Rule of Law or Rule of Men?

We in the US promote the notion that our society is based on the Rule of Law, not the Rule of Men. However, each day judicial decisions come down that suggest that we may only be fooling ourselves.

One of the most adamant proponents of the notion that law is an immutable doctrine whose meaning is set at the time the legal doctrine is established is Justice Scalia. Scalia’s originialist doctrine asserts that the US Constitution is not a living document which adapts to the times; its meaning was frozen at the time it was written. Scalia’s thesis is that if you permit flexibility, then there are no restraints on what judges can do.

The Scalia thesis makes sense and I believe he applies it equally to the interpretation of statutes. He is not enthusiastic about looking at legislative history, knowing full well that unsuccessful legislators who lose in the legislative process try to pack the history with statements that sympathetic judges can latch upon to rewrite the statute.

Perhaps the most obvious excuse that judges use to impose their own views is the notion that a statute can be interpreted beyond the bounds of its language “because that statute is a remedial statute.” When judges used that rationalization on me I challenged them to give me one example of a statute that was not remedial.

Unfortunately, even Scalia has stumbled off the wagon when political expediency required. In a case I argued before the Supreme Court a number of years ago, the foreign national companies and associated amicus countries had trapped the Supreme Court into facing the issue of the constitutionality of worldwide combined apportionment (a state tax that included non-domestically derived income in the apportionment the tax base) in the context of whether a foreign parent had standing because its income was being taxed. Since foreign parents had no state remedy, the Tax Injunction Act did not bar a federal court remedy. Three circuits, one en banc, had held with no dissents that the Tax Injunction Act did not bar a foreign parent action.

The political reality of those days was “states rights” of the Reagan Era. A disingenuous Supreme Court held that resolving the standing issue was “too hard”, but they did not have to face the issue since they dismissed the case 9-0 holding the Tax Injunction Act barred the federal action. The Tax Injunction Act clearly did not apply to this situation as the Circuit Courts had uniformly held because Congress never conceived of such a tax situation when the Act was passed. However, even Scalia will breathe life into a document if the political forces are in the right direction.

Why should you be concerned? Your clients require a predictable legal system, and the economic incentives of your outside counsel are inconsistent with predictability. Perhaps one of the most outrageous challenges to the Rule of Law is the persistence of the notion of non-precedential opinions. The idea that similarly situated parties can be treated differently is so antithetical to notion the rule of law it is surprising to me that in-house bar has largely been silent. At Congressional hearings on the topic a few years ago, I was the only in-house representative at a hearing largely unattended except for the judiciary and a couple academics.

Except for the late Judge Richard Arnold, the federal judiciary seems to accept the notion that they do not have to treat similarly situated parties the same. The Supreme Court has been silent on the issue because they are consumed with promulgating legal doctrines regardless if anybody pays much practical attention to them.

Take Erie v. Tompkins, the lower courts have long ago reversed The Supreme Court in practice. Numerous Circuits, outstanding among them the Ninth Circuit, of course, refuse to certify issues to the State Supreme Court for determination even though there was strident disagreement in the Circuit as to what the state law is—the majority preferring to impose their own views and paying lip service to Erie by claiming it was state law.

Then there is the chilling observation of Federal District Court Judge Polster, who said that after he was appointed to the Court and began reviewing the recent rulings of the Sixth Circuit, it became clear to him one could not determine what the law was until you knew who was on the panel making the decision—Rule of Law or Rule of Man?

-Larry Salibra
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Ruminations about Retirement

When I first thought about retiring, it seemed that a new industry had sprung up overnight. Every newspaper, magazine, television new program and web site wanted to give me advice or sell me something. Borders seemed to have a full wall devoted to books about retirement. AARP began sending me greetings. Aside from the tower of child-rearing books that teetered on my night table twenty-odd years before, never had so much been written with me in mind.

I read some stuff, mostly articles in the Wall Street Journal that my wife starred as “must read” and a really good book called “The Number” (which is NOT about figuring out your number), but some things became clear to me without aid of experts, some of it much too late. If you figured this all out already, forgive me for wasting your time. If any of this helps you, it’ll make me feel good.

