Inside Straight

I’ve received a couple of e-mails from associates at large firms saying that these folks sit at their desks dreaming about having in-house jobs: One client instead of many competing for your time. More manageable workload. A broader range of work. Less stress. An opportunity to think strategically instead of wallowing in minutiae. No more billable hours. No more time sheets. Bliss!

Please, these correspondents ask, write a column explaining the tribulations of in-house counsel.

This is tricky. First, the in-house life is pretty good. I wouldn’t want to understate the advantages. Second, I don’t hide behind a cloak of anonymity when I publish these columns. If I faced any tribulations (and I don’t, of course), this wouldn’t be a wise forum in which to let loose. Third, my own personal experience doesn’t prove very much generally, and I hear a wide range of varied reactions from others who work in-house.

But I’ll give it a shot….

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I recently heard a panel of judges speak about e-discovery issues. Their opinions on several subjects varied, but on one subject they agreed unanimously: Clawback provisions under Federal Rule of Evidence 502 are valuable tools in most significant litigation, but they remain rarely used.

This piqued my interest, so I asked several in-house litigators (not necessarily at the place where I work) whether they routinely seek FRE 502 clawback provisions in their cases. The in-house lawyers do not. And I asked whether outside counsel routinely recommend seeking those provisions. Not surprisingly (because the in-house folks aren’t using them), outside counsel do not.

The judges think clawback provisions are a good idea; in most situations, it strikes me that the judges are right. So what are FRE 502 clawback provisions, and why are inside and outside counsel routinely missing this trick?

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Success — at a law firm, in-house, or in any professional services environment — requires a certain mindset. The mindset is this: “My job is not to take an order from my client (or boss) and fill that order, but rather to achieve things.” Or, to put it differently, strive to execute projects, not simply to perform tasks.

Let’s start with a silly example: You ask someone to call the plumber to get the sink fixed.

Three days later, you realize that you haven’t heard back on this subject, so you ask, “Did you call the plumber?”

You hear back, “Oh, yes. I did.”

“And?”

“The plumber hasn’t returned my call.”

Do you feel as though you received intelligent help with this project? Of course not — because the project was to get the sink fixed. You didn’t really care whether your helper called the plumber, or e-mailed the plumber, or attracted the plumber’s attention with smoke signals. So long as the sink got fixed, the project was completed.

But your helper chose not to think about the project and instead focused only on the task — making a phone call, whether or not anything came of it. Your helper completed the task and ignored the actual project.

Undertaking tasks, rather than executing projects, is exactly the way to fail in a professional services environment. Here’s an example, from the legal world….

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Egad! The General Counsel just announced that your target for next year will be to handle 20 percent of all outside legal spend on an alternative fee basis! What do you do?

You can’t just do flat fee agreements! What happens if you agree to pay too much, and you’ve given away your client’s money? And success-based fees are a great idea, but they’re impossible to calculate! How does anyone know at the start of a piece of (non-routine) litigation what the case is worth? Since you don’t know the value of the matter, you can’t set the target from which you’ll judge success.

What’s an in-house lawyer to do?

Calm down. Here’s a way to ease into alternative fee agreements that will put neither you nor your outside firms at risk, will educate you slowly over time, and will meet your internal objectives….

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It’s not just the federal government that’s desperate for money. The states are, too.

One way that states are looking to fill their coffers is by auditing unclaimed property on companies’ books — so-called “escheat audits.” This isn’t the world’s sexiest topic, but an in-house lawyer might serve a valuable purpose by double-checking corporate escheat policies.

In the financial services industry, many companies must deal with unclaimed deposits and securities. But even outside that sector, most companies find themselves holding unclaimed property, in the form of uncashed vendor or payroll checks, undistributed benefits payments, or the like. Complying with escheat laws may pose a challenge.

States are now doing two things related to escheat laws to increase their revenue. First, they’re shortening the amount of time that a holder can retain unclaimed funds before turning those funds over to the state. Second, states are accelerating their use of “escheat audits” — auditing corporate books to see whether companies have complied with the applicable laws.

This has recently become big business — with implications for in-house counsel….

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Several readers have sent e-mails asking for advice on how to deliver bad news to clients.

Here’s proof that, if ye shall ask, ye may receive.

Think first about the “bad news” that you’re delivering. You’re not a physician, so you’re not looking a person in the eye and explaining that he or she has just six months to live. That’s really bad news, and that’s hard to deliver. Your job is easy.

Even in the universe of bad news delivered by lawyers, if you’re working with a corporate client, you’re probably getting off easy. You’re not reporting to the client that “the Supreme Court just rejected the application for a stay of your execution” or “the appellate court just affirmed the conviction, so you’ll be doing the time.” The bad news that civil litigators are delivering to corporate clients just isn’t that significant. So calm down.

