who trust their lawyers to handle their most sensitive matters do not trust their lawyers to be honest in their billings. Lawyers, on the other hand, do not believe their clients' justifications for refusing to raise their hourly rates. This mutual distrust is one of the greatest downsides of the hourly rate billing model. As clients are under greater pressure every year to cut their outside counsel costs, they feel they have no choice but to hold the line on hourly rates.  In response, many firms with outdated business models find themselves tempted to double bill and impose minimal time entries for routine tasks. As I noted in my July 9 post, nearly half of all lawyers surveyed do not believe practices such as double-billing are unethical.  So the game goes on.  

But it's a game that is damaging our profession. Outside lawyers need to change the way they do business so that clients trust them again. Clients need to be open to new fee arrangements that eliminate the cat-and-mouse games. Alternative fee arrangements can go a long way toward restoring this mutual trust and building a true team spirit. Alternative fee arrangements such as annual retainers and per-matter flat fees eliminate any temptation to engage in "creative billing." An attorney handling multiple matters under an annual retainer, for example, has no incentive to double bill. If he writes the brief for the Burns case while flying to a site inspection for the Smithers case, it does him no good to bill both files.  In fact, the incentive is quite the opposite. The lawyer needs to maximize efficiency, so working on the Burns case while traveling for the Smithers case actually increases his profitability. And the client has predictable, controlled litigation costs.

Getting to that point of mutual trust, however, takes some real courage and a willingness by the lawyer and client to trust each other as they never have before. Negotiating an alternative fee arrangement that works, and doesn't result in disaster for the client or the firm, requires a level of candidness unfamiliar to either party. The most successful alternative fee arrangements begin with the firm and the client showing their books to each other.  The client needs to openly show its historical billing data, and frankly discuss its cost-savings goals with outside counsel. The firm needs to be willing to take risks, to change its business model, and ultimately to provide billing data so both parties know whether anyone is getting gouged or getting a windfall.  

In her June 9, 2009, The American Lawyer article, GCs, Law Firms and Flat Fee Arrangements: A Matter of Trust, Amy Miller gets insight from several DuPont outside counsel on the need for openness between the client and the law firm to make alternative fee arrangements a success. As she says at the beginning of her piece,

Making such agreements work for both the company and its law firms takes more than an innovative proposal and a solid pitch. The success of any alternative fee arrangement depends on mutual trust...

In my experience, the mutual trust and openness required to even begin discussing an alternative fee arrangement immediately strengthens the attorney-client relationship. By the time a deal is inked, both players have everything riding on each other.  Both the client and the law firm now need to work together to make the fee arrangement work. You are a team in every sense of the word. And it's a a wonderful feeling to not only exchange high fives after big wins, but also when you both close your books at the end of the year.

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 John Conlon just wrote an excellent piece on lawyer overbilling at Claims Magazine's website.  His July 8, 2009, article, entitled Fleecing the Golden Goose: Why Insurers Need a Defense to Overbilling Lawyers, discusses how some defense firms openly attempt to defraud their clients by overbilling, and how clients can try to stop them. The fact that such practices are considered "business as usual" in some circles should make all of us wonder what has happened to our profession's ethical standards and our sense of client service.

In his article, Mr. Conlon notes that defense attorneys not only routinely overbill, but many consider practices such as double billing to be perfectly ethical. Mr. Conlon cites to the results of surveys conducted by respected overbilling expert William Ross showing that attitudes about overbilling are moving in the wrong direction:

...the percentage of attorneys who believed that "double billing" was unethical fell from 64.7 percent in the 1995-1996 survey to 51.8 percent in the 2006-2007 survey. (To view past survey results on lawyer billing abuses, click here.)

Mr. Conlon goes on to discuss the tools available to clients for monitoring invoices and flagging suspicious time entries. He recommends three methods available to clients to prevent overbilling -- hiring only reputable lawyers, securing lower hourly rates, and having solid litigation plans. He notes, however, that clients who secure discounted rates often find their lawyers padding their hours to make up the difference. Mr. Conlon then provides an excellent overview of some of the tools available to clients to identify and stop unethical billing practices. These include  imposing very clear guidelines, implementing e-billing programs, and carefully reviewing bills.