First of all, it’s not about “how much do I need to retire”. Its more like “how much can I put away for retirement to make sure that I can afford the double wide and the moist cat food without living like an ascetic for the next X years”. You can’t do more than you can do, so advice like “you’ll need 80% of your pre-retirement salary” is not helpful. Why is 80% the correct number? If you are making a hefty salary in your last year of work (let’s pick $300,000) how in the world are you going to accumulate enough to pay you $240,000 a year from age 60 or 62 through 90 (since we will all live to be 90)?

Start early. Yeah, if you’re 30 and reading this, keep reading. Some practical thoughts in no specific order (I don’t give advice and I don’t fix up my single friends):

1. Find a financial advisor, preferably one who charges for his services and not one who makes his money by selling you things like whole life insurance or annuities. Ask the senior executives in your office for a referral. If you need to plan for college and retirement, it’s good to get some help as early in your career as you can.

2. Find out how much your pension will really pay you (if your company has a pension plan). The company internet site or the HR person may not have the full scoop. My pension, fairly typical, was calculated by multiplying my average salary during the ten years prior to retirement by 1.6% and then again by my years of service. So, on its face, if I worked for 25 years for the company, for each $100,000 of final average earnings, I would have $40,000 in pension. Right? Nope. From that sum we deduct: (i) 4% for each year that I collect my pension prior to age 62 (yours may be 65), (ii) a portion of my projected social security calculated pursuant to a formula (yes they take a credit for social security), and (iii) a further reduction if I want my spouse to continue to get 50% of my pension after I shuffle off (the standard way of planning)

3. When you retire, your life does not become cheaper. If you retire on Friday, what expenses have you shed by Monday? Dry cleaning? Hah! Commuting expenses? Probably. What big expenses do you lose? Let me tell you. Nothing. What expenses do you pick up? How about COBRA and long term care insurance. I can assure you that those costs more than offset the dry cleaning and commuting savings (and yeah, I’ll even throw in the cost of eating lunch out). How about “I’ve always wanted to spend a month in that little village in Tuscany, but I could never do it when I was working”?

4. Directly related to the paragraph above is the reality that if you have done everything you should do by the time you retire (your kids are out of college and your mortgage is paid) the final few years prior to retirement will give you more disposable income than you’ve ever had. You can travel, buy lots of stuff and basically do whatever you want. Then you run some numbers and realize that when you retire you may just have to give up that daily double latte from Starbucks.

5. “I can always get a job consulting” is much easier said than done (even though I have just started doing some consulting). You should not assume that someone will pay you a whole bunch of money to work 10 hours a week imparting thirty years of your knowledge to groups.

6. Notwithstanding the book that the guy just wrote about how working at Starbucks turned his life around, the bottom line is that $10 per hour for 20 hours per week (even with the medical benefits and free pound of coffee) doesn’t really cover the new roof.

I didn’t mean to scare you. I’m doing fine. I’m a volunteer teacher in an adult literacy program, sit on two boards of not-for-profits and spend time in the gym and cycling. My consulting work is nice, but not regular, and I’d rally rather volunteer than be on someone ‘s work schedule for $10 per hour.

The point is that you may live thirty plus years after retiring, most of them active. No one is going to take care of you. Your parents money may all be spent on caring for them in their last few years, so don’t bet on that inheritance. Powerball tickets are not a substitute for planning.

-Michael Schnipper
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High Performance with High Integrity

A corporate president for whom I once worked called me into his office when I was promoted to General Counsel and told me that he expected me not only to be the chief legal officer, but to be the conscience of the organization; to not only come to him when I thought a potential action was illegal, but when I thought an action was wrong. Ben Heineman makes precisely this point about in-house counsel in a new book to be published next month.
Ben Heineman, for those of you who don’t know him, was the General Counsel and later the Senior Vice President for Law and Public Policy at General Electric during the Jack Welch days. Ben, who I had the pleasure of retaining on behalf of my client when he was in private practice, retired from GE with his sterling reputation as one of the finest lawyers (in house or private practitioner) in the country intact. That in itself seems to be too much of a rarity these days, but to leave a corporation with a reputation as one of the most ethical practitioners in country, particularly when working for a CEO well known as one of the most aggressive in the country, is a feat indeed.
Ben’s book will be of keen interest to any in-house counsel. The title of Ben’s new book, High Performance with High Integrity, suggests that CEO’s and other high corporate officials would also do well to read this volume. The book, which will be published by Harvard Business Press, grew out of an April 2007 article that Ben wrote for the Harvard Business Review. According to a review of the book to be published in the June ACC Docket, Ben’s “main precept is that proper corporate governance is fundamentally the job of the CEO and senior managers, not the Board of Directors.” That strikes me, as one who practiced in-house for many years, as a reasonable belief. We know from our experience that even the most diligent Board of Directors can only hope to delve in-depth into a small number of the issues that corporate officers deal with on a daily basis.
And Heineman believes that pay should not only be linked to performance but to demonstrated integrity, as well. It will be interesting to see if Heineman suggests how corporations monitor and document integrity if it is be tied to pay. That strikes me as perhaps a difficult task.

