In-house ACCess : In-house ACCess: Association of Corporate Counsel : ACC : The In-house Counsel Bar Association

If you decide that you are measuring your law department’s performance in the correct context (see prior blogs), you then face two more important hurdles. The first, whether you are measuring something that accurately measures a relevant factor and second, that you are measuring the right thing.

Let me address the last issue first—are you measuring the right thing? Two measures seem to predominate the law department measuring game—customer satisfaction surveys and benchmarking. These are offered by the legal consultants in large part because it is easy to do and does not require the consulting firm to actually understand much about the delivery of legal services.

Customer surveys, or the happiness indicator as I refer to it, have two problems. First, it creates the wrong incentive for lawyers who will become reluctant to give unpleasant advice. Second, it measures happiness and not whether the lawyer is actually adding value in manner that benefits the overall corporation. The later is do able, but it far more complex and costly, and generally well beyond the skill and capability of the legal consultant firm.

The second method is benchmarking. The single biggest problem with that method is comparability. The categories which the consulting firms although superficially appealing could prove very misleading. Take for example my former employer, Alcan Aluminum Limited, and Alcoa, who at one time vied with each other as the largest aluminum producers in the world.  From year to year who was the biggest shifted in terms of revenues and size of shipments, but they were always pretty close. Were they comparable for legal benching marking, say on legal expenses per ton or per revenue dollar? No,  because Limited’s primary revenue was highly weighted to primary metal with large advantages in cheap power in Northern Canada whereas Alcoa dominated the higher revenue finished and semi-finished products that required more complex marketing, technological and patent issues (and far more product liability exposure). Differences in legal expenses actually described more about the difference in the businesses than in than the functioning of the business. I would suspect that other apparently similar businesses are also quite difference.

Benchmarking is offered is by the legal consultant industry because it is cheap for them to do and they can charge a lot for it. It also requires no real understanding of either the actual delivery of services or comparability between the businesses.

How you measure is also very important. Statistical significance and controls are critical. The classic demonstration of control is the Governor who pulls out a chart showing the downward sloping curve of highway fatalities starting in 1985 when he signed and implemented the slower speed limits on major highways. This he concludes demonstrates the effectiveness of his policy. The next day a major paper in the State published a Chart of highway fatalities from 1978 to 1984 and the slope was even steeper. So what was happening? Clearly, the Governor’s policy did not have the casual impact he claimed. Was it counter productive? Or was it wholly irrelevant?

Finally remember correlations are not statement of causation—they are statements of correlations. And remember statistical significance. That which is not statistically significant is noise and much of what you hear about the present recovery discussed on the business channels is nothing more that statistical noise. Do not make the same mistake in your studies. You might find somebody like me reading them.

So Fred Krebs is right--measure often, but measure the right thing, the right way at the right time.

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The good news—and what was going to be the only good news for some time, was that we were upgraded to Business First on our flight from Chicago to Munich. The flight from Chicago arrived in Munich on time. That was the last time, for the next two days, that anything we traveled on either arrived or left on time.

When we arrived in Munich everything appeared to be fine. The weather was cool but not cold and it was clear. Little did we know that over the Alps Mother Nature had decided to wreak havoc. We proceeded to the Lufthansa, Senator’s lounge to experience the dramatic improvement in airline lounges in Europe as contrasted with those in the United States. However, my wife was impatient. As a season traveler I had become accustomed to arriving at the plane just before they shut the door; she was not. So we proceeded toward the gate of our flight to Torino. Suddenly, the delayed designation appeared in the departure time. For those who don’t travel much delayed usually does not mean delayed. It means your fight has been cancelled but we wanted to break the news to you in stages.

When delayed sign appears for your flight, and they give you a new departure time, it is wise to ask the gate attendant where the equipment is at the present time. On numerous occasions they would post a new departure time 20 minutes later and I would ask where the equipment was and find out it was still on the ground, two hours flight time away. When I would ask the attendant how they could possibly post a 20 minute delay when it would take the plane a minimum 2 hours to get here assuming it was leaving as we spoke, I would get this amused look, suggesting I have figured out the punch line to the joke.

Of course, in the 10 minutes it took us to get to the gate, as you would expect the delayed departure had turned into a cancelled departure. Apparently, a vast snow storm on the other side of the Alps had shut down all air travel into and out of Northern Italy.

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Read Part 1

Read Part 2

Armed with my Italian sourced flight data, I approached the gate agent and explained that going to Chicago that evening seemed pointless; I needed to be rebooked for a departure next evening. He agreed and began the rebooking process only to come to a sudden stop. Exasperated he said there was a bit of problem—he could not get us into Torino until January 30^th. Wait he said, I have an option. You fly from Cleveland to Chicago, Chicago to Washington Reagan, Reagan to Kennedy, Kennedy to Rio, Rio to a location Eastern Europe I fail to recall now, and from there to Torino.

I quickly responded that that appeared to be a theoretical option—not a practical one. He agreed. How about Milan I asked. That turned out to be an easy alternative and was only slightly further from our destination of Alba than Torino. However, the agent was rather persistent in suggesting that we take the 7:30 AM flight to Chicago rather than the many other options later in the day. We kept explaining that friends were taking us to the airport and it was hard to justify asking them to get up in the middle of the night to get us to the airport—particularly since they were had already brought us here and were going to have to pick us up.

The agent finally decided to put us up at the airport hotel and pay for dinner so we could take the 7:30 AM flight. He seemed convinced that none of the 3 or 4 other options later in the day were safe connections. Even in retrospect his concern seems to be a bit paranoid, but his solution limited additional burdens on our friends so we were happy to comply.

So, on the day we should have been arriving in Italy we were starting our journey. As our plane accelerated down the runway my wife expressed a sigh of relief, finally we are going to get there she said. As a seasoned traveler my autonomic response was: “We are not there yet.” The statement was a premonition of what was to come.

 

 

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 (Read Part 1)

With the location of Christmas settled, plans were made for arrivals. My wife and I would depart from Cleveland in the evening on December 20^th arriving in Torino (Turin) Italy in the late afternoon of December 21^st. Our oldest son would arrive from China in Torino. This would give us two days before Christmas and my son in China had arranged for us to meet many of his friends during that period. But that was not to be.

When we arrived at the airport in Cleveland, many feelings returned from my days as a traveling lawyer. I was Infinite Elite Platinum on Continental, so I had spent many hours in airports and planes. I had forgotten in the last three years since I retired that this was a rather taxing experience. Suddenly our phone rang; it was our son calling VOIP from Italy. He asked whether we knew that our plane to Chicago which was in Dulles had its departure delayed due to the snow storm that had battered the east coast. I did not, but I would ask the gate agent, who was not aware of the delay and had not updated the departure board. I could not miss the irony that I was better informed than an airline employee due to information I was getting from Italy.

Those of you who travel a lot will recognize that airlines typically post extremely optimistic estimated departure times which are gradually revised to much later realistic times. This may be a result of a lack of information, but I often suspected that it was designed to discourage passengers from looking into switching to another carrier.

Of course, the departure time of our flight to Chicago was finally revised to a time that dashed any hope that we would connect with our Lufthansa flight to Munich. When it became clear that the United agent still expected that we would all still be going to Chicago, my Italian source of flight data pointed out it would be pointless, because there were no flights to get me to Italy until the next night.

 Read Part 1 of Larry's holiday travel experiences.

 

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In Susan Hackett’s blog on the Textron case she states that the privilege is under attack. Let me suggest, at the risk of inspiring disagreement from Steve Bokat, that what is really under attack is the notion that in-house counsel is really practicing law. Susan says as much:

Can anyone out there honestly believe that this case would have been so decided or made it to the US Supreme Court as an ongoing debate if the lawyer providing the advice was an outside lawyer and not an in-house lawyer?

(emphasis added)

You see, if we win we will not have won the debate and the debate will continue because the very brief ACC filed in the Supreme Court undercuts our position. Did I read the brief? No. How can I make such a claim then— because I read what counted— the signature line— and looked at who was Counsel of Record and it was not in-house counsel. And even though Susan was key to the preparation of the brief at the Supreme Court, no one will believe it. If Textron’s in-house counsel was Counsel of Record, Susan’s role would be perceived differently.

The First Circuit opinion is worth a read because it is clear that they did not believe that there was serious anticipation of litigation—the unwritten reason because if you had you had brought in your real trial lawyers—in their mind just routine stuff was going on. Not only is Susan right the result would have been different if it was outside counsel; it would, I suggest, also have been different if Textron in-house lawyers had argued the case.

The other reason we cannot win in court is because this debate has been going on for as long as I have been in the practice of law; I have heard it in my company when business people make comments about who are the real lawyers. And it is a debate that has been going on in ACC since the very beginning—do we do it ourselves or do we let outside counsel do it—those lawyers out there who are always willing to lend a helping hand, but at a cost whether you want to admit it or not. When they co-author an article in the Docket, no one really believes the in-house lawyer really had anything to do with it whether she did or not.

We have a serious image problem and the first step to fixing it is not a favorable decision by the Supreme Court, it is to admit it is there. The second step—is to go on the wagon.

 

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ACC filed an amicus with the US Supreme Court on January 27, 2010 in the Textron case. This is the third brief we've filed in this matter as it's cut a tortuous path through the appeals and circuit courts; the press release we issued recounts it all for those inclined to read it.

The case is about whether the attorney work product doctrine extends to the protections of an in-house lawyers' internal analysis and notes regarding a proposed tax position the company was considering and that the IRS eventually challenged. This case, and I've done many of them for ACC, makes me so hoppin' mad that I decided I needed to share my pain with all of you. (You're welcome.)

Let's remember that attorney-client privilege protects the client's right to confidentiality of  communications with their lawyers. It protects the conversation, the request for advice, and the delivery of the advice by the lawyer. Work product doctrine is an offshoot of privilege, but not the same thing: it protects the attorney's mental impressions and analysis, and is limited to protecting that which the attorney works on that was prepared in anticipation of litigation.

Way back in the dark ages when the US Supreme Court defined the concept of work product protections in Hickman, the concept of "in anticipation of litigation" was perhaps narrower. Most companies didn't have in-house legal staffs and not much work was done in the field of preventive law or compliance practice by firms or departments, in part because there wasn't so much regulation to comply with, and in part because companies didn't need to call a lawyer until someone sued them. But courts from the Supremes on down have broadened the parameters of work product protection as the complexity of corporate legal practice has expanded: recognizing the important role that lawyers play in helping their clients navigate regulation and a litigious world, and knowing that companies should make decisions on a daily basis with litigation and risk avoidance in mind, courts in every circuit have issued opinions recognizing that lawyers not only do, but should be working 24/7 in anticipation of litigation, even if the case has not yet or hopefully may never be filed.

In today's world, pretty much everything an in-house counsel does is in preparation for real or potential litigation.

So for the First Circuit opinion to suggest that an in-house lawyer analyzing the risk and best practices his client must consider when adopting this or that tax position isn't acting in anticipation of litigation but rather is just some kind of business-not-legal number-cruncher is just silly. It ignores reality. And the public policy implications for lawyers and clients (as well as the stakeholders who rely on the company's legal health) are dire. Read the brief if you don't understand why. And for those of you who already get it: time to get mad.

Can anyone out there honestly believe that this case would have been so decided or would have made it to the US Supreme Court as an ongoing debate if the lawyer providing that analysis was an outside counsel and not the in-house lawyer? Do you think that the IRS would have subpoenaed the XYZ AmLaw 50 New York firm partner to produce his files containing his legal and risk analysis of the tax position being considered by his client at Textron? Of course not. The IRS issued document requests for the company, and the in-house lawyers files were examined as part of that process: that which could be produced was, and that which was lawyer-client privileged or attorney work product protected was not. The court's decision to discount any protection for the in-house lawyer's work product shows that they are laboring under the misguided belief that in-house lawyers somehow aren't really lawyers, but some kind of non-objective, non-professional, quasi-business functionaries who don't quite qualify for the same status and protection we would afford to outside counsel at firms.

