Biglaw, Billable Hours, In-House Counsel, Money

Inside Straight: Packaging Flotsam and Jetsam

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Admit it: Your corporation has a lot of legal flotsam and jetsam.

This is probably true no matter what business you’re in. On the corporate side, you have routine business transactions, and you may well handle those in-house. On the litigation side, you have a bunch of routine cases that pose little risk to the company but represent a recurring, and predictable, expense.

I propose that you package up that flotsam and jetsam and sell it off.

What am I thinking?

Look at your litigation caseload. You truly care about some fraction of the cases you’re defending. There are cases that pose material risks to the company, and you disclose those in securities filings. Other cases don’t reach the threshold of materiality, but are nonetheless financially significant. Yet other cases involve fewer dollars, but pose business or reputational risks to the company. Let’s set those cases aside for today.

What about the rest of the stuff? There’s some percentage of disputes — maybe half of your cases; maybe more — that are routine. Perhaps you’re in the fire protection business and you face a predictable flow of product liability cases alleging that your product failed to prevent a fire that caused a relatively small amount of property damage. Look at those cases and decide how to define them: In the preceding sentence, I carved out personal injury cases (which may pose a more serious financial or reputational risk to your company), and I’ve suggested that you carve out high-dollar property damage cases (because you may care deeply if your gadget failed and contributed, along with Mrs. O’Leary’s cow, to the Great Chicago Fire of 1871). But there’s some definable category of routine cases that pose little risk to the company.

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No matter what business you’re in, you probably have a predictable stream of individual wrongful discharge and discrimination cases. Identify which of those cases are truly routine. You may, for example, want to give serious individual thought to a wrongful discharge case filed by a high-ranking corporate officer. If so, exclude those significant cases from the collection we’re talking about here. We’re going on a flotsam-and-jetsam hunt.

Once you’ve identified the flotsam and jetsam, bundle it up and send it out for bid. To do that, you’ll have to cull a little bit of historical data: How many cases of this type have you faced in the last, say, three years? In what states (or cities)? How long did the matters last? How much did you pay (individually and in the aggregate) to defend and settle the cases?

Put together the relevant charts. Identify a half dozen law firms that you trust and that have the capacity to handle these cases for you. And send out a request for proposal that asks the firms to handle these matters on an annual (or longer) flat-fee basis.

See what the firms say. All of the contenders will likely bid less than what you’re currently spending, because the firms will build in discounts based on the volume of cases you’re offering, the likelihood that the firm will over time develop more efficient ways to handle the cases, and the opportunity to do more work for you in the future (among other reasons). So long as you’re working with lawyers you trust (and that’s the only kind you should hire anyway), you can create a win-win situation by packaging up your flotsam and jetsam and putting it out to bid.

Do remember when sending out a proposal of this type that the volume of new cases is likely to start slowly and ramp up over time. You’ll probably stick with existing counsel to handle pending cases and assign only new cases, as they come in, to the firm that wins the RFP. Your billing arrangement should account for the likelihood that your new flotsam-and-jetsam firm will be handling few cases for you on day one, more cases for you on day 90, and perhaps something resembling the entire caseload after a year or 18 months. Price things accordingly.

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This leave three questions:

First, is my proposal new news?

Not at all. Some companies have been doing this for years. But a fair number have not yet caught on, and those companies are missing a trick.

Second, does the brave new world of RFPs put pricing pressure on law firms?

Maybe. This surely forces firms to think hard about their internal procedures and to develop ways to handle sets of similar cases more efficiently. Some firms will choose not to play in this sandbox, confident that they can survive while disdaining “commodity” work and holding out for premium matters. Of firms interested in the lower-value business, intelligent firms will figure out how to compete, and less creative firms will suffer, which is probably how it should be.

Finally, what the heck are flotsam and jetsam, anyway?

That’s why God created Wikipedia. Here’s the entry you’re looking for.

From an in-house perspective, the rule is easy: Flotsam and jetsam are terrible things to waste.

Mark Herrmann is the Vice President and Chief Counsel – Litigation at Aon, the world’s leading provider of risk management services, insurance and reinsurance brokerage, and human capital and management consulting. He is the author of The Curmudgeon’s Guide to Practicing Law (affiliate link). You can reach him by email at inhouse@abovethelaw.com.

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