-Steve Bokat
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Other Characteristics a Mediator Must Have to Increase the likelihood of a Successful Settlement

The only one I can think of is the ability to creatively solve problems and the willingness to look outside of the legal process for a solution. Tragically, law schools,(and the big name law schools are probably the biggest offenders) have restricted curriculums that limit rather than expand the breath of their students abilities to solve clients’ problems. Law students enter their institutions with a broad understanding of the complexities of the forces that order society and often leave with obsessive undeserved respect for the mechanics of a legal process, which is costly and at times dramatically out of touch with reality. See: A MUTED FURY: Populists, Progressives, Labor Unions Confront the Courts, 1890-1937, William G. Ross, Princeton University Press, 1994.

Law schools claim they teach their students to think like lawyers. Your mediator should understand how lawyers think, but also have broader and richer interests. You should find someone who can appreciate the nuances of economics, production marketing, R&D and social relationships that make up the complex institution we call a business enterprise. I have settled cases, admittedly outside of the mediation context,(that is why mediation was not necessary) that involved unanticipated joint ventures, renewed and unexpected sales, shared fruits of R&D and other creative solutions to a lawsuit, where the legal remedy would have been limited to a judgment for an amount certain.

If your prospective mediator is only capable of a appreciating a solution which involves “reaching the right number” you should keep on looking if your objective a successful settlement.

Should The Mediator Have A Special Demeanor?

Your chance of getting a successful settlement with a mediator whose primary life experience was a law clerk or a judge in my view is very low. There are a lot of judges out there in the ADR world, perhaps because ADR started primarily in the arbitration context. However, mediation seems to be the dominant form of ADR now and rebuilding a business relationship is not an effort where a judgmental demeanor, particularly a legal one, is helpful.

The mediator has to be supportive of both sides and uncritical even while coaxing the parties to take a critical look at their positions. When dealing with the parties the mediator has to encourage the party to view the merits of his response to his opponent’s position by asking the party help the mediator formulate a persuasive position in reply not by expressing his opinion.

The mediator should not a have propensity to be directly critical of the lawyer’s legal position, particularly in front of his client. That is not easy for judges since that is their style. That is where the trial experience helps, since the mediator can reach back to relate his own unsuccessful effort in similar situation while agreeing that position has merit. The evaluative process is not judgmental, right or wrong, but a sharing of experiences among colleagues.

The mediator has to be perceived as someone trying to reach an accord that supports the interests of both parties. If he appears judgmental in tone or demeanor as well as explicit conduct, you might get a settlement, but it is not likely to be a successful settlement.

-Larry Salibra
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Contract Management Systems & The In-house Counsel

Today Jason Mark Anderman, of Becton, Dickinson and Company, and I presented a "legal quickie" for ACC's Law Department Management Committee on the topic of "Contract Management Systems." This is becoming a hot topic for law departments, as more forward-thinking general counsel are realizing that their departments can make a significant contribution to corporate performance (as well as Sarbanes-Oxley compliance) by implementing better systems and processes to manage their contracts, contract processes, and contract-related information.

Jason described the steps that his company has taken to streamline their contracting processes, including flexible and comprehensive templates for procurement contracts and better processes and systems to manage the contract lifecyle and contractual information.