While I recognize that many in-house counsel are extremely business savvy and have provided increased value to their clients by approaching their legal practice with an institutional and deep knowledge of the company and business which is their client, and that indeed, some in-house lawyers carry responsibilities in their job that aren't legal, that’s not what’s relevant here when discussing these attorneys' legal work papers and analysis. The fact that they deeply understand their client doesn't mean that in-house counsel are not lawyers or that their work product isn't just as clearly worth protecting as the work product of lawyers in outside firms. Most outside counsel I know spend a lot of time and energy trying to assure everyone who will listen that they are business savvy and able to help their clients fulfill business needs as an "institutional" member of the client company team. This is simply a surreal conversation to be having if you're an in-house lawyer in the 21st century.

Many of you have (been unfortunate enough to have) heard me deliver my "privilege is under attack" speech or have read my previous diatribes; maybe you've followed and recognized ACC's highly focused and very successful efforts at pushing back abuses by prosecutors and regulators of corporate rights to assert the privilege when under investigation; perhaps you recently joined us in demanding protections for the risk analysis that lawyers provide to their finance folks in setting litigation reserves, which is under attack by the FASB folks looking to revise FAS 5: all of those efforts, crucial as they are, pale next to the implications of this case. This is an attack on the most fundamental premises of a lawyer's value and work product: the ability of a lawyer to analyze the facts and the law to develop the guidance that clients need to do the right thing. And if this doesn't get fixed, your work product is about to become Exhibit A in your adversary's brief. Get on board, corporate legal community, and get involved! Your rights as a lawyer, your client's rights to confidential counsel, and the very underpinnings of value in your client relationships are at stake.

Contact me at hackett@acc.com

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Fred Krebs, in his President’s message, in the January/February 2010 issue of the Docket, encouraged measurement of law department performance. The central themes of his comments are:

The more we measure our successes, our challenges and even our failures, the more we will learn how to carry these experiences forward in a meaningful way into a new year.

Allow me to express some reservations, but first I should tell you my bias—I am Mr. Measurement. So what is my problem?

When ADR was touted as the certain means to reducing litigation costs and study after study appeared supporting that fact, I complained we should measure these claims in a “scientifically valid manner.” The key is scientifically valid. There was little in the deluge of materials from such notable organizations as the ABA and others that was scientifically valid. There were explanations as to why ADR just had to be more cost efficient and numerous opinion surveys claiming it clearly saved money.

In the context of the Civil Justice Reform Act, I had the opportunity to persuade the Federal District Court for the Northern District of Ohio to let me study these claims. Unknown to me, the Administrative Offices of Federal Courts had engaged Rand to do a similar study. Using two different methodologies, but both looking at actual costs with controls we reached the same result—ADR had no impact on costs.

Measuring is not a simple task and my experience is that much of the measuring done by legal consulting firms is irrelevant at best and misleading at worse, since it involves questionable comparisons and often is not measuring the right thing.

I am in the process now of conducting an enhanced study of ADR with my co-chair a law professor at Case Law School, with the assistance of a professor in social science methodology. We find ourselves continually challenged to insure we are measuring the right thing, the right way and for the right reason.

So before you charge off, inspired by Fred’s challenge to measure, let me suggest you think through three issues. First, why am I measuring? Second, what am I measuring? And third, how am I measuring it? I will explain the importance of each issue in future blogs.

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What does this blog have to do with the legal profession? Absolutely nothing. But to my mind it is an unusual adventure worth sharing. It is the story of the 4 day effort of my wife and me to meet our two boys in Italy for the Christmas holidays.

Why Italy? Well in part this reflects the truth that the pollster, John Zogby describes in his recent book: The Way We Will Be. Although I met John for the first time a few months ago when he spoke to the Cleveland Council on World Affairs to which I belong, we have a common background. We come from the same city, Utica, New York where John still resides and we have common acquaintances. I even played high school football against his cousin.

In his book John describes the globalization of the generations of Americans in their mid thirties and younger. Our family, it appears, comes close to being the platonic ideal of that image. I spent a good deal of my legal career representing foreign interests before the US courts—most notably the challenge to the use of unitary taxing schemes by certain states, California in particular, upon the global income of foreign multinationals operating through subsidiaries in the state. This effort, the efforts to restrain US courts from their predilection to exercise universal jurisdiction on matters clearly beyond their purview, and the fact that I prominently displayed my Rome, Italy license plate and a picture of me on my Ducati in Rome, appears to have had its influence on my sons (see below).

The oldest is a 28 year old entrepreneur who now lives in China operating a business he started: www.attigohk.com . He is fluent in Mandarin, reasonably fluent in French and studying Cantonese. The youngest, resides and works in Italy where is responsible for exports at www.artesina.com . He is fluent in Italian, reasonably fluent in French and studying Bulgarian.

The problem for holidays was how to get together as a family for the holidays. We had not been together for some time since my oldest son had been in China for going on three years and the youngest was in Italy last Christmas. I was retired and the oldest owned his own company, so we had the most flexibility with schedules. Thus, Italy seemed to be the location for a family Christmas.

Larry Sailbra, Rome, Italy 1967

 

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Regardless whether the recent e-mails concerning the AIG bailout that have surfaced (as a result of Congressman Issa’s FOIA request) do or don’t indict Geithner, our Turbo Tax challenged Secretary of the Treasury, they are, at the very least, a huge embarrassment to the legal profession. Although the Fed’s General Counsel claimed that Geithner had no clue as to what going on, hardly a resounding endorsement of his management skills, it seems clear that the Fed and AIG’s in-house lawyers did.

There seems to be little doubt that the failure to disclose was clearly illegal.  As the crisis develops, the next pressing questions are, What is the Attorney General is going to do?  Is the profession going to be embarrassed again? And, if it becomes clear that enforcement action is required and the Attorney General does not vigorously enforce the law, What is the ethical obligation of responsible government lawyers?

A number of years ago, ACC had a significant internal debate concerning whether in-house lawyers who were punished for insisting that their client act in accordance with the law should have access to the same legal remedies as other employees who were terminated or otherwise punished for insisting on legal compliance.  The debate split over the issue as to whether the in-house lawyer was simply required to resign and have no further rights against the company. My recollection is that no one believed that the lawyer aware of improper conduct by the client could turn a blind eye and go on as though nothing was happening.

Many government lawyers are likely to find themselves in similar positions as in-house attorneys discover that the company’s general counsel is either condoning - or actively participating - in illegal conduct. As this crisis plays out, details of the conduct becomes clearer and proper course of legal conduct becomes far more defined, the actions of the Attorney General may once again test the resolve and the credibility of our profession as we see how the government lawyers react.

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ACC Board Members See Opportunities in the Midst of Greater Regulatory Scrutiny, Increased Client Demands & Efficiency Directives in the New Year

As 2009 comes to a close, some will look back on the past year disheartened by the economic upheaval that occurred, while others will look ahead with cautious optimism, confident that in the midst of challenges the coming year will bring lucrative opportunities for growth and prosperity. Articles and Blog posts abound, with everyone offering their predictions for the coming year. While nobody has a magical crystal ball to foretell the future, we can learn from events of the past and the current environment to not only predict, but also prepare, for what is yet to come.

I have always found our ACC community to be a great source of support and insight and as Ivan Fong, ACC’s former Board Chair, noted in a previous ACC Docket message, “During times of economic stress, it is important to hold fast to your core values and to the people … who can support you in your time of need and give you hope and inspiration.” By tapping into the collective wisdom of ACC’s Board of Directors, we can all glean added insight to stay on top of the trends – and help us to prepare for 2010. 

When asked what the greatest challenges will be for in-house counsel, as well as where new opportunities will emerge, ACC Board members offer the following predictions.

David Allgood, Executive Vice President & General Counsel, Royal Bank of Canada: We will have to respond to the impact of the global financial crisis on financial regulations and I see a significant regulatory onslaught occurring, particularly for financial institutions.  

I am expecting - looking for, actually - more use of project management principles by the outside law firms I work with to ensure greater efficiency and cost containment.

Jonathan Block, Attorney, Former Vice President and General Counsel, Salem Communications Corporation: The current political winds are blowing in favor of increased regulation, and given the speed in which it is happening and the polarization of the political process, it is hard to know where we’ll land until we are already there.  With all of the changes, reduction in resources and increased pressure to take risks that will potentially jeopardize the company, the complexity of how in-house lawyers go about performing their job will continue to increase.  

The increased complexity and reduction in resources, however, provides an even greater opportunity for in-house lawyers to demonstrate their strategic value to the organization. With greater challenges facing companies, GCs have the opportunity to burnish their image as the go-to problem solver for the company. This is also a great time for companies to start building for the recovery and investing in their future. With even well run businesses having to eliminate assets to address cash flow issues over the past few years, strong companies now have the ability to acquire some especially valuable resources (including human capital) in a manner and at a price they previously couldn’t come close to. 

Jeffrey Carr, Vice President, General Counsel & Secretary, FMC Technologies, Inc.: In-house counsel must determine how to make value-based engagements the standard for their own teams while simultaneously implementing value-based engagements with their outside counsel.  

In looking ahead, I see the ACC Value Index, the client satisfaction measurement tool developed to help ACC members share meaningful information about the value they get from their outside counsel, being recognized as the industry standard.

Elisa D. Garcia C., Executive Vice President & General Counsel, Office Depot, Inc.: For in-house lawyers with public companies, we will have to nimbly navigate an avalanche of new legislation and regulation in the governance arena. From proxy access to say-on-pay, from risk committees to golden parachutes, and all the enhanced disclosure requirements that will accompany these and other regulations, I foresee substantial confusion and lack of guidance from the regulators. This is especially concerning because of the “anti-corporate” bias of regulators. I hope the regulators work with the business community to ensure that the new rules are clear and enforced fairly.  

I encourage smaller and diverse [law] firms to embrace the ACC Value Challenge as a game changing differentiator. I think the agility of a smaller firm will enable it to be more creative in bringing value solutions to corporations and thereby helping them gain opportunities they may not have otherwise had.   

Michele Gatto, Executive Vice President, Corporate Services & Chief Legal Officer, National Life Group: In the current economic environment it will be incumbent on in-house counsel to manage expenses carefully and strategically, with a focus on increased efficiency, productivity and value. This is an opportunity for in-house lawyers to demonstrate their abilities to be good leaders, as well as good lawyers. We will also need to stay focused on new developments in the legislative and regulatory environment (financial services reform, health care reform, etc.).

J. Alberto Gonzalez-Pita, Senior Vice President & General Counsel, Las Vegas Sands Corporation:  Some trends are clearer than others, and increasing regulation is one that stands out. This will happen at the state and federal levels and will impact a wide-range of small and large businesses in numerous industries. I believe we will also see increasing enforcement of existing regulations with larger fines and penalties for non-compliance. Identifying, analyzing and complying with these regulations, as well as ameliorating their impact will require a significant investment of time and resources by in-house counsel.  Another trend is the continuation of the changing dynamics between companies and their outside counsel. The economic recovery is unlikely to be fast or robust enough to diminish ongoing cost cutting efforts, and outside counsel will continue to feel pressure on their fees. The ACC Value Challenge will continue to gain momentum as an effective way for in-house lawyers to achieve demonstrable savings and efficiencies. We will continue to see more alternative fee arrangements and less hourly rates through 2010 and beyond.

There will certainly be numerous changes in store for specific industries (banking and finance, insurance, health care, pharmaceutical and hydrocarbons), but I'm not a good enough prognosticator to say what those will be. "Legal" change is in the air more so than in years past, and I believe this will impact the vast majority of in-house lawyers in some fashion.

Teresa Kennedy, Assistant General Counsel, Cox Communications, Inc.: Lawyers will be stretched by handling more matters than ever in-house, with less support from our business partners.  This situation will require us to be more actively engaged in vetting business issues, which of course, presents us with both opportunities and challenges!

Jonathan Oviatt, Chief Legal Officer and Secretary, Mayo Clinic:  We will continue to see increased expectation that legal services will measure up to the same metrics of "quality and value" that are applied to all other shared services in the organization. Effective lawyers will be those who intentionally partner with clients to improve quality and value, while reducing expenses.  With increased regulatory complexity and decreasing budgets, effective risk balancing and risk management skills are essential for effective lawyers.

"Tone at the Top" has never been more important and effective CLOs have a critical role in ensuring that our clients do the right thing. Additionally, it has never been more important for us to avoid taking ourselves too seriously—we must maintain balance.

Carol Ann Petren, Executive Vice President & General Counsel, CIGNA Corporation:The greatest challenges for in-house counsel will definitely include an increased focus on executive compensation and risk management. There should also be an increased willingness to take advantage of developing business opportunities with a more stable economy and clarity on the regulatory front.  

