Tuesday, April 22, 2008

What About the Lose – Lose Part?

Steve is correct we are old friends, and spent most of our time prior to this exchange talking about sailing. Steve is also someone who can make the best counterpoint case, so the exchange should be quite interesting to you readers.

Steve’s position has two major flaws. The first is he offers no explanation why all the problems identified in the ACC piece can not be adequately addressed simply by being an effective provider of legal services. Do you need to be in a partnership to have the firm provide a competent litigator? I never was in a partnership with outside counsel and I never had a law firm provide a litigator that did not meet my expectations. They couldn’t. I had more litigation experience than most of their litigators; I would know in the first few minutes of conversation whether there was a problem. Relying on a faulty recommendation is an example of not making an independent assessment of the competence of the person you are hiring—not a result of not being in a partnership. Steve has not demonstrated why any of the problems identified by the ACC participants could not be adequately addressed by insuring that person making the purchasing decision has the skill and judgment to ascertain the quality and cost effectiveness of the service provider. If the service provider does a good job at a low cost they get hired again—what does a partnership add.

Second, the classic notion of a partnership requires not only sharing the profits, but also sharing the losses, and that is where the partnership model totally breaks down. Most in-house counsel would not embrace the notion that when the outside counsel goes they go as well. In fact none of the ACC participants who described this notion of a partnership even hinted at such a close connection. House counsel’s reward system and objectives are inherently inconsistent with the outside legal service provider. Their compensation should go up when the outside firm’s goes down either because they are providing more cost effective services in-house or they have become more effective in eliminating the need for costly outside services. When we eliminated what was becoming an epidemic of claims under the “scaffolding law” provision of the New York labor law by trying cases to verdict, and winning a sufficient number to make contingency litigation uneconomic, my compensation was not threatened, in fact my compensation went up and would continue higher to extent that our plant operations were less costly. If an outside, firm had done the same thing they would have to replace that stream of lucrative income with the same or larger source, and such replacement is not a realistic expectation. Trying to construct a win-win in this case is simply not possible.

So why do house counsel keep insisting on having their relationship with outside counsel described as a partnership?(It is ironic that the notion of a partnership with one’s outside law firm is in favor, when the idea that the traditional relationship in a partnership among members of law firms seems to be coming into question. Sidley and Austin was sued on behalf of partners at the firm, who claimed they were employees and their partnership was a de facto corporation. See: Equal Employment Opportunity Commission vs. Sidley Austin Brown & Wood, 2002 US App. LEXIS 22152, 90 Fair Employment Practice Cases 145 (BNA) October 24, 2002) That is a topic of another blog.

-Larry Salibra
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Steve Bokat said...

Larry, for all his talk about sailing, has “missed the boat.” Clearly, the ACC Docket article (“Memo to Law Firms: Make it a True Partnership”, April 2008, p. 99) did not suggest a literal partnership. Rather, it envisioned a corporate client having an on-going relationship with an outside lawyer, whereby the outside lawyer understood the peculiarities of the client’s business and needs. The communication between client and lawyer that followed would improve the delivery of legal services.

The focus of the article was improving communications between lawyer and client so there were no surprises for the in-house lawyer. Larry seems to suggest that all is needed is the ability of the “person making the purchasing decision” [having] the skill and judgment to ascertain the quality and cost effectiveness of the service provider.” Then it is hands off while the outside lawyer goes off and litigates the case.

But certainly that is not enough. Is this a case or issue involving the corporate CEO? Will the outside lawyer be able to get along with the CEO? Can he speak English, rather than legalese? Is he sensitive to the time demands placed on the corporate counsel when the CEO bellows at 4:00 pm that he wants the legal analysis of a big deal on his desk at 8:30 am the next morning? Does the outside lawyer understand the business well enough to discuss the intricacies of that business with the CEO?

These kinds of factors are not always readily apparent when you first meet a lawyer. And often, these more subtle forms of understanding often develop over an extended time. It is this kind of more intimate relationship that was encompassed in the use of the term “partnership.”

And a true partner is sensitive to cost control demands on the in-house counsel.
Yes, these relationships can go further where there is a sharing of profit and loss related to the outcome of litigation. Some firms receive bonuses when they win cases, and their compensation decreases when they lose. While that is the exception, the outside counsel who is not sensitive to cost concerns will not be a partner for long.

If Larry never had such a relationship with outside counsel during his long and successful career, I would be truly surprised. If that were so, then he truly missed the boat.

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