But as impressive as Becton, Dickinson's results have been, the kinds of processes Jason described can only take you so far. Any company with a significant volume of contracts or contract activity should be looking at a contract lifecycle management system (CLM -- also known as an enterprise contract management system) to help manage and automate the entire contract lifecycle. A CLM system can be defined as:

An integrated system that applies business rules to manage contracts of the enterprise on a worldwide basis, from request, through contract creation, negotiation, approvals, distribution, and filing in a central, searchable repository, and that allows people and systems within the organization to access, analyze, and act on contract-related information to improve efficiency, consistency, reporting, and control.

Companies that have implemented CLM systems have reported significant improvements in these and other measures. Many companies have been able to decrease the involvement of their legal departments in routine contracts by using CLM systems to implement controlled self-service contract creation processes. There are many examples of revenue improvement through better management of contract renewals and escalation clauses that in some cases are enough to pay for the costs of the systems.

Finally, tangible benefits to corporate law departments include better control and visibility of contracts and contract-related risks, the ability to share contract-related knowledge across the enterprise, and the ability to allow highly paid legal resources to focus their efforts on higher-value activities rather than administrative tasks. Many of these systems also allow legal departments to measure and report on performance and performance improvements, something many general counsel struggle with.

We didn't get a chance to discuss the latest trend in contract management, which is CLM systems that combine a technology platform with a team of offshore or onshore resources to help manage the often labor-intensive process of inputting information into the system (especially legacy contract information), configuring the system, and mangaging and maintaining it, but more information on that is available here.

For more information on contract lifecycle management systems and a list of vendors, click here.


The International Association for Contract and Commercial Management (IACCM) is also a great source of information regarding contracting and contract management systems.

-David Munn
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Can A Business Man Get A Successful Settlement?

A business man certainly has the business credentials; however, once the dispute has become heavily entangled in the litigation process, the mediator has to manage the legal expectations of the advocates as well as the business issues, and without real trial experience the business man and, even an in-house attorney without this experience, are at a serious handicap.

The lawyers for the parties in a lawsuit are not typically engaged to think about a business solution to the case—their focus is on prevailing in the dispute. They are important players in the litigation and exercise a great deal of influence and control over their clients. Once the business relationship breaks down, the businessman turns to lawyers in part because they are convinced they no longer have the ability to control events. That results in a large psychological dependence on the lawyer and the mediator must have the lawyer invested in the process and have her trust, particularly if mediator thinks it is time for the lawyers to step back and let the business men have another chance at reconciliation.

A mediator with real litigation experience will be able to establish an empathy with the lawyers for the parties that is hard to duplicate with out that shared experience of battle.

-Lary Salibra
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What Do You Look For In A Mediator If I Want A Successful Settlement?

Experience as an in-house attorney would be a good mediator trait. For a mediator to get a successful settlement his focus must be on reestablishing the business relationship. This requires a number of key characteristics that in-house counsel is most likely to possess.

First, the mediator has to understand the nature of business relationships; living among them daily certainly helps. You must have the skill and desire to learn about the nature of the business in which the dispute arises. The parties can teach you about the business and most likely will have to since it may not be one in which the mediator has direct experience, but the mediator must have the knowledge base and skill to ask the questions that drives the education.

Second, the mediator must have the facility for and enjoy solving business problems. If mediator does not want to listen to how these businesses are built and operate and can only focus on the legal issues and a legal solution, you may get a settlement, but it almost certainly will not be successful. Businessmen understand that winning a lawsuit against your best customer may not be the best long term solution to the dispute.

-Larry Salibra
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How Do You Know If You Have A Successful Settlement?

Perhaps the best indication of the whether the settlement was successful is whether there is a distinct change in the demeanor of the parties. Litigation by its very nature creates animosity among the parties. The lawyers may go out for a drink together after court because they are adversaries at a professional, not personal level.

The parties in a lawsuit are in a very different state. For them the lawsuit is personal. Parties will come in with substantial animosity. Often it is overt; sometimes it is disguised with a thin veneer of cordiality, but it almost always there. Successful commercial mediations convert that animosity into trust and respect.

I knew my mediation was successful when, after mediation was over, the parties relationship had changed. During the private session of the mediation the veneers came down and the defendant described in the plaintiff in terms that left no doubt about the existence animosity. The plaintiff was equally expressive about his view of the defendant as untrustworthy.