While Mr. Conlon's article provides some great solutions to the problem of overbilling, the mere fact that clients must put processes in place to catch their own lawyers is a sad testament to the state of our profession. Clients retain lawyers to protect their most important interests and keep their deepest confidences. Clients make very important decisions based on the advice we give them.  It is truly lamentable that the other end of this trusting relationship is a game of cat-and-mouse where lawyers try to defraud their clients and clients try to catch them.

You can dismiss these practices as the work of a few unscrupulous lawyers. But fraudulent billing in the legal profession damages all of us. Don't think so? When I first started practicing, the firm would send the client a one-line invoice with a lump sum that read, "For Professional Services Rendered." Imagine the trust that those clients had in their outside counsel.  Now try to imagine your client having that same level of trust in you.  

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Two of the most effective tools for the cost-conscious litigation attorney are forms and checklists. I'm not talking about "do-it-yourself" forms like those on www.legalzoom.com or the forms provided by the court clerk. I'm talking about forms and checklists carefully drafted by counsel who manage pattern or high volume litigation. Correctly prepared forms and checklists give clear direction to the team and provide your client with superior value. Like many efficiency tools, however, forms and checklists can be dangerous if misused. Attorneys who rely too much on these tools risk abandoning their client service obligations. Our job is to analyze the issues, apply our legal judgment, and provide our clients with sound legal advice. Forms and checklists are not a substitute for any of those professional obligations.

Used properly, forms and checklists are powerful efficiency tools. Form discovery gives associates and paralegals a solid foundation from which to craft case-specific requests.  As lead counsel, you can rest assured that you will obtain the basic information you need in every case -- but only if your form discovery is well-crafted in the first place.  The cost-conscious litigator should invest significant time in drafting the “perfect” set of form initial discovery.  The form is only the starting point.  Your team members and you still need to customize each set for each matter.  The "perfect" set of form discovery garners significant efficiency gains up front by allowing the team to focus on only those revisions and additions necessary for each particular case. To maintain these efficiencies, lead counsel needs to periodically update the forms.  Times change and the discovery must change with it.  For example, form discovery requests generated only three years ago might not include requests for MySpace or FaceBook information. Court rules get amended and cases get handed down.  The cost-effective attorney is the one who manages this tension between keeping hours low with forms and keeping quality high with customization and updates.  

Like forms, checklists are also powerful efficiency tools that must be carefully drafted and constantly updated.  Litigation checklists are merely a starting point.  They allow a busy trial attorney to confirm that tasks are getting done, and to track when they are getting done.  Under traditional hourly billing arrangements, the firm profited from lengthy team meetings where timebillers exhaustively reviewed the tasks to be completed on a case, even when most of those tasks are common to every litigation matter.  Checklists help litigation attorneys provide the same level of service to clients without the exorbitant hourly billings generated by these time-consuming team meetings.  To be sure, lead counsel still needs to sit down with the team to develop strategy and provide tactical guidance.  As with forms, checklists are no substitute for analysis, judgment and advice.  Checklists are a starting point, and need to be updated and customized just like forms.

In a national practice, creating and maintaining effective forms and checklists is very challenging. The modifications required for different jurisdictions can take as much time as drafting the material from scratch.  A litigation attorney with a busy national practice must invest in the software required to manage a library of forms and checklists specific to certain venues. For example, a significant part of my practice involves cases pending in federal courts around the country.   Even though the Federal Rules of Civil Procedure and Rules of Evidence are applied universally in all federal courts, local rules still vary.  Accordingly, I must maintain forms and checklists for different venues in a text-searchable database.  With such a database, creating, retrieving, customizing and updating the forms is very efficient and provides my clients with great value for their outside counsel dollar.

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