Eric Reicin, Senior Vice President & Deputy General Counsel, Sallie Mae, Inc.: In times of stress, uncertainty and an enhanced regulatory environment, in-house counsel need to be more than practitioners, they need to serve as both a trusted advisor and business partner. During the last 20 years - especially the last five - we have seen a dramatic shift in the speed and efficiency of the practice of law with the addition of each new technology (overnight mail, fax, electronic word processing, electronic legal research, e-mail, e-filing/knowledge management, internet search, video conferencing, intranets, IM, BlackBerry, iPhones, Twitter and private secure social networks), and this trend will continue, mostly to the detriment of our personal lives and to the perceived benefit of our clients. It will continue to fall to us to encourage our clients to prioritize, recognize when immediate turn-around is required and when further thought is preferable. Thoughtful legal advice often takes more than 140 characters of text.

Martine Turcotte, EVP & Chief Legal & Regulatory Officer, Bell Canada: One of the major regulatory and investor areas of focus will be on executive compensation where more disclosure -similar to a management and discussion analysis focused on compensation – that is now required. While we had to go through this as one of the first Canadian issuers last year, regulators have kept a close eye on this, and now with “say on pay” resolutions having been adopted by a few issuers like ourselves, it will be an interesting discussion with governance organizations and major investors.   On the administration side, top focus will remain on outside counsel costs and the value proposal.   

Norman Wain, VP, Corporate Legal Affairs, Assistant General Counsel, The Finish Line, Inc.: I see our greatest challenge as balancing the corporate expectations while continuing to decrease (or manage) costs in light of tighter economic conditions. In-house counsel need to learn to work more efficiently, better manage outside counsel (perhaps changing fee structures) and then battle senior management to still pay attention to legal when they are desperately focused on reducing costs and cutting programs from their budgets.

In terms of prospects for the year ahead, technology is constantly changing, which creates new opportunities. In addition, we will need to monitor new government regulations and what their impact will be on our businesses.

- - - -

From regulatory hurdles - to increased scrutiny - to strengthening relationships with outside counsel, it’s clear that in-house counsel will have their hands full in the coming year. In addition to increased government scrutiny and regulations, I see increased regulation of the legal profession, with more laws and regulations governing the conduct of lawyers. And, while the use of value-based fee arrangements will increase, the billable hour will not disappear. I believe, however, that it will no longer be the default billing mechanism that parties use without consideration of other approaches. 

As these changes take hold, ACC will continue to respond to in-house counsel needs and challenges in the coming year through our educational programs, member communications and advocacy efforts. If you have additional thoughts and predictions, I’d love to hear from you, too.

 

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What do retired in-house counsel do?  Well one thing is that we read all those news notes on the bottom right-hand corner of the screen on the Bloomberg Channel. One that caught my eye this morning concerned the 2010 forecast for law firms.

ACC Value Challenge or not, it appears that law firms are going to be seeing a more gloomy economic picture this coming year according to the head of Citibank’s Law Firm Group in New York. The title of the article states that law firm revenues in 2010 can fall as much as 10% over last year and the article goes on to state that after laying off junior lawyers and staff last year firms will be looking to reduce even equity partners.

What is even more surprising is that more lawyers were laid off in the third quarter than the second quarter.

So what does this mean for in-house counsel?

First, your bargaining position on price has dramatically improved and is likely to do so through 2010, perhaps beyond.

Second, the big firms with high fixed costs—you know downtown paneled offices, lots of art on the walls and big paper book libraries—should be most willing to accept work at big discounts. Disregard survey claims about price increases—watch the layoffs.  My former employer had high fixed costs and I learned there in bad times you were glad to take unprofitable business because any contribution to fixed costs was welcome.

Third, and ironically, this is not going to be all good news for in-house counsel, since stressed firms will be offering companies a less costly and variable cost alternative to the fixed costs of employed counsel. Apparently, in-house counsel are bringing work inside—that is great, during my career I was “Mr. Do It All In House,” but remember you are still a fixed cost so you are going to have to do it a lot better, not just cheaper. This is not perhaps what we had in mind when we coined the term value billing, but it is today’s reality.

Fourth, all those unemployed private law firm lawyers will be out there looking for work—and you know what oversupply does to salaries. Some of those unemployed law firm lawyers may start their own practice and could be good alternatives to firms who try to raise rates—remember those laid off lawyers were likely the ones who actually did your work.

Looks like those green shoots and rosy (less bad) employment numbers of a few days ago just do not apply to the legal profession.

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I am not against schools, but I am against schools that believe they are capable of magic. 

Harvard Business School and Brigham Young are again out there trying to justify their existence. (See my previous blogs on business schools and their attempt to develop courses on risk.) My son who works and lives in Italy sent me a CNN article in which some Harvard Business School and Brigham Young professors undertook a study (from what I can tell of questionable scientific validity) to discover the characteristics of innovators. Surprise, surprise, they discovered that anybody can learn to be an innovator, and implicit in that, for a mere $90,000 or more they will teach you to be an innovator.

These are the same guys who demonstrated a remarkable inability to teach their students how to avoid being overcome by the same human characteristics that created the Tulip Bubble of the 1600’s.

Why does this sound like those infomercials that are programmed for people who cannot sleep and attempt to convince them that if you buy my book and follow my plan you will be making $100,000 a month and be able to sleep again?

Continue Reading...

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I recall one day when I was first hired in-house and my boss came into my office upset with an opinion I had given. After he was finished reading me the riot act, I told him that he had a right to expect the very best opinion I could give, and he or other members of the management team could follow it or ignore it, that was up to them, but they did not have the right to tell me what that opinion was going to be.

Some years later, I was intransigent about a legal position we should take to represent the best interests of the shareholder. The business manager was resisting it because he felt the lawsuit would impact the price of future products in a manner that would adversely affect the way his performance was measured. He expressed considerable exasperation working with me, however, as he walked out the door he looked back and said, “Although I do not like working with you as a business colleague, if it was my money you would be the only person I would hire.”

I am sharing these experiences with you because this morning I was captivated by the House oversight hearings on the continuing saga of the Bank of America purchase of Merrill Lynch. What I had not known was that a Bank of America General Counsel was terminated for no reason apparently except that he had given advice that was contrary to the wishes of the CEO. His successor, although a lawyer, had not practiced for 10 years. He testified, as did every other member of the BofA Board on the panel, that he had the highest respect for his predecessor’s skill and capability, but that it did not occur to him to ask why he was abruptly fired in the middle of the BofA purchase of Merrill. Considerable skepticism was expressed concerning the candor of this testimony—and justly so, since a General Counsel who assumes a position in the context of a termination which appears questionable or improper is as guilty of the malfeasance as the perpetrator – he or she merely enables the malfeasance.

Your client is the company and its shareholders—not necessarily the person who holds your career in his hands. We need to remind those in our profession of that fact, and that their failure to adhere to the principle not only ultimately brings shame upon themselves, but also upon the profession.

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We are pleased with the interest in the ACC Value Index (AVI) since its release last month at the ACC Annual Meeting in Boston. The attention from the media and law firms at this early stage of development reflects the potential value of the AVI to our members. Recent Blog posts and articles, especially those that show “purported ACC law firm rankings,” require clarification:

• The ACC Value Index is in the early data-gathering stage and it will take time to develop a robust database.
•  It is premature and inappropriate at this time to cite "rankings" of law firms given the limited number of evaluations submitted thus far.
• The AVI is a service for ACC members that will enable them to share information and communicate with each other about the selection and retention of law firms.
• ACC will share with each law firm the evaluations it receives about that firm as soon as we finalize the appropriate formats and procedures.

We welcome the continued input, feedback and engagement of the legal community in the ACC Value Challenge.

ACC President Fred Krebs on the ACC Value Index

Friday, November 13, 2009

 

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Leadership, like beauty, is in the eye of the beholder.  Sure there are plenty of definitions and many a book has been written and speech given on the subject, but when you ask people, what leadership means to them, you’ll get an assortment of responses.  A recent quick poll of lawyers and others in the legal industry via email and Twitter resulted in the following (140 character) thoughts:

Leadership is …

“Providing direction, setting priorities and creating an atmosphere where people want to follow,” Fred Krebs, President of the Association of Corporate Counsel

“Anticipating, listening, deciding, communicating,” Patricia R. Hatler, ACC Board Chair and Executive Vice President, Chief Legal and Governance Officer at Nationwide Mutual Insurance Company

“A vision of the future, persuading key players to share your view, making sure every decision furthers that view,” Patrick Lamb, partner with Chicago litigation firm Valorem Law Group.

“Doing the right thing even when it's unpopular or unconventional. Especially when.”  Jay Shepherd, attorney with the Shepherd Law Group

"Vision, creativity and perseverance. Trend-setting is NOT the same.” Glenn Manishin, partner with the international law firm of Duane Morris LLP

“Assessing priorities to set a vision, then inspiring others to achieve that shared vision through their own creativity and skills,” Timothy Corcoran, Senior Consultant with Altman Weil.

While similar traits are repeated, it’s often the actions that define a true leader and not the words. Like other subjective categories that lack clearly defined parameters, when speaking of great leadership we can cull from a famous phrase in Supreme Court history and say “I’ll know it when I see it.”

The pressure to “lead” has never been so strong and as everyone tries to keep up with the changes taking place, strong leadership will be the catalyst for long-term growth, stability and success.  Lawyers (both in-house and at law firms), too, are faced with these same pressures - to “do more with less” and to make their practices more efficient while still growing the bottom line.  Overcoming the obstacles and being able to lead so that, as Krebs pointed out, “people want to follow,” will be key to their survival.

But what’s a lawyer to do to stand out from the pack? How will the drive toward being a great leader engender buy-in and lead to success?  Have you assessed your own leadership skills lately?  Are you prepared for the challenges ahead? 

Several sessions during ACC’s Annual Meeting in Boston addressed the issue of leadership, and what struck me was the interesting parallel between effective leadership today versus examples from the past.  Ivan Fong, General Counsel for the U.S. Department of Homeland Security, shared his thoughts in relation to modern-day leadership, while Pulitzer Prize winning author, Doris Kearns Goodwin, offered an historical view of leadership as illuminated in her latest book, “Team of Rivals: The Political Genius of Abraham Lincoln.” The common thread with both was their emphasis on the importance of personal relationships – of caring and listening and a commitment to character - that set true leaders apart. 

At the heart of “Team of Rivals,” was Lincoln’s ability to “bring people together” and his success, as Goodwin explained, was “the result of a character that had been forged by experiences that raised him above his more privileged and accomplished rivals.”  Those around him would be hard-pressed to be mad at Lincoln, because inevitably, his power, his charm and his intelligence would bring people around, to be an ally. In some instances, this means taking charge, by letting go.

If you are, or have been, in a leadership role, then chances are you have had to deal with people who might not agree with your decisions.  Great leaders don’t lead by trying to make everyone happy. Instead, they bring them into the process.  As Harvard’s president, Drew Gilpin Faust, aptly pointed out in a recent New York Times interview, “if people feel they were listened to, that their views were taken into account, that they had a chance to show you the world from their point of view, they’re going to be much more likely to go along with a decision.” 

The ability to engender trust, Fong explained, was at the core of being not only a good lawyer, but also an effective leader.  Specifically, “The hallmarks of being a good lawyer – the foundations on which everything is based – are the quality of the legal analysis, integrity, responsiveness, sound judgment and the ability to be a trusted advisor, all of which translate well into the public sector.”

In discussing “leadership imperatives,” Fong emphasized the importance of “beginning with the end in mind” and articulating a clear vision and compelling purpose for the organization.  A team, to be effective, needs to have a common understanding of “Why do we exist?  Where are we going?  And how are we going to get there?”  The shared mission, vision, and strategy, Fong explained, helps to inspire trust and engagement.  Regaling the possibly apocryphal story of a General’s encounter with a janitor in the halls of NASA during the 60’s, Fong explained that when the General asked the janitor what he was doing, the janitor replied, “I’m helping to send a man to the moon.”  A leader’s ability to communicate a compelling purpose – a shared vision – can inspire the entire organization to be right there with you.