At the end the mediation, the plaintiff had accepted as part of the settlement a promise that was legally unenforceable to insure further compensation by providing accommodating business arrangements. The defendant, who had just stipulated to a substantial judgment and had earlier described the plaintiff in the most unflattering terms, invited the plaintiff and his attorney to lunch. The trust, respect and accommodation of the business relationship had been reestablished—the settlement was successful.

-Larry Salibra
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Online Advertising

On April 3, 2008, the Court of Appeals for the Second Circuit heard oral
argument in the case Rescuecom Corp. v. Google, Inc., 456 F. Supp. 2d 393
(N.D.N.Y. 2006), where the district court, following an increasing number of
New York decisions, held that search engines do not use trademarks "in
commerce" under the Lanham Act (i.e., the federal trademark statute) when
they sell keyword advertisements. A decision can be expected soon.

In finding that search engines and advertisers do not engage in "use in
commerce" by simply "using" (and charging money for) unseen computer programs
and algorithms to key advertisements to internet searches for a competitor's
goods or services, what the original Rescuecom decision and the other recent
New York cases all have in common is a reliance on the definition of how one
ACQUIRES rights in a trademark in the first place, a statutory provision that
indeed requires that the mark be "used or displayed" on the goods or
services. However, because the internet advertisers and search engines are
not trying to establish or acquire rights in their competitors' trademarks,
it is curious that none of the new York decisions has addressed the separate
statutory provision for proving infringement of a trademark. Those parts of
the Lanham Act (Sections 32(1) and 43(a)) simply require that a name, mark,
word or other false designation of origin be used "in connection with" the
accused product or service in a manner that causes confusion - not that it be
displayed on the product or service.

Other courts throughout the country (whether or not they have found keyword
ads confusing) have not hesitated to find use in commerce. However, they too
have not analyzed which part of the statute should be looked at to determine
why or if an accused infringement is a use in commerce.

Does it matter how the Rescuecom case is decided? If internet users
generally are confused by keyword ads and don't make mistaken purchasing
decisions because of them, perhaps it does not matter. Most of the cases
either finding or suggesting that keyword ads can cause confusion have
relied simply on a theory called "initial interest confusion" which, as
applied on the internet has not focused at all on whether there are any lost
sales or mistaken purchasing decisions (as is typically the rule in trademark
cases). Instead, the initial interest confusion theory seems simply to ask
whether the keyword ads attract the attention of internet users, irrespective
whether that affects what they buy or don't buy. These cases give no clue
whether keyword ads confuse PURCHASERS (or prospective purchasers) or are
simply interesting to internet users or present them with choices (just as
such users can choose among brand name shampoos and store brands all stocked
together when they go to the market in the real world, or just as they can
find all the local car dealers listed together in the Yellow Pages)

One way it may matter that courts use the right statutory provision in
deciding keyword cases is that even if most or all keyword ads are not
confusing, we can not know for sure now what other unseen ways trademarks can
or will be used to mislead consumers on the Internet. Perhaps we should be
careful therefore before making blanket rules that there can be no
infringement of trademarks on the internet so long as the marks are not
visibly displayed on an actual product or service. Many mischievous or
possibly deceptive "spamdexing" techniques are already in use. The ingenuity
of software engineers to design new secret (or even sinister) uses of
trademarks should not be underestimated. In the meantime, a closer analysis
of whether keyword ads really are confusing in any way that matters might
make it unnecessary to develop such broad per se rules at all.

-Jonathan Moskin
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The Difference between a Successful Settlement and Just a Settlement in Commercial Mediations

At the prompting of some colleagues, I am beginning a practice as a mediator. Last week I completed my first commercial mediation, and recognized an important distinction between settlements. It explained the frustration I had had as a party in commercial mediations that were both unsuccessful and destructive. In those mediations the mediators were attempting to get settlements not successful settlements.

There are two types of settlements in mediations: settlements and successful settlements. Successful settlements have at their center the mediator’s successful recreation of the trust and respect of the business relationship. The settlement naturally flows from that relationship.

Settlements that are not successful result from a mediator’s focus on the formal resolution of the legal dispute. The parties participation is grudging, and usually grounded in intimidation from risk, rather than having been brought into the process and having an investment in achieving a successful conclusion to the controversy.
Just a few initial thoughts on the subject . . .