I’m also ruling out other bad news that folks deliver to, or receive from, in-house counsel. I’m not thinking about telling employees that they’ve been laid off or fired or delivering unhappy performance reviews. I’m not thinking about how you deliver bad news to your own law firm or to a court. And I’m ruling out situations where the bad news results from your own error, rather than an adverse decision by a court. (It’s much harder to tell a client, for example, “I blew the statute of limitations, and your claim is now time-barred,” than it is to tell a client, say, “The court denied our motion for summary judgment.”) So maybe I’m cheating here, by limiting the discussion, but the optimal way to deliver bad news will vary with the situation.

So what’s the best way to deliver news of an adverse judicial decision to a corporate client?

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It takes a big man to ignore a small issue.

A lawyer who lacks self-confidence feels compelled to run down every issue, make every argument, and depose every witness. After all, if you choose to make an educated guess about the importance of a tangential issue, or whether to omit a plausible (but likely losing) argument from a brief, or whether to incur the cost of deposing a just-barely-relevant witness, all may be lost. You might lose the case, and the recriminations would never stop. Better to leave no stone unturned than to leave yourself at risk of being second-guessed.

That’s one reason to hire lawyers with a little self-confidence. They’re willing to take intelligent risks where it makes sense to do so.

Which brings us to the topic of today’s post: Compliance due diligence.

If your company’s considering an acquisition, you can simply outsource the entire compliance due diligence process. Hire Big Firm, ask it to handle due diligence, and wait for the results. No muss, no fuss.

And, at the end of the day, no deal.

No deal, but lots of legal expense.

Why?

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It’s tough to “lateral up” at a big law firm. Since I just invented the phrase “lateraling up,” I suppose I should define it: It’s when a fairly senior lawyer asks an older lawyer to help on a project.

If you’re 40 years old and just landed a small- or medium-sized matter, it’s hard to add a 55-year-old partner to your team. It might make sense to add the senior partner for the sake of either the client (the older partner has special expertise) or the firm (the older partner is competent to do the job and has time available to help), but it’s nonetheless tricky to execute.

In the litigation environment, if the client is looking to the 40-year-old to supervise the case, the 55-year-old can’t find a role that makes sense. The older partner can’t take the lead, because that’s the younger lawyer’s task, and the older lawyer can’t not take the lead, because senior people somehow don’t do that at law firms.

The same is true of corporate matters. The older partner can’t do the deal, because the client asked the junior lawyer to do it. And the older partner can’t carry the bags (to use the milder form of what the corporate lawyers really say) for a junior partner on the deal.

Please note the limitations on what I just wrote….

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I recently had lunch with a guy who had worked at a law firm, gone in-house, and later returned to a law firm. (It’s actually more than that. This guy’s bio is: assistant U.S. attorney; associate at K&E; partner at Bartlit Beck; deputy general counsel at Bank One; and now at his own small firm. That’s called either “done it all” or “can’t hold a job.” Because this post will share with the world an idea that he proposed, I’ll credit him publicly: He’s Lenny Gail of Massey & Gail, a small shop based in Chicago and D.C.)

Lenny asked at lunch, as folks frequently do, what I’d learned about business development by having gone in-house. I answered honestly, as I occasionally do: When I was outside counsel, I always thought that business development was a game of chance. You tried a hundred different things, with no clue what might pay off, and then random chance struck and business arrived inexplicably, out of the blue.

As in-house counsel, my view hasn’t really changed: If you’re on our list of preferred counsel and we use you regularly, we’re likely to hire you again. If you’re a newcomer, there’s not much you can do or say to draw that first retention. Everything you say at our introductory meeting simply repeats what some other guy told us about his firm last week, and virtually nothing you’ve done is so breathtaking as to make you irresistible.

Lenny nodded, and we drifted back into our iced teas.

The real problem with getting retained is the first nibble. As outside counsel, once someone retained us for one case, it was a lock that they’d retain us for another. The client would come to know our people, our firm, the quality of our work, and the results we obtained. Parlaying one opportunity into many was easy; the hard part is getting the first chance. As in-house counsel, that continues to strike me as true for many (but not all) firms.

How do you get the first nibble?

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Over time (and it doesn’t take long), law firm pitches all begin to sound the same.

“We save you money because we staff cases leanly. We send in the Navy SEALs, not the Fifth Fleet.”

Do you really think the guy in here last week was saying, “We waste your money hand over foot. We send in the Fifth Fleet where the Navy SEALs would do”?

Or: “You get big firm lawyers at small firm prices,” and then, the next day, “You get small firm attention combined with the advantages of our many offices.”

So my ears perked up recently when I heard two large firms make pitches based on fundamentally different world views. The first difference was on the need for international offices….

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