Fong, like Lincoln, embraced the notion of “meeting people where they are,” of putting himself in the place of others and listening to those around him. By meeting regularly with his staff, learning about the processes already in place and gleaning insight from his direct reports, he has been able to set an agenda and establish clearly defined goals. “It’s not about working harder, longer hours,” Fong explained, “it’s also about stepping back and looking at how we do what we do and how can we stop doing things that no longer provide value.”

Using the example of a marathon, where the early runners cross the finish line before others even begin, Fong illustrated the importance of going back and putting yourself in the position of someone at the beginning of the race. Communication, another leadership imperative, can’t be emphasized enough in this regard. It’s vital for successful execution; and every organization needs it.

Goodwin, in describing Lincoln, believed one of the best indicators of a good leader was, “being able to motivate during frustration,” and in harmony with this sentiment, Fong noted, "You can tell the health of an organization by the quality of its arguments.”  These traits - overcoming obstacles and being able to lead in the midst of conflict - are vital for today’s leaders. The ability to ride out the economic waves of uncertainty, while maintaining control and respect, will propel the great leaders ahead.

Challenges, as Fong described, are where “what you do know and what you don’t know intersect.”  As a leader, you are tasked with uncovering the known and unknown and then tapping into the wisdom of those around you to help get the job done. Fong recalled his “A-Ha” moment when he realized that, while he couldn’t personally manage and lead all 1700 lawyers in his department, he could lead those lawyers within the top one or two layers, and influence their own leadership abilities.

Whether it’s gleaning insight from Fong or relishing Goodwin’s historical retrospective on Lincoln, much can be gleaned from the great leaders of today and those of the past.  Each of you will have your own style and approach, but ultimately, it will be your ability to connect with those around you - to engender trust and respect - that will be key to your own personal success as a leader. 

As you evaluate your own leadership traits, ask yourself if you are applying successful principles from the past for effective leadership today.  Specifically:

1. Are you fostering an environment of teamwork?

2. Are you addressing those that disagree with you in a way that leads to mutual understanding and buy-in?

3. Are you communicating a plan (your vision) effectively?

4. Are you evaluating processes and identifying opportunities for better alignment and efficiency?

5. Are you putting others’ interests ahead of your own?

6. Are you praising others for their contributions?

7. Are you treating everyone – at all levels – with the same respect?

8. Are you paying attention to suggestions & facilitating implementation?

9. Are you demonstrating trust, honesty and integrity?

10. Are you able to take charge by letting go?

Remember, leadership is in the eye of the beholder, and it will be the feedback and opinions of those around you that really matter. As someone that has had the privilege of getting to know Fong on a personal level, I can attest to his uncanny ability to engender trust and buy-in from those around him. Fong’s remarkable compassion, inherent interest and ability to lead in a collaborative environment are great qualities we can all learn from. And, as I have observed from my own interaction with Fong, when I encountered this great leader, “I knew it when I saw it.”

###

Susan E. Jacobsen, President of LUV2XLPR, Inc., has over 15 years of experience assisting in-house counsel, law firm attorneys and corporate executives with strategic communications initiatives.

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I have been a bit delinquent in my blogs because I had writer’s block, but not the ordinary kind. Mine had very distinct causes - the installation of a new HVAC system and re-decking and re-roofing my garage. I may be a lawyer, but I still have some useful skills.

As you know, I have been promoting the idea that the legal educational paradigm needs to be radically changed and there are some, such as David Van Zandt, the Dean of Northwestern Law School, who have been making real efforts at change.

This last week I attended a North Eastern Ohio Chapter ACCA Program and heard David Galbenski and his colleagues explain how Entrepreneurship is going to dramatically change the legal profession. David is the CEO of Lumen Legal and in addition to sharing ideas David gave me a copy of his book, UNBOUND, and asked for my comments. In the next few blogs I will share some of my reactions with you as well.

David discusses seven trends which he identifies as transformation factors for the legal services industry. Number one is the demise of the pivotal role of the billable hour. Although I agree that something transformational does appear to be changing the legal services industry, I do not think the billable hour has a pivotal role to play. As I suggested in my blogs on the billable hour and alternative billing, the billable hour is predicated on a basic need of the buyer of legal services. Change the need of the buyer of legal services and the billable need not diminish or disappear; it merely becomes irrelevant to determining fees.

As many of you know, my claim to fame during my active days of practice was doing the work myself, including arguing before the United States Supreme Court. I had little need for billing arrangements and retention letters. Lawyers who worked for me got specific assignments and the key to whether they got the assignment was whether they could do it faster and cheaper than I could. 

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The recent launch of the ACC Value Index at ACC's 2009 Annual Meeting generated significant interest and commentary, including both praise and criticism. 

We welcome these comments because they not only further the attention and discussion about value in the delivery of legal services (a primary goal of the ACC Value Challenge), but they will also help us to improve the ACC Value Index (AVI).

            A few additional thoughts on the AVI:

 

1.           We created the AVI as a member service, so by definition, it is available only to ACC members.  Stated simply, it provides two specific benefits to our members:  a) the compilation of individual ACC member views on the value received from specific law firms; and b) the ability to find other members who have used a firm in order to communicate with them and engage in a dialog about their experience.  The AVI is a specific tool meant to inform decisions as part of a larger process of selecting and retaining a law firm.

 

2.           Members may post an evaluation anonymously or with identification at their option.  We believe the anonymity option to be important - particularly at the outset of this initiative.  Over time, as the AVI gains acceptance among our members, I anticipate that the percentage of anonymous postings may decline.    Evaluations can be posted with attribution - or anonymously -  as we seek useful and candid information to build acceptance of the evaluation concept generally.

 

3.           We will make the evaluation summaries available to the law firms. When and how best to do that remains under consideration by our Advisory Committee.  A corollary benefit of the AVI will be the ability to recognize those law firms that provide value in the collective judgment of our members.  Coinciding with the overarching goal of the ACC Value Index – information gleaned from the AVI will help to foster a greater dialog between clients and their outside counsel.

 

4.           The AVI is a work in progress and we are pleased with the interest and input it has generated to date.  Nevertheless, it will take time to populate the database with sufficient evaluations to reach a meaningful threshold.  The AVI database has been populated with over 1,500 evaluations, reviewing over 400 firms, and we will continue with our member outreach for additional evaluations.

 

5.           The AVI is only one part of the ACC Value Challenge, which encompasses a larger effort to reconnect value to the cost of legal services.  Other aspects include a) “Meet. Talk. Act.” which encourages clients and law firms to engage in discussions about value and their relationship; b) a law firm economic model; and c) specific resources with examples of value practices and ideas on ‘how to’ implement practices focused on value.  Resources, success stories and updates are continually added to the ACC Value Challenge community pages and we encourage law firms to get involved and help to provide additional information/resources.

 

6.           One important observation on the evaluations received to date: law firms generally do good legal work, but all too often, do not have costs and matter management under control. Effective cost and project management should be a key objective -- for both clients and firms to effectively work together. By managing legal matters in a business-focused, client-centric way, as opposed to basing solely on “hours worked,” the agreed upon business objectives will drive greater efficiency, and ultimately, value.   Law firms must learn to reduce their costs while improving quality.  Our members’ companies operate under this imperative, and their outside law firms should, as well.

 

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ACC applauds the Financial Accounting Standards Board (FASB) for moving away from its proposed changes to FAS 5 contingent liability reporting requirements and adopting a more reasonable approach in response to strong opposition from ACC and other bar and business groups.

The Board reportedly plans to issue a final rule that will incorporate the following*:
•    Disclosures about litigation contingencies should focus on the parties, rather than on predictions about outcomes.   
→    This suggests that clients and their lawyers reporting on contingent liabilities would not suffer negative consequences from having predicted unpredictable outcomes.

•    Disclosures about a contingency should be more robust as the likelihood and magnitude of loss increase, and as the contingency progresses toward resolution.  
→    A return to a focus on reporting what is better known and understood as a matter develops is welcomed; the draft’s initial requirement of reporting before any facts were known would have made the disclosures unreliable and left clients exposed when ’guestimates’ inevitably became public and companies were accused of misstating their financial liabilities.

•    Disclosures should summarize publicly available information about a case and indicate where users can obtain more information.  
→    A focus on reporting what is publicly known is crucial to protecting privilege – the initial drafts inferred that reporting should include items that would waive corporate attorney-client privileges and lawyer work product protections.

•    Disclosures about a contingency should not affect the outcome of the contingency – the disclosure is intended to report on which is happening related to the contingency.   
→    Similarly, this result reinforces the previous four, but the focus should be on the contingent liability and not on divulging corporate strategy, privileged legal risk assessments, and lawyer work product.

Further, the revised rule would reinstate organizational respect for privilege and firmly re-assert existing and recognized protocols between lawyers and clients and auditors, based on such longstanding practices as detailed in the AICPA’s “Treaty.”

ACC members and many others expressed strong concerns and opposition to this proposed revision as fundamentally bad policy. We applaud the reported change in direction by FASB

FAS 5 proposals, and comments submitted by ACC and co-signed by 175 general counsel.

* (SOURCE: PWC DataLine briefing, October 9, 2009)

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The other night, I was lecturing to a class at the University Of Akron Graduate School Of Business’ MBA program. Since I have been blogging about changes in legal education, and more recently Northwestern Law School’s attempt to address the issue through its strategic plan, I thought it was a good time to expose my view, described in the blog “Trouble in River City,” that the traditional legal educational scheme developed by Dean Langdell at Harvard is more than inadequate, it is misleading.

The students and faculty in attendance got it. Learning legal doctrine based on courts’ explanations of what they are doing and why, rather than examining their actions in the context of the social, economic and scientific reality in which the courts are operating can be very misleading and actually impair your ability to practice law effectively. When you demonstrate how that occurs in the context of a real case—they get it.

They also understood you cannot fix the problem by add-on’s to the present curriculum—you have to fundamentally change it.

The call for a new and thorough look at legal education is echoed by a growing chorus—and it is a call shared by Fred Krebs, ACC’s president. And just perhaps, if my ideas that business schools replace their law survey course with one that teaches business students how to manage legal problems and lawyers are implemented, law schools may find themselves under pressure from customers of the graduates to change and perhaps “catch up.”
 

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I am sure that most of you have some passing familiarity with the dispute surrounding the bonus compensation of Merrill executives just prior to its sale to Bank of America. The claim was that Merrill had intended to pay its executives 5.8 billion dollars, 12% of the purchase price that Bank of America agreed to pay for Merrill, and that Bank of America executives knew this fact and withheld it from shareholders in order to receive consent to the purchase.

Other than some passing knowledge of an SEC suit and some unflattering comments by media commentators concerning the fact that the court had failed to permit an agreed settlement, I knew very little until a friend sent me a copy of the Court’s opinion refusing to accept the settlement.

The first thing that strikes you about this is the style of the case—SEC v Bank of America.   I am no expert on SEC law but it was curious that the SEC would sue the Company for allegedly deceiving itself. A review of the opinion quickly reveals the simple logic for the judge’s decision—we should not be punishing the victims.

The complaint alleges that various officers of Bank of America knew of the bonus arrangement but failed to disclose it to obtain shareholder consent. The settlement the judge noted was to have Bank of America, ultimately the shareholders, pay a 33 million dollar fine for having been duped. Needless to say the judge found this resolution unsatisfactory.

What follows in the case is then a series of explanations of why the actual alleged offenders could not be liable. The executives were not responsible because they relied on the lawyers, the lawyers were not responsible—well you read it. It does contain much of the confusion and contradictions that one finds in a Gilbert and Sullivan Operetta, without perhaps the happy ending.

The most curious is the explanation of why having the shareholders pay 33 million for having been defrauded was actually in their interest.

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The description of the profession used in Northwestern’s Strategic Plan is based on data which describes a profession that very likely has undergone some radical permanent changes since the data describing the legal profession was collected. The Plan presumes a profession that existed through 2006 and is designed to address the requirements of that profession. For example in the opening pages of the Plan it notes that starting salaries for top law school graduates were “now $160,000 plus bonuses” for the top graduates of Northwestern Law School. In my blog I describe how many formerly highly paid law school graduates are now unemployed or employed for modest salaries.

The Plan also describes the growth in the demand for legal services, based on law firm revenues from 2000 to 2006 which show legal services overall slightly outpacing GDP and the revenue of the Top 200 US law firms dramatically exceeding GDP with an annualized growth rate of 9.8%.