-Larry Salibra
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When I Knew It Was Time To Retire

I had been in the television business since 1979. They were still using film and the new minicams that used tape were so heavy in the back that the cameramen had to pull down in front to keep them on their shoulders. I had tried an arbitration concerning the first minicam news remote. Think about that! Until the late seventies, there were no on-site news reports since all they had were heavy studio cameras. Technology took off and I found myself in the 21st century dealing with new professional and personal media, in my case, the Treo.

One day, I was in the gym and noticed a line of dripping wet, naked men, just emerged from the shower, standing in front of their lockers checking their Treos. They had, of course, just checked them three minutes ago, right before going into the shower. What could have happened in three minutes! I knew it was time to go. Turning in my Treo was better than the day I got out of basic training.

-Michael Schnipper
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MDK is Quite Right . . .However Tha Does Not Diminish the Value of the Formula

Thanks for your comments MDK, and you are quite right, the formula for in-house counsel does not have potential for the same rigor as E=MC2 in the real world.

It was not my intention to have in-house counsel taking out their slide-rulers (whoops, dated myself there) and make precise calculations. However, there are ways of estimating outcomes such as statistically sampling jury verdicts or using test juries to get a handle on the range of potential outcomes.

But even if you cannot measure DO precisely, the formula does tell you something very important about the consequences of high TCv values, they are more than just a high cost; they are a strategic disadvantage in the lawsuit suit. Unless you have some reasonable basis to believe that DO and TCv are dependent variables, that is that increasing your litigation costs will has a corresponding reduction in DO value, your opponent is going to ask a lot more from you to settle than if your TCv was lower.

In a later post, I will discuss some studies and work that suggest that TCv values and DO values do not negatively correlate (or correlate at all), that is that as TCv goes up DO goes down. (For those who do not get the math jargon, your higher legal expenses mean you are going to get a better result). And for those of you who are not sure if you are getting better outcomes for the higher cost, you can be sure that those costs are degrading your position in the resolution of the litigation.

A number of years ago I had the pleasure of addressing the presidents of the State Chambers of Commerce at their annual meeting that was being held that year at Pebble Beach. The impetus of being asked to speak was the victory we had in case I tried, PIRG v MEI, a case that had gained substantial visibility in environmental circles and whose later claim to fame was that the environmental community had adopted it as an example of Sam Alito’s, econ-unfriendliness, and therefore unsuitability for the Supreme Court.

My speech focused on other Clean Water Act cases that were being described in promotional literature for law firms by house counsel as great litigation results because the settlement saved them from large legal expenses. Although one could not, as MDK accurately stated, precisely measure outcomes a comparison of the DO of our case and the case that settled, it was clear that the DO value of the case that settled was far lower than ours—so why did they settle and we did not. Our TCv value was essentially zero because we tried our case in-house and their TCv value was very large, larger than their DO. Having TCv value that are large relative to your DO or larger than your DO value is a real problem because transaction costs rather than the merits of a legal position start to determine outcomes

What I told the presidents is that this was a huge problem for business because I learned in the MEI case that the environmental community was carefully controlling the cases they litigated to conclusion—they could select which case they chose to settle and which they did not and PRIG was working with the Sierra Club and other groups to insure that legal doctrine was being developed in the cases they selected.

Good fact cases for business were being settled because the TCv values of the company were forcing them to settle them rather than litigate to create better legal doctrine. I did not advocate in-house litigation as the solution; I suggested that the Chambers needed to devise a mechanism to identify cases that could create better law for the business community and devise a mechanism that accounted to the problem of high TCv values to insure these cases were litigated to conclusion.

In a future post I will describe how we did just that in the context distinct industry problem, once we recognized that high TCv costs could give legal reality to a scientifically fictitious disease if an industry wide response was not adopted.

- Larry Salibra
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E=MC2 For In-House Counsel

Many disciplines often have a formula that describes a profound relationship in the discipline. These formulas are often very simple, but that does not detract from the fact that they describe a relationship that is so profound it finds many applications in the discipline that might otherwise be missed or incapable of explanation. In quantum mechanics it is Einstein’s statement of relativity that energy is equal to mass times the speed of light squared. In DC electricity it is I= E/R, current in amperes is equal to electro motive force in volts divided by resistance in ohms.

You may be surprised to learn that there is an equally profound formula available to in-house counsel that expresses such a simple, fundamental principle that once explained it seems trite. However, looks are deceiving. The value of the principle can not, in my opinion, be under estimated. The formula’s value is not in that expresses a relationship that many did not perceive as in Einstein’s statement of relativity, but it forces one to think about relationships and thus take a more critical structured look at one’s decision making than might otherwise have been the case.

The uses of the formula, and the underlying logic, or perhaps illogic it reveals in one’s decision making or policy implementation can be quite dramatic, and at times embarrassing. I must warn those who have no taste for discovering flaws in your analysis or hidden motives in one’s decision process-- STOP READING NOW. Knowledge of the formula can create discomfort for many—and for those who viewed the in-house career as more comfortable and less demanding than practice as out side counsel, this formula has the potential of changing that perception.

I do not know who first devised this formula—it was not me. My acquisition of knowledge of it is in my dim past, and I associate it with Professor Marc Galanter, whose creative, economic analysis of the profession is something I will address in future blogs. I think I may have added to the formula ever so slightly, by adding the subscript “v” to the TC value.

Ok, you have been patient; here it is SV=DO + TCv

What does it mean—SV is the settlement value of a case. DO is the value of the outcome of litigation discounted to present value for risk and TCv are variable transaction cost—that is a euphemism for legal fees. Variable means their variation can be substantially manipulated by the behavior of the opposing party.

Now, start thinking about how you can use this formula and share some of your ideas.

- Larry Salibra
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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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A Response to Establishing Partnerships . . .

I want to take serious issue with Larry Salibra’s premise that corporate law departments cannot establish effective partnerships with law firms. Larry’s (we are old friends and on a first name basis) views were expressed in response to an ACC Docket article, “Memo to Law Firms” in the April 2008 issue (p. 99) Is such a relationship easy to establish?? No. Can it be productive and mutually beneficial when done correctly? Yes.

It is trite but true that any partnership with an outside firm must be a “win-win” for both the corporate law department and the law firm. There must be a good working relationship which includes mutual respect between the principals in both organizations. The law firm “wins” by being guaranteed a level of work over an extended period that it would not otherwise have. The corporation benefits by paying lower fees, having someone at the firm who knows and understands the particular problems the company faces, and often having a firm that is more responsive than it would otherwise be. Often more important in an on-going relationship is that the firm lawyer knows and becomes well known to, and respected by, the corporate executives.

A firm that is a true partner of a corporation will also display a level of sensitivity to the corporation’s economic ups and downs. I knew partners at private law firms with whom I had relationships that stretched for more than a decade. In a pinch, I could call them and tell them I needed a help with a problem, and had no budget to pay them. And more often than not, they would provide the assistance I needed. I was, of course, sensitive to the fact that there needed to be a payback. When I was choosing between two firms for a paying project, the past assistance would be in the back of my mind.

Larry has promised to expand his views on partnering with private law firms. I will be looking over his shoulder.

-Steve Bokat
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Establishing a Partnership with Your Outside Law Firms- Do You Really Want Your Employer to Hear You Say That?

Recently, members of ACC and Fred Krebs attended the 15th Annual Marketing Partner Forum held by Hildebrandt. I have actually had some contact with that organization having published two articles in their journal, Strategies. These are the folks whose job it is to get you to spend your client’s money on their clients. The articles I wrote for them suggested ways that they might actually provide you with meaningful data so you could make informed choices based on factors that I believe that your clients expected, or at should be expecting—establishing a partnership with the service provider was not one of them.

The article “Memo to Law Firms: Make It A True Partnership”, ACC Docket (April 2008) has questionable validity in the relationship between inside and outside counsel. In future blogs I will examine a number of parameters around this issue which has dominated much of ACC activities since it’s founding—in fact was a large if not pivotal contributor to its founding.

Consider the following: Your Company is in the process of constructing a number of pivotal new manufacturing facilities. The CEO determines that the new facilities are so critical to the company’s success that someone must be hired on staff to oversee the construction. Two candidates immerge as potential choices, both are competent, admirable people and will fit into the corporate culture, but each brings a clear difference in their skills and management technique The first has direct experience in the construction process having had to make real decisions concerning the scheduling of subcontractors and insuring the quality of materials. He proposes to the CEO that he will manage the project by maintaining direct and comprehensive oversight of the contractors, exercising his independent judgment over each critical element of the construction and cost and he expects that the CEO will hold him solely and directly accountable for the success or failure of the projects.

