9 Fundamentals For A New In-House Litigator (Or, Outside Litigators’ Blind Spots)
What does a litigator need to know when she moves from a law firm to an in-house position?
I’ve recently had to think about what a new in-house litigator should know.
Presumably, a new in-house litigator knows a lot about litigation. The person’s been litigating for 10, or 20, or 25 years. I don’t have to explain the meaning of “discovery” or the limits on federal jurisdiction.
But what does a new in-house litigator have to know that he wouldn’t have ordinarily learned at a law firm?
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He wouldn’t have learned the first rule of in-house life: If information goes to someone above me in the hierarchy, it goes to me, too.
I’ve written about this before. The person to whom I report may assume that I know everything she knows. So make that true. If you’re going to speak to my boss, or to someone above my boss in the hierarchy, speak to me, too. No secrets.
Second: If a prosecutor, or a government regulator, or a whistle-blower calls, it’s time to set the sirens blazing and red lights flashing. Do not wait a couple of weeks to report events like this.
Third: We are legally obligated to take a reserve under GAAP if it’s more than 70 percent likely that we’ll lose a case, and we’re legally required to take a reserve under IFRS if it’s more than 50 percent likely we’ll lose a case. (My company is subject to both U.S. and U.K. accounting rules, so we track both sets of numbers.) Those are not optional requirements.
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And we can’t slowly increase reserves to build up enough money to settle a case: “We’ll take a million this quarter, and a million next. In a year or so, we’ll have plenty saved up to pay the settlement.” That might naturally seem like a good idea, but it’s illegal. It’s also something that lawyers at firms don’t think about.
If we don’t know the exact amount that we’ll lose, we might nonetheless be able to calculate a range of loss — it’s 71 (or 51) percent likely that we’ll lose between one and two million dollars. Under GAAP, you set the reserve at the low end of a range; under IFRS, you set the reserve at the midpoint of the range.
Fourth: We have a concept known as “settlement approval authority.” Every proposed settlement must be approved at the right level in the Law Department. Those beneath you in the hierarchy have approval authority up to $A. You have authority up to $B. I have authority up to $C. We need the CEO’s approval for settlements above $D. If we need the CEO’s approval, we will have to prepare a very short, very cogent explanation, written in language that a non-lawyer can understand, of why we need that much money to settle the case.
Fifth: We have a quarterly litigation budget: We are budgeted to spend $X million per quarter (net of insurance receivables) defending lawsuits and settling claims. Although our bonuses aren’t affected by whether we make budget (because it’s not really the litigators’ fault if the company is sued, or is sued in a tough case), we should strive to make that budget every quarter.
Sixth: The deductible under our insurance policy is $Y. If you’re trying to make budget net of insurance receivables, you really have to know at what point insurance receivables kick in. (The limits of your insurance — at the top end — are relevant, but far less so, unless the company might really get hammered in a case. And, needless to say, you shouldn’t give away money simply because a case is insured, for assorted reasons. But the deductibles under each relevant policy matter.)
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Seventh: At the level of $Z million, notify the folks in Treasury that we might have cash going out the door. The Treasury department manages cash flow, and at some level — $500K, $1MM, $10MM, depending on the size of your company — Treasury won’t be able to pay a settlement that you’ve agreed to. If you see a large payment coming, give the Treasury department as much advance notice as you can.
Eighth: Our business has unique things to consider when resolving claims. I really can’t say much about this, because these factors vary by business. But pharmaceutical companies fighting mass tort litigants, for example, don’t have much leverage. Pharmaceutical companies fighting with physicians or providers of medical benefits might be situated quite differently; the pharmaceutical company might have significant leverage. Tell the in-house litigator what he (or she) should know that is unique to your company and that the person wouldn’t necessarily have learned at a firm.
Ninth: Schedule one-on-one meetings with the people who report to you. No one knows about this at law firms; it’s a way of life at corporations.
I’m sure I’ve missed some of the basics. Please tell me about them by sending an email to the address below.
As for what I’m saying publicly, that’s it. If I’ve omitted anything, I guess your new litigator will have to learn by trial (so to speak) and error.
Mark Herrmann is Vice President and Deputy General Counsel – Litigation and Employment 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 and Inside Straight: Advice About Lawyering, In-House And Out, That Only The Internet Could Provide (affiliate links). You can reach him by email at [email protected].