2007 has brought dramatic changes to the global as well as the US economy. Similar impacts have been felt by the legal profession. The reduction in the demand for legal services as well as the incomes of lawyers has been widely publicized. Perhaps even more importantly, the role that the law might have played in the US and other cultures may well be changing. Most notably, the central feature of at least the US legal system, lawsuits, appears to be disappearing. As I suggest in this series of blogs, this change may not be a mere function of the economic climate, but a cultural shift in which the role played by law is being replaced by other factors in the culture to order and control behavior.

Northwestern’s plan explicitly describes itself as not being a new effort, but describes itself as “refreshing portions of its 1998 Strategic Plan and “fine tun[ing]” the school’s response to the continuing challenges for legal education. Its biggest problem may be that it does just that and in doing so may have fallen into the trap that has plagued legal education—its uncanny ability to train lawyers for the profession of the past.

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Are law schools rethinking legal education? Northwestern Law School recently completed a strategic plan which makes an effort at defining the type of education it should be providing the profession.

The effort deserves considerable credit because at the very least it is an attempt to confront the growing criticism that law schools are not delivering the skill set needed to properly function in today’s environment. See The AmLaw Daily.

The more serious question is whether the Northwestern effort is an effective method of delivering the skill lawyers need to deliver cost effective service or does it simply pay lip service to that objective while continuing the status quo. Or perhaps is it something in between, a good start, perhaps with a long road to go. The following series of blogs will examine that effort.
 
For those new readers, sometime ago I addressed the issue of the problem of legal education in a series of blogs which tells a story of a young traditionally trained lawyer who confronts a business man who had been trained in his business school using a legal problem solving paradigm. Those blogs are entitled “There is Trouble in River City” and deserve a look as this discussion progresses.

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Enormous effort has gone into attempts to construct billing arrangements that reflect a law firm’s contribution to a case because of the belief that hours spent was not necessarily a relevant indicator of that contribution and may actually create an incentive to distort billings. In-house lawyers have often had to argue about the value of their contribution to a company’s business objectives, often hiring firms like Altman-Weil and others to create some measureable criteria to support the value of their contribution.

Recently, I vicariously experienced that real way value billing should be done, and perhaps was done when the legal community was more closely connected to their clients. Yes, constructs of value billing it appears are necessary when the value of a lawyer’s contribution is not obvious to his or her clients. Hourly billing is a necessary construct when the need to support the law firm predominates over the objective of providing valuable services.

These facts became clear to me when a former colleague, now out on her own, called with a great deal of excitement to tell me about a recent experience with her client. Her client called to say he had not received a bill. She responded that she had just sent one out billing at a certain hourly rate. His response is that it was his intention to pay a larger amount, not based on the hours spent, but on the value she contributed to the business transaction. Both pleased and surprised, she called to share this experience with me.

I am sharing it with you because that is the objective to which we should all strive. Our contribution should be obvious to our clients as our outside counsel’s contribution should be obvious to us. When there is a sense of disparity with our in-house expenses or the bill from our outside counsel and the payers’ sense of the value that it represents, we have to think about why my colleague was able to obtain higher fees without even asking for them. What was she doing that we are not doing or our outside counsel is not doing?

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Over the past week I have discussed this topic with a few lawyers. Two were from large national firms and both confirmed that the numbers of lawsuits were indeed falling and it was a national phenomenon. A sole practitioner back east had a similar observation.

Each offered different explanations. One suggested that clients had billion dollar problems and therefore had no inclination to engage in million dollar disputes. Although facially plausible, a client should still want to file a million dollar suit if the expected return is positive. What probably has changed is clients’ risk tolerance. The financial situation has resulted in their discounting the return, and perhaps the firm’s legal fees contribute to making the investment imprudent.

Another explanation was that the prior administration did not enforce regulatory law with the expected vigor of the present administration. This appears to be more of an explanation based on hope. Given the economic scenario, one certainly is not going to see the present administration focusing on anti-trust cases to curb undue profits—instead they are hoping for profits.

One lawyer suggested that tough economic times make business behavior more common, where good times encourage innovative business practices that either run afoul of a legal tenet or require litigation to establish the rules of the road. This is possible; however, desperation seems to be an equally strong incentive to push regulatory limits or look for creative solutions.

Another explanation is that economic difficulties result in juries developing a reluctance to grant large awards, thus discouraging tort claims. Certainly, that explanation has some merit if the plaintiffs’ counsel finds fewer cases that meet his threshold for a contingency investment. However, this should simply encourage firms with lower overheads to replace those with higher overheads.

So what is the explanation? The answer is a little of everything above, and perhaps - just perhaps - a cultural shift. The new economic normal forecasted by a number of analysts might have a legal culture analog where our society finds other less formal ways to either avoid or resolve disputes. It could be a cultural shift we can see, but as yet cannot explain.

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In my last blog I described a store which was an analog to the present federal court system to make a point—federal courts are not attractive places in which to resolve a dispute.

The requirement that you need to be screened before entering each aisle, the package pick-up area and the check out line is analogous to the archaic admissions requirements. Go from Manhattan to the Bronx in federal court and you have to be separately admitted. Appeal to the Second Circuit and you have to be admitted again. And, of course, appeal to the Supreme Court and you have to be admitted again.

Judges know a lot about procedure (like the sales personnel who understood the principles of marketing), but often know nothing about the topics that are the subjects of the dispute. That is a failure of the legal educational process. It is rather sad to have to educate a federal judge on the difference between quantity and concentration.

You also cannot trust the regularity in the court’s own rules—that is why the mowers are at the end of the row containing female underwear. Erie v. Tompkins, the requirement that federal courts apply state law in diversity actions, is regularly ignored by federal judges who simply describe their personal views as state law—a fact well illustrated by the disputes between federal judges over the meaning of state law and the refusal of the majority to certify the question to the state court—and the refusal of the US Supreme Court to require certification where there is a dispute among the federal judges.

The inability to determine when a product will be delivered is analogous to the penchant of the Supreme Court to leave ambiguity in federal law and disputes between the Circuits for decades, destroying one of the prime values of the law—predictability.  The Supreme Court hears only a small fraction of the cases it heard in the 1800’s.

The vast quantities of unlabeled boxes in the warehouse reflect the federal practice of unpublished, non-precedential opinions. Argue your case and take your chance.

Simply stated, the federal courts have done everything possible to create a system that is burdensome, costly and delivers minimum long-term value. Any business with those attributes is certain to lose customers, so it should not be a surprise this is at least one factor contributing to the loss of discretionary cases by the federal courts.

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Federal Courts have long been the forum of choice for commercial enterprises. Except for rare cases where a particular federal court might result in what you perceive as an unsympathetic jury pool, trial lawyers representing commercial enterprises (I being one of them) typically chose to file a case in federal court or remove it to federal court if the opportunity presented itself.

In cases between individuals and companies, the fact that many state court judges appeared beholden to local citizens or attorneys because they were elected or their selection or retention in office depended on maintaining a favorable disposition of the local constituency, the predilection to be in federal court was very prevalent.

It is doubtful that there has been a change in this disposition and that the drastically lower volume of commercial cases in the federal court can be accounted for by an equivalent rise in state courts. I think litigation is down for a number of reasons which we will explore later.

However, if you were specifically concerned about federal court and what you could do to encourage more disputes to be resolved there, a fair analysis would lead you to the conclusion that regardless of the benefits it might have over a state court it is not a very efficient place to resolve a dispute.

Consider whether you would frequent this store:

Once you are in the store you have to prove you are a legitimate shopper and can conduct yourself competently, not merely to get into the store, but every time you want to go down a different aisle.

In fact, you have to do the same thing to get in line at the package pick-up and at the checkout line.

The clerks in the store are all trained as marketing specialists, but they know nothing about the products they are selling.

You are looking for a lawnmower to trim the areas your garden tractor cannot enter.
You go into the area with lawn tractors looking for the lawnmower and cannot find it, only to be told that it is at the end of the aisle with women’s underwear. You look at the display models, and the sales person can tell you how the display was designed and lighted, but nothing about the machines.


Finally you select a machine and you ask the clerk when it can be delivered. A few months he tells you, if you are lucky; perhaps a few years. Well, you ask if someone can go in the warehouse and see if there is one on the shelf. That would not be practical, he says, because more than 80% of the boxes are not labeled, so even if they pull one, chances are it will not be the one you wanted.

I have little doubt your first visit to this store would be your last if it was at all possible to avoid it, but it has many of the characteristics of the present federal court system—high costs of entry, lack of predictability, questionable adequacy of training of key staff on substantive matters, institutionalized lack of predictability, and no commitment to timely delivery of legal doctrines. We will look at this in more detail in part three.
 

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Bob Banks wrote in the Harvard Business Review a number of years ago that Xerox had a legal budget and it was always exceeded. For sure there are numerous legal expenses, but the culprit for breaking the budget was typically litigation.

Many ACC (formerly ACCA) members convened at the Brookings Institution to seek a remedy. They had tried the usual attempts to manage billings. These remedies get dusted off, renamed and revived to manage legal fees. Those of us who have been around long enough have seen them in their various reincarnations. Increase the number of law firms serving you to increase competition and loosen the dominance of any one firm. Then came “shrink the number” of the law firms serving you, so you negotiate a better price. Alcoa took this idea to extreme by reducing the number of firms serving it to one. It did not survive because it had its own price distortions built in.

These fee management schemes, flat billing, value billing, all come and go, and it is a bit amusing watching them rediscovered by new in-house attorneys who are convinced they have found the fountain of youth. But this is not about billing schemes; it is about lawsuits. Frustrated by the inability of these fee management schemes to control costs, many ACC senior counsel joined other members of the legal community and convened at the Brookings Institution in the mid 1990’s to fix the problem once and for all, at least in the federal court system, their forum of choice.

The newest version of cost control was based on the assumption it was a systemic problem. That is code for “none of our other solutions worked and it is not our fault”; it is therefore an endemic problem with system. The result was the Civil Justice Reform Act which had both its supporters and detractors. Then there were skeptics like me who believed that this too would pass.

The Civil Justice Reform Act had two fundamental premises at its heart. First, since no one else seems to be able to control costs, it was decided to give the courts the power to do it; and even better, they would design a process that encourages Alternative Dispute Resolution (“ADR”) and avoid the courts altogether. As ACC’s value challenge Version 9.2 illustrates, these rather dramatic efforts failed. ADR, upon solid scientific analysis, did not prove to have an impact on litigation costs, nor did the other attempts at case management.

However, in recent conversations with various court staff, a new concern is arising that is very troubling to the courts (we are talking jobs here) yet promises to dramatically reduce litigation expenses. Traditional commercial litigation is disappearing from the federal courts, perhaps the state courts as well.

In the next couple of blogs we speculate on causes of the phenomenon, and anyone with ideas please feel free to contribute.

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Do you remember Perry Mason’s lethal cross-examination when the real killer, presented with Perry’s reconstruction of the indisputable facts crumbled in tears and screamed: “I did it!” usually accompanied by some explanation so we were convinced we knew we had the right person. In all the cross-examinations I did, some with contradictory facts even more compelling than Perry’s I never had a witness breakdown and concede they were dead wrong or lying.

At best, they would search for words to explain or minimize the reality of the truth. One expert witness, having confirmed the quality of a professional journal edited by his partner and the credibility of Cornell University whose study was reported in the journal, refused to admit he was wrong, when the study results placed his allegedly severely injured client’s contribution to household services at 20 times the average for 30 year old white males, down from 500 times the average prior to his injury. Although the jury was visibly laughing he insisted his analysis was not flawed and that he simply based it on what he was told.

In our contemporary culture, we believe that words can trump reality. Our leaders believe that as well. Recently, our Vice President, in one of his moments of spontaneous candor admitted that the administration had “misread” the economy. To be fair this administration is no more clueless than the last who claimed there would be no spillover from subprime when a quick trip along Florida’s west coast looking at empty buildings and For Sale signs would communicate a totally different reality.

So how does the President respond—“We made a mistake—we are going to fix it?” Of course not, he went to Harvard Law School where words are king and reality is something they deal with down the street at MIT. He explains that Biden had made a poor choice of words. The Administration did not “misread” the economy; it did not have all the information.

I think the jury is laughing again.

 

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It is special pleasure to attend the summer social event of the Northeastern Ohio Chapter. It is a rare opportunity when I get to visit with ACC colleagues of the past that no other opportunity would present.

There is some good news for the Chapter this year; its membership is at an all time high. There could be two explanations. First, it might be that the economy is not as bad here as one might have expected. The other is that in-house attorneys might be realizing the value of networking that ACC provides in tough times. Whichever explanation is the case, the membership level is good news.
The success of this chapter is in many respects a better indication of the value of ACC than the national chapter. The reason is that it had to rise again from the ashes no less than three times before it became a permanent establishment. This in large part was due to the lack of support among senior in-house counsel for the organization. My sense was that Northeast Ohio was one of the hardest locations for ACC to gain a foothold because senior in-house counsel viewed it with suspicion at best and outright antagonism at worse.

Why so? Because the in-house bar had established a traditional relationship to outside attorneys and the ABA, both of whom felt threatened by ACC (formerly ACCA), and viewed it as a bunch of wild eyed rebels who did not understand their place and role in the profession. For those of you to whom this sounds like fiction, you are beginning to understand the debt you owe to the Bob Banks, Carl Liggio and their colleagues who saw in-house as a position in the profession deserving its own distinct recognition and unique services.

I was the first president of the chapter, which lasted only one president beyond me before community support dried up. I resuscitated it a second time, only to have the organizational structure under its new president evaporate. Finally, along came Rick Green, an energetic fellow who along with a dedicated cadre of colleagues such as Cindy Binns created the chapter that exists today and appears to be thriving in the worst economic crisis in our lifetimes.

 

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I must admit that I seldom look at my law school’s magazine. I generally find these self-promotional efforts a little tedious, and given the number of schools that were attended by my wife and kids we are deluged by these periodicals which never focus on the serious issue of how to get costs down and quality up, but seem to promote an underlying premise which is we will tell you how great we are and you will give us money.

However, in the last issue of the Gargoyle, the publication of the University of Wisconsin Law School, there was a note on program involving internships at law firms in Asia. It caught my attention initially because I thought this was a response to the declining access to internships in the US. It was not, although who knows what the future will bring.

The program has apparently been around for a while. When I was there a foreign internship was Denver. Although it was and still is small in size, for someone like myself who worked for a global company, tried cases in international forums, tried cases involving significant international disputes and worked daily with colleagues around the world, this program has a real potential of beginning to change the focus of legal education in this country which has tended to focus on our legal traditions as the only game in town.
 

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I saw Ken Lewis’ when he attempted to explain to skeptical Congressmen why he did not cave to threats of government officials to fire him and his Board if he declared a materially adverse condition in the Merrill acquisition, but only considered it as an expression of the seriousness of the economic condition with “other factors” in deciding to go forward with the acquisition. Frankly, that explanation was too complex for me—sounds like he caved or he was not being candid about the threats.

However, it reminded me of a situation most of you likely never heard of or imagined was possible. That you as a lawyer could be threatened by the US Supreme Court to be sent to federal prison if you did not refuse to abide by your client’s request  to represent it. I am pleased that I did not cave to the US Supreme Court threats. It was not something simple like trying to represent a client before a court in which you were not admitted to practice. It is a troubling situation in which the Supreme Court, in my view attempted to impose its notion of administrative efficiency above the client’s interest in being adequately represented. It is a reflection of an unfortunate tendency of courts to forget that they are there to serve public interest, not have the public serve their interests.

The situation developed in the context of a major international tax dispute in which certain states had undertaken to tax subsidiaries of non-domiciled foreign parents using a formula that included the foreign parent’s income in the subsidiaries’ tax base—it was called worldwide combined apportionment. My client, Alcan, Inc., was a leading challenger of the constitutionality of this tax in the courts, and for a long time the only challenger. As our efforts began to achieve success other foreign parents were attracted to file their own cases. One was ICI, Plc, a British company that followed our novel approach of obtaining jurisdiction of California outside of the 9th Circuit. It copied us by filing a case in the 7th Circuit. When our case prevailed by having the district court rule that Alcan had standing, ICI moved to have its case consolidated with ours.

After a successful appeal before the 7th Circuit, California filed a cert petition that was granted; however, the Supreme Court ordered that only one attorney could appear for both clients. My client for relatively rational reasons insisted that I represent it before the Court. We had developed the litigation strategy and implemented it alone until our success attracted others. ICI had moved for consolidation; we did invite them; they wanted to take advantage of our success. However, now ICI wanted to take control of the case. Undoubtedly prompted by their outside counsel who had no intention of letting an in-house attorney argue the most prestigious tax case of the century, ICI insisted that they would not consent to my arguing the case. There was an impasse. When I approached the clerk of the US Supreme Court to resolve the issue it created, the reaction was a threat that if I was unable to settle the matter it was likely that the Court would order my incarceration in federal prison. Norm Krivosha, former ACC Chairman, and Chief Justice of the Nebraska Supreme Court offered to help. He said that if I could get sent to a prison in Minnesota his daughter would bring me warm cookies. It is funny now—it was not so funny then.

Unlike Ken Lewis, I did not find other reasons to conclude that it was in the best interest of my client not to argue the case; in the last minute ICI’s outside counsel apparently caved—they consented to my arguing the case. Perhaps they were concerned about federal prison and were able to discover other reasons why it was in their client’s interest for me to argue the case.

However, there is a lesson in this—as a lawyer you must ultimately defend the interests of your client—even in appropriate circumstances, against the United States Supreme Court.
 

 

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I know you are waiting for my insight into the local rule making process, but I just have to respond to the news about the Mayer Brown Associates sent in-house at a fraction of their former salaries and without any guarantee that they will remain employed. The question is what does that mean for in-house salaries.

These were lawyers who were making $200,000 and are now making $60,000 working for United Air Lines and Fortune Brands just to name a few. Apparently, the deal was worked out as an alternative to unemployment; Mayer Brown has apparently let over 70 lawyers go since last November. When I first took on this role of blogger for ACC one of the topics that it was suggested that I write about was the high salaries of associates’ at large firms. What a change has taken place in a year. Now the topic is how the new low salaries for associates at law firms might be harbingers of things to come in-house.

In house lawyers who expressed concern about outside firm salaries probably never imagined that the solution might have a direct impact on their own salaries, but the implication is hard to miss. Competition is good and I never really believed that the associates deserved the salaries they were making because they could not deliver the value that justified it. The same principle applies to in-house attorneys—time in grade alone does not justify salary increases (remember those things in your remote past).

Today I had a conversation with a long time friend in large firm and he expressed the view that when the economy turns (we both agreed it would be a lot later than are optimistic political leaders) it was not likely that the practice as they new it would return. People would not be willing to pay as they did in the past and delivery of legal services had to be fundamentally rethought.

Those in legal marketing are likely going to have to reinvent themselves as the old shibboleths that defined the kernels their sales pitch may become irrelevant. Who knows, you may even see prices on law firm web sites.

What does it mean for in-house—at the very least it means a lot more people vying for a lot fewer jobs and a level of competition which may well change the culture of the practice.
 

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For those of your who do not try cases this should be eye opening—for  those of you who do it should be annoying.

Let’s start with law school, Federal Civil Procedure to be precise. Remember your professor with great intonation telling about the adoption of these rules—relatively stable these rules governed practice throughout the federal system, or at least that was what you were led to believe.
Then there was reality; in fact, every district court had taken it upon itself to modify, annul or in some cases totally obliterate those federal rules by adopting a set of local rules. Added to that was a series of standing orders by individual judges.

By the time you were finished the Federal Rules of Civil Procedure which were supposed to bring uniformity to federal practice which you had worked so hard to master in law school had been relegated to a quaint historical footnote.

File a motion for summary judgment without a statement of undisputed facts, or was that in the district court in another state, and gotcha. Sure you could keep looking up these rules but try it with 10 or 15 cases going on all over the country.

Did I mention tentatives (tentatives are rulings by court on motions handed out before oral argument) . You guys in California will recognize them. They are a state court practice—yep in federal court too, but only in California. In a global world we have a federal court system that gives new meaning to the term: parochial. State practice is typically more uniform than federal court practice in the same state.

Sure I have complained about this for years, so why am I writing about it now. I am conducting an ADR study for the federal court and in connection with that study I was asked to address the local federal court local rules advisory committee. This was the first time I witnessed the how and why these rules are adopted—an experience I will share with you in part 2.
 

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It was not the day I was first admitted to practice, or the day I won my first jury trial, or the day I argued at the United States Supreme Court. It was this morning.

I was coming home from a dinner meeting at the Cleveland Committee on World Affairs. I was driving our small Hyundai and was the first car in line exiting the expressway. Turning right on red is prohibited. As I moved forward slowly waiting for the light to change, the driver behind me accelerated more than he intended, and hit the back of my car.

We got out and he was very gracious, conceding he was at fault.  He was also concerned as to whether I was hurt, which I assured him I was not. Two police cars that had stopped someone across the road saw the incident and came over.

When the police arrived he was very explicit concerning his fault, violating every rule that lawyers and insurers had developed. It was dark and there was no apparent damage, but we agreed that I should confirm that fact. He had voluntarily given me his contact information. We signed a document agreeing not to file a formal complaint—believing we could work this out fairly.

The next day I noticed a slight bend in the plastic bumper and that one of the fasteners was sheared. I was most concerned that the impact had violated the integrity of the rust-proofing. I called the fellow who hit me and left a message asking him to send me his e-mail so I could send him a picture so he could see there really was a problem. I also told him I was intending to take the car to the Hyundai dealer for a repair quote, but wanted to clear it with him first.

He promptly returned my call, but I was not around and a visit from a former law school classmate and his wife delayed my return call. He called this morning before I could return his call —I was surprised that the caller ID identified him as a lawyer from a large firm. … He was acting like a responsible human being.  Before I could say anything he said he did not need a picture just send him the bill. I said that I would not do that, I would get an estimate from the dealer first to insure that he felt it was fair and did not have better alternative—then I apologized for not getting back to him sooner telling him a law school classmate and his wife were visiting and I had become distracted.

The silence was amazing as he realized I was a lawyer too – to his surprise I was acting like a responsible human being. He had accepted his responsibility for fault—I had accepted my responsibility for not abusing that fact. Why did I not see this conduct in the profession before I retired; I hope civility is returning to the profession, and this experience not was merely an aberration.

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Many of us in-house types work for business types who have gotten their MBA’s at Harvard, Wharton and similar business schools. A short time ago I did a blog on how these schools were attempting to improve their tarnished image by doing such creative things as instituting a course on risk—very creative.

We lawyers need to keep up with these developments so we can better serve our clients. Last night I was watching the rerun of Fox Business News “HAPPY HOUR” and they interviewed a venture capitalist who was looking for government guaranteed loans for his portfolio of companies because he said no one would lend them money. Needless to say the two FBN anchors who interviewed him where more than bit skeptical of his claim that this was not a request for a taxpayer bailout. Listening to the discussion it became clear to me that there were a set of rules here that the Dean of Harvard and other business schools should be developing in the course on risk management. We lawyers will be ahead of the game and help them build their arguments.

Rule #1 Never Admit That Your Business Venture Was Risky.

Even if you are a venture capitalist always claim that the businesses that you funded were not speculative, and that their present state of distress was due to forces beyond their control. You know the stick—it was the economy, the weather, the gods, but never admit there was ever any risk involved.

Rule # 2 Never Ask for Government Money Always Ask For Government Loans or Guarantees.

By putting your request in this format you are able to deny that you are asking for any money from the taxpayers. NO, NO you repeat with authority—we are not asking for any money from the taxpayer.

Rule # 3 Always Claim that Your Motive Is Altruism. 

The idea for this came to you because you saw the great benefit to the economy. For example, you note that your start-up who has burnt through 10 million in capital (your clients’ unfortunately) and has 200 employees, now is ready to grow to 800 employees (and burn through 40 million in capital), but the economy’s present state (not their flawed business model) has resulted in no one being willing to give them any money.

Rule # 4 Point Out How Helping Your Portfolio Is Going To Earn Money For The Taxpayer.

If you have no examples to make your point use the first Chrysler bailout and hint Lee Iacocca may be coming out of retirement.

Rule # 5 Avoid Being Asked Why They Don’t Just Stay At The Present Size and Use Their Earnings To Grow More Slowly.

Making your earphone fall out of your ear or claiming that there is a bad audio connection is the best way to deal with this question—if you there in person cough or feign a heart attack; don’t worry Harvard, Wharton and Stanford are collaborating on a course that address earnings; they just got delayed because of the effort they put into the courses on stock options. 

If none of these work refer the matter to your lawyer and he or she will say something no one will understand—remember they drafted those toxic instruments.
 

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The former CFO of my former company called me this morning outraged by an article in the Cleveland Plain Dealer touting the hourly rates that Jones Day lawyers were charging Chrysler in the Chrysler bankruptcy. They apparently billed 18.9 million since November trying to keep Chrysler out of bankruptcy. Not bad for being unsuccessful, even with the weight of the US government on your side.

The article goes on to say that they may be awarded up to 115 million by the court when the bankruptcy is over. With hourly rates from 950/hr to 400/hr, the number is not hard to imagine given the minutia law schools teach you to considered no matter how tangential the relevance—and of course unrestrained hourly rates reward.

Perhaps what makes this entire thing a bit ironic is that the effort is to save the US auto industry is apparently being accomplished by making it Italian. I am a dual US-Italian citizen, having recently had my bloodline Italian citizenship recognized, and I ride a Vespa, so to me Italian is sort of American, unlike Toyota and Hyundai among others who have had auto plants in the United States for years. Good job Jones Day—you saved the American auto industry by making it Italian; and guess who is paying for this effort—us taxpayers. Enjoy some of our money on the Amalfi coast and in Tuscany.

Hey Susan Hackett—you might want to rethink the ACC Value Challenge over a cappuccino—do not worry about the cost of the cappuccino just send the bill to the Treasury.

 
 

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I know you are quite surprised, having just written a blog on robot judges, I am writing about something as mundane as a decision that just came down from the United States Supreme Court. Well, I have a special interest in this case having filed an amicus brief in support of the Petitioners on behalf of the Washington Legal Foundation and because the topic was of considerable concern to me because it involved the quality of our legal system.

If you read the opinion, it may appear to you to be a simple interpretation of CERCLA. Shell was one of the parties. The district court and the 9th Circuit had concluded that Shell arranged for the disposal of a hazardous waste, simply because it knew that some of the product it sold could be spilled when unloaded.

The 9th Circuit also rejected the apportionment that the district court adopted in limiting the liability of the parties suggesting that apportionment was only available by meeting a standard of proof which the dissenting members’ en banc pointed out was essentially impossible to prove.

My brief demonstrated that this conduct by the courts was not an aberration, but a systematic effort to substitute their judgment as to who should be liable for that of the Congress, taking them step by step through a series of cases I litigated where the courts perverted common meanings and concocted legal standards to escape liability that were incapable of being achieved. These were merely efforts to cloak their improper conduct.

Although our case was cited by the Supreme for the principle that the Supreme Court finally required the 9th Circuit apply, not simply pay lip-service, I was saddened that my client had essentially been robbed by a judiciary who did not understand their role. In many respects the facts of our case were far more compelling than the Burlington facts. For example, you could only conclude that our waste was a hazardous substance if you concluded every substance in the universe was a hazardous substance and that the proof the courts required to establish to divisibility was not extremely difficult as in the Burlington case; in our case it was impossible. So why did we not get cert granted although were had wide spread amicus support. I suspect it was because it was the heyday of the environmental movement. Although the court voted 8 to 1 in favor of the Petitioners, not a close case, taking our case was simply not the cool thing to do—the Supreme Court had more important things to do than protect the rights and property of my clients; I wonder what that might have been?


 

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You have just completed the final review of your brief for summary judgment and have electronically sent it to your, administrative assistant, a software program that will automatically put the brief in the filing format required by the court and send it along in a few nanoseconds.
As you lift your finger from the enter button, your e-mail announces that you have just received notice from the court that a decision has been filed on your motion. You quickly open the opinion and go to last page—you lost. You begin reading to find out why and as you do it becomes clear to you that the software judicial decision simulation package you bought a few months ago and used to give your client an optimistic assessment of the outcome must have had a bug.
You pick up the phone and make a call to the simulation software vendor, hoping to get an explanation before you call your client. He tells you that you are the fifth call he has had concerning the problem—the programmers are reviewing the software and the problem does not seem to be in their system; the judicial conference had announced that the robot judges had just been reprogrammed with the amendments to the statute and the bug must be in their newest patch.
Sound crazy—perhaps not as crazy as you think. I just took a look at the last edition of WESLEYAN,  the magazine produced by my alma mater, and noticed an article entitled “Can Robots Tell Right From Wrong”. It was about a book, (Moral Machines: Teaching Robots Right From Wrong, Oxford University Press 2009) by a former class mate, Wendell Wallach ’68, and his presentation at one of the seminars at Home Coming.
I have not read the book and the article was more about Wendell and how he got to this point, but there was one notable feature in his background that was particularly interesting. Wendell had applied to Harvard Law School and was wait listed, but was accepted at the Divinity School which he attended for a year, apparently continuing to explore a series of post graduate educational experiences which never resulted in degrees, but obviously contributed to developing a creative and thoughtful mind and spirit.
So are Robot Judges in our future? Wendell, who is now has been consulting at Yale’s Interdisciplinary Center for Bioethics, says that “[n]o one has convinced him that we understand enough about human intelligence” to be able to program a machine to make moral and ethical decisions like humans. He describes himself, however, as a “friendly skeptic”. What is a friendly skeptic?   To me a friendly skeptic is someone who grew up watching with amazement the fictional computer of the Enterprise in Star Trek who is typing this on a laptop which is far more powerful, often depends on my GPS to tell me which is the fastest way to a given location and has a portfolio whose value can dramatically change based on the decisions of numerous machines as to when to buy or sell.
   
 

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For those of you who don’t know I became associated with ACC during its founding because of an admission issue. A court had refused to admit me pro-hac vice and this eventually led to ACC’s (then ACCA) first amicus brief in Salibra v. The Supreme Court of Ohio). That case involved an effort I made to gain reciprocity admission to Ohio using time I spent in Ohio admitted to represent my corporate employer to compute the five year requirement.

Ohio, like many States, had a law that permitted attorneys licensed in other states to practice in Ohio for their corporate client. They included in this provision a prohibition against using the time spent in Ohio to count towards the five years reciprocity requirement. So if I had been working for my company or another in Illinois for five years I would be admitted, but if I did the same thing in Ohio it would not count. Why? The unspoken rationale is simple—local lawyers wanted to make it as hard as possible for in-house to venture into private practice and become a competitor, while keeping their access to mobility.

The obvious problem with this position is that it is really hard to demonstrate how you are less competent in Ohio law having accumulated your time practicing under it rather than Illinois. An enterprising young in-house counsel in Michigan noted this problem, filed a lawsuit in federal court in Michigan and won at the trial court; the discrimination violated equal protection clause. The case was not appealed

We decided to make the same challenge in Ohio (same circuit by the way). The district court dismissed the challenge sue sponte on the grounds that in-house attorneys were inherently inferior as lawyers. The fact that I had tried and succeeded on highly significant cases, and probably had more trial experience than many prominent private counsel was quite irrelevant to the district judge because real lawyers were only in law firms in his mind.

We proceeded to the 6th   Circuit, a body lawyers masquerading as proponents of law and the public interest. Needless to say, they had the same problem that the trial court in Michigan had with a distinction based on competence. But they were undeterred—what did competence have to do with these restrictions—they were about money. So they concocted, at least in their mind, a legitimate constitutional justification for the restriction—immigration? I am serious. They said the restriction was designed to attract competent lawyers to come to Ohio. Having to concede I was competent, they noted I was already here, so I did not have to be attracted, thus the restriction was justified.

So why have I been rambling on about this history? I noted an article in the ACC Docket entitled: “A Day of Reckoning or Celebration” in which the author describes dramatic changes being forced on the legal profession by the economy. Among the wrecks of law firms he describes, a new option is emerging—outsourcing legal work offshore. He notes in some cases clients are demanding that firms consider outsourcing offshore because of “their advantageous economic terms.” His conclusion: “The gloomy economy may seem like a day of reckoning for in-house counsel and law firms. For the highly educated lawyers of India, the Philippines and other countries that now have the opportunity to undertake the challenging legal work of a global nature; it’s a day of celebration.”

Poor 6th Circuit--these lawyers have no intention of moving here. What are you going to do? In the end, the money this court sought to protect is making its decision look even sillier as money drives an entirely new legal market. Court’s beware—your provincial, self-serving agenda may get you out sourced as well.
 

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By Nancy Jessen, speaker for ACC's April 29th Webcast, Cost Control in the Current Economic Environment

Law departments are under pressure to reduce costs significantly. These cuts must be made even as workloads are likely to increase as a result of compliance requirements, potential increases in litigation, and heightened regulatory scrutiny.

Best practices support developing a comprehensive strategy that takes into consideration the existing operational environment, the need for tighter budgetary control and future workloads.  This requires significant time and effort which today’s reality does not allow. 
Law departments want to continue to provide the services needed as economically as possible, without cutting corners and quality.  But time for a deep dive analysis is a luxury and the question arises, “What can we do now?”

Internal headcount cuts and outside counsel rate reductions are common tactics.  While they may produce short term savings, sustaining the savings may be more difficult.  Will your internal headcount cuts drive up outside counsel usage and cost?  Will your outside counsel raise rates next year?  There are tactics that provide savings over a longer term and that can be implemented in the short term.  

A simple but often overlooked tactic is enforcing your outside counsel guidelines.  Conduct an audit of the copy, fax and travel charges from your outside counsel – do they adhere to the guidelines? Are you paying out too much? You may already have tools such as e-billing in place to help you enforce. 

Does the work need to be performed by a law firm or can it be accomplished by another vendor for less cost?  Areas where work is commonly unbundled or outsourced include document review, e-discovery and immigration.  Using non-law firm vendors can significantly reduce your costs in these areas.

We will discuss these tactics and more on the webcast, “Cost Control in the Current Economic Environment”, April 29, 2009 at 1:00 pm EDT.  Join us to learn more about the core concepts of cost control and tactics that can be implemented quickly to produce results. 
 

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Recently, a colleague sent me an article from Forbes entitled “Kill the Billable Hour”. The author was a self proclaimed trial lawyer from a large law firm began by telling his readers how he was able to charge a lot for each of his hours and he could bill as many hours as he wanted for him and his associates. However, he and his wife had new kitchen installed and they agreed on a turn-key price with a contractor. Apparently, this experience resulted in something akin to rebirth in which in the spirit of altruism he wanted to inform his clients and all clients of lawyers that they should treat their lawyers like a construction contractor. Kill that billable hour he argued; get that fixed price he urged—well, not really a fixed price because he tried complicated cases which were highly unpredictable so he could only sort of fix the price.

The problem with this analysis is that I would not put in a kitchen the way he did. I have a heavy duty Delta shaper and a Delta Unisaw, as well as an 8” jointer and a 13” thickness planer among other tools so I built and installed my own raised panel cherry cabinets. Similarly, with plumbing, electrical and plaster board—I can do it all. So, how did I deal with the billable hour decades ago—I told my outside lawyers they could bill whatever they wanted as long as it was less than I could do it for, or learn to do it .

Needless to say I tried a lot of my own cases.

I know you cannot do that—trust me I have heard every explanation as to why, so don’t try to explain. But don’t worry the altruism of the lawyer in the article is a sign that there is a lot less litigation—in fact chances are really good that there is so much less litigation that this lawyer is not being altruistic at all—he is looking for business and his discovery of flat rate billing version 10.2 is simply a ploy to attract clients who he believes will be lured by his new found generosity.

Why am I so cynical? First, if he really had the license to steal he claims he has, which presumably he developed his career on, he would be reluctant to part with it for the good of mankind. Second, although the present attack on the billable hour seems new and creative; those of us with a few years tend to look at it and moan; “Here we go again.” Finally, for those of you who read this blog regularly you would have seen my blogs on flat rate billing and the difficulty firms have in selling this concept to the very customers who claim they want it.

The article is about the economic state of the legal profession—not the billable hour and perhaps the fact that lawyers’ ability to pay for new kitchens might not be as easy as it has been in the past.

 

Check out ACC's Value Challenge on the changing landscape of working with outside counsel and the billable hour.
 

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You would think they would see the futility from the legal  profession—we set up mandatory CLE and Ethics courses to disguise the fact that we as a profession would rather mask the problems with our profession rather than face them head on. People insure they provide high quality service and “do the right things” not because they are required take a few courses on legal subjects or ethics but because of whom they are and what they believe their profession expects from them. It is a cultural problem that starts at the quality of people who we select as law professors and who law schools select from their applicant pool.

Well, Harvard and its MBA school are about to replicate the same flawed practices to deal with their tarnished brand. The problem they believe is to develop courses on risk. They are going to review articles (I hope this is one of them) critical of the institution and its “tarnished” (try destroyed) reputation. Stanford is developing a course entitled: “Understanding Cheating”. The Dean of Boston University School of Management has even suggested that they may examine the fact that they are part of the problem.

You do not have to teach people not to cheat—they know when they are cheating. You don’t have to teach public company CEO’s that there is no way they are worth 15 million dollars in lifetime, let alone a year. These are not great leaders. These are people who have such low self-esteem they have to surround themselves with weak boards who continually have to stuff dollars in their pockets to create a sense of self-worth.

Harvard, Stanford, MIT etc. are the problem—starting at the top and working its way down through the type of people they select to attend their institutions. My son is an example in contrast—rather than pay $90,000 a year to listen to a bunch of professors who would have difficulty running a hot dog stand, he is starting a business with a real respect for the fact that his investors trusted him (yes trust). He lives on noodles to insure he controls costs and can make payroll.
He is making an idea a reality and if he is successful he may well become wealthy, but there is still considerable risk he may fail—imagine he understands risk without ever having had to take a course on it at Harvard.

Occasionally, he expresses some envy at the things others around him have that he would like. Then, I have to tell him the bad news—someday he may actually be able to afford all those things, but what he will value most is what he has right now.
 

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Well, the accountants are going to show you—you are going to have to accept words not actions. The newest attempt to modify the mark to market rules is nothing more than a rather patent attempt to substitute words for reality. Now you can mark assets to their value in an “orderly” market. Let me translate it—that is in a market in which there are buyers who will pay what you think the asset is worth, not what they think it is worth.

Proponents have argued that this is justified because there is no market for these assets at the present time—really.  There is a market; it is just a lot lower than the banks wish it was. The banks point to the cash flow and say they can discount it to present value. However, like buying a company the dispute is how likely that cash flow will continue—it is all about a dispute over risk. Now the accountants have told us that risk is in the eyes of the seller. We have heard this in the housing market as prices fell there were those who said that buying last year was a great value—expecting that housing would rise.

 I know that there are performing loans out there that probably look really good to the bank, but the reality is that the debtors, who held out hoping for the housing market to improve, are burning up their cash and are now on a path to inevitable double defaults. There is former house they could not sell to cover the debt load on it and the new house they will no longer be able to afford. These people are all over the place. They have been painfully paying their mortgages. The question is for how much longer; that is what this market to market debate is all about.

I also understand why the labor market is no longer a trailing indicator, but a leading indicator – our economy is based 75% on the consumer and we are removing consumers as the unemployment and reduced compensation rates rise. Do not get fooled by the unemployment number—the huge reduction in wages and benefits is taking its toll on the prospects for consumption.

We should stop the charade—the latest FASB effort is nothing more than rather transparent attempt to reduce bank reserve requirements for lending—we are doing it again—trying to leverage ourselves out of a problem created by over leveraging.  I do not get feelings of confidence from this bizarre behavior and rather see it as a sign of hopelessness.
   
 

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You wonder what I am talking about. Well, I am talking about the uneasy role of in-house counsel between not quite being a lawyer or a business man. You may not want to admit it but it is true—your management never quite viewed you as a lawyer, at least not like the outside firm you hire. And you always yearned to be a businessman—why because you were never quite accepted as part of the business team.

Oh, I know you will deny that such a situation exists in your company. Heck, Steve Bokat might even post a reply saying he never saw a situation where in house counsel was not considered a co-equal part of the business team—certainly he was always considered a part of the business team. My answer—you are not fooling me—I’ve been around too long.  I have been in business meetings where in-house counsel gave an opinion and were asked to check with outside counsel.  I have worked for a General Counsel who insisted we call ourselves business men and woman—me thinks thee protest too much.  And I have heard very similar accounts from my ACC  colleagues.

A few years ago there was an article about me in the National Law Journal entitled: “ He Will Litigate You to Death.” That article was inspired by an earlier article in the same publication that was effusing praise for some inside attorney who sat next to his trial attorney during a trial. Needless to say that inspired a letter from me saying I could not do that during trial because I was the trial attorney.

Think they were impressed—sort of—but they could not get out of the groove. You will note near the end of the article there is a statement that I have no main outside counsel. Where did that come from?  Well, after an entire interview focusing on our in-house litigation, their last question was who was my main outside counsel. You see folks whether you want to admit it or not the world does not think that inside counsel can exist without outside counsel.

You call tell them you just argued before the US Supreme Court, and they will ask the name of your law firm. That media obsession is the same obsession that your business folks have, and trying to look like your business folks will not make a difference. They will never quite accept you as one of them and never really be able to see you without your outside counsel by your side. So what are you going to do about it?

I do not have an answer. ACC has been facing the challenge since its inception. However, the present financial crisis is likely to create a sufficient cultural change to give you a shot at making a change. By the way, you do not have to call yourself a businessman to be accepted as part of the business team, but you are likely to have to shed all those bad habits you acquired in law school.
 

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Here's an upcoming ACC Webcast  (April 15, 2009) that we're sure you'll enjoy:

How Large Firms are Delivering Greater Value with Alternative Billing

In this economy, legal clients are looking to cut costs and obtain greater value. This has led to an upsurge of interest in alternatives to the billable hour including fixed fees, contingent or partially contingent fees, capped fees, value adjusted billing, and many other alternatives.

In this panel, the author of a recent review of alternative fees will discuss “how to do it” with experts from several large firms that are helping lawyers move away from the billable hour. The discussion will focus on the real world lessons learned in hundreds of matters, including:

• case studies of non-hourly billing, including benefits to clients and the firm
• "from the trenches” advice on how to get started, and when
• a discussion of what’s different for large firms

Register Now

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Hope springs eternal—particularly in Washington. Now doubt those hot shot lawyers who helped create these toxic assets are helping create the illusion that you can get something for nothing—take that Milton Friedman. Having loaned themselves into a disaster the government wants these same banks to loan themselves out of the disaster.

The banks that made these bad loans are justly concerned about making more bad loans. The government has an amnesiac for the problem—make those bad loans disappear by making them look like good loans. Some of the big banks tried a variation of this a year or so ago when they decided to establish a market price for the bad assets and demonstrate how valuable they were by getting together, setting up a company among themselves and selling their assets to this company they owned. This they claimed would establish a market value.

 

When the laughter stopped the plan was silently discarded.
Now we have a new government asset purchase plan. The problem is the market value of the assets—well there is a market. It is just that the potential buyers don’t want to pay what the banks think the assets are worth. The government solution has more than a vague similarity to the prior plan concocted by the banks, except we are paying the bill. We give money to a bunch of private parties to reduce their cost of the assets. We leverage their investment to increase their upside gain and limit their downside risk. Now, we send them out to buy those assets. Surprise, surprise –they are now willing to pay more for the assets—we hope enough to make the banks sell them. We close our eyes and cross our fingers behind our back and claim that we have now established a market price for these assets.

What do we hope to get for this effort—a bunch of banks who will go out and again lend to people who cannot service the debt and repay the principle, because there will always be a “market” for those toxic assets.

No, the authors of this plan did not go to magician school to learn how to do this—they went to law school and business school. That is why you see professors in those schools walking around with tall hats, a rabbit and wand in their hand—they are preparing for class.


 

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So what is the Turing Test? I learned this from the book Fooled By Randomness.  It is a test developed by the British mathematician, Alan Turing who said that a computer can be said to be intelligent if (on average) it can fool a human into mistaking it for another human.  Notes Taleb, the converse should be true. A human can be said to be unintelligent if we can replicate his speech by a computer, which we know is unintelligent, and fool a human into believing it was written by a human.

Taleb used this test to demonstrate how one could analyze the text of speech by a CEO to ascertain whether what he is saying has value or whether “it is dressed up nonsense from someone who was lucky to be put there.” Taleb gives you a collection of phrases and asks that you select 5 randomly then connect them by adding the minimum to construct grammatically sound speech. You have no doubt heard them many times before. Some are: “creation of shareholder value”; “We look after our customer’s interests”; “the road ahead”; “we provide interactive solutions”; and so on.
So it occurred to me to see if one could create a similar list for lawyers. I looked at the websites of some prominent firms and here is what I came up with:

1.global practice
2. serve our client’s needs
3. be challenged
4. support pro bono
5. we provide creative solutions
6. we make a difference in our community
7. do work that matters
8. professional development
9. practical solutions
10. the necessity of diversity

As Taleb in instructs randomly select four of the phrases and add the necessary language to make a grammatically correct statement.

With respect to CEO Taleb suggests that if what you develop closely resembles a speech you heard from the boss of your company you should start “looking for a new job.”  What should you do when you apply the test your lawyer?
 

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    Have you noticed that many commentators have been discussing the long term impact of the present economic crisis on our way of life.  Tyler Cowen, an economics professor at George Mason University, authored an article in the New York Times a little over a month ago explaining how a recession can change our way of life. A few days ago I heard Dr. Phil opining on the same topic, while reminiscing with great reverence the lessons of the Great Depression.

    To briefly summarize Professor Cowen’s thesis, we are headed for a new reality where thrift and simple pleasures dominate our lives. What does this mean for the practice of law? If what is happening to my former colleagues and no doubt many others out there, the profession’s income is likely to fall as companies cut salaries and benefits. Although some refer to many reductions as deferrals or “temporary” the reality is the previous compensation levels are not likely to return for a very long time. For some that means, well after they had planned to retire.

    Although law schools may see an early bump in applications as the unemployed substitute school for a job, that trend is likely to decline once graduates find that potential post graduate income in many cases is not likely to justify law school, particularly if one is required to incur substantial debt. Eventually, even law schools are going to have to seriously look at faculty costs and class schedules. Perhaps we may see a return to clerkship legal training with formal schooling reduced.

    Society may promote other ways for dispute resolution without the need for the formalism of the legal process and lawyers. Philip Howard’s latest book, LIFE WITHOUT LAWYERS, Liberating Americans from Too Much Law, presages such a change. Who knows even my notion that law must shed its process paradigm for one focused on problem solving will gain more traction as traditional institutions like Harvard are weighted down by a reputation that justly reflects their central role in creating this crisis by producing a torrent of lawyers and businessmen who were incapable of recognizing and controlling risk.

    And yes, perhaps the public may even come to demand that artificial restraints on the practice of law placed on the system by lawyers and judges whose primary focus has been protecting their own interests rather than serving the public come to an end. Crisis presents an opportunity for change, and this profession could use a good dose of change.
 

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A close friend and former colleague gave me a book before I left for Florida. The book, Fooled by Randomness  by Nassim Nicholas Taleb addresses the fact that luck rather than skill accounts for most if not all of the great success stories. The basic principle is that given enough time chance which hath given will take away that which it has given. However, we humans appear destined to disregard this mathematical reality, and attribute great achievements in the markets as something really attributable to our skill and are unwilling to recognize that key role that chance in selecting one among many equally skillful people to reward.
I  explored this notion even before I read the book in the blog in which addressed the way many of our business managers attribute success to their skill and failure to circumstances that were beyond their control.
Taleb notes that randomness’s impact is not limited to the markets, but impacts life. That includes our profession. Taleb begins Chapter 2 with the platitude: “that one cannot judge a performance in any given field (war, politics, medicine, investment [legal outcomes] by the results, but by the costs of the alternative (i.e., if history played out in a different way).”  He describes these as “alternative histories”.
I would speculate that most of you out there that choose law firms do so relying on a single success. If a lawyer wins a large, highly visible case, that event alone can launch an entire firm, not to mention a career. We disregard judgment about alternative histories. Law firm marketing either ignores or suppresses them. You may recall in my blog on law firm marketing (hot link to blog on law firm marketing) that I commented on a friend whose description does not disclose anything about his losses—his explanation he settled all those cases he might lose. Taleb would likely argue that that meant that he likely was settling those he could have won as well.
Perhaps law firm