The second candidate does not have the either practical experience or background in construction, but has a degree in business management from a prestigious business school and “construction management experience”. The candidate explains that the management technique he will use will result from his development of a partnership with the contractors, open channels of communication and formal budgeting.
When the CEO questions this candidate concerning how he views his position of accountability in this relationship he answers….

The role between inside and outside counsel has a long and tortured history. In future blogs I will review historical publications (which I have been using to develop an objective model to evaluate in-house counsel’s effectiveness in controlling legal expenses) and my numerous participations in forums sponsored by ACC and other organizations, to explore the complex agendas in the relationship between inside and outside counsel.

-Larry Salibra

Thinking Out Loud

In this first blog, I should introduce myself. I joined ACCA when it was a desk, a phone and Nancy Nord (the first executive director). She called me to tell me that the phone had now been installed, and Bob Banks had told her once it was working to call me and “start doing stuff.”

I have had an unusual career up to my retirement a couple of years ago, since I not only did all the things in-house counsel typically do; I also had a remarkably robust litigation career having tried jury cases across the country, argued before many appellate tribunals, including the United States Supreme Court, and well as a number of international tribunals. A number of my cases had garnered substantial media attention. Alcan’s challenge to the use of Worldwide Combined Apportionment had international attention. PIRG v MEI was used by a number of groups to impugn Sam Alito’s environmental credentials to be a Justice of the Supreme. Those who want to learn a little more see: “If you want things done right… Alcan Senior Counsel Keeps Litigation In House,” Inside Litigation , February 1999 , Vol. 13, no 2, pp 9-11 or “He’ll litigate you to death ”, National Law Journal, Monday , October 22, 2001

Over my career I developed a number of opinions and perspectives about the profession, and no doubt that is why Fred Krebs asked me to undertake the task of blogging. He will tell you to take what I have to say with a “grain of salt” and he is correct. What is important is that you think about what I have to say. What I hope to do is share with you what ACCA (Sorry, I am not against internationalizing the organization, in fact, I just has my Italian citizenship recognized; I just find ACC does not sound right), did for me. When we started on our efforts of advocacy on behalf of in-house counsel and in some cases on behalf of the profession generally, it forced me to step back and think about what I did everyday. This resulted in my beginning to challenge things that appeared to be unequivocally true by many.

In our profession things become accepted and fashionable. I am convinced that lawyers treat as fact anything that has been repeated three times. That is how it became fashionable to claim that alternative dispute resolution lowered legal costs, or that the Civil Justice Reform Act was going to solve all major litigation management issues or that value billing (I am not sure that really means) was going to solve the problem of escalating legal fees.

I have as you will come to realize a different take on a lot of these issues. I don’t think outside legal expenses are out of control if one wants to buy just cost effective legal services. The problem is that many in-house counsels are buying something else. The present legal system in the United States is in state of substantial disarray, insensitive to its primary role of serving the public, in many respects unaccountable, and far too controlled by special interests, the judiciary being one of them.

Our profession has a serious detrimental effect on its members; practitioners are ill-equipped by out-dated legal educational system unable to effectively train lawyers capable of efficiently delivering meaningful services to client and has compensated by substituting form for substance.

I will be addressing many of these views in the forthcoming posts—the first will be this notion of partnering with outside firms—is it real.

-Larry Salibra

The New Era of Blogging

ACC is excited to bring two new bloggers into the mix. Stay tuned for their thoughts and opinions about all things in-house.

ACC Board Chairman, Richard T. White, on Bloomberg

Tune in to at your desk or a nearby television to watch ACC Chair Richard T. White live on Bloomberg TV. White will be on Bloomberg’s In Focus television program this Thursday, August 2, at 1:30 PM to discuss legal issues that effect in-house counsel.

In Focus is Bloomberg’s business program that provides viewers with exclusive interviews and in-depth coverage of the top stories of the day. The show also provides viewers with inside tips on the market, arts and sports.

Launch the Bloomberg Video Player to hear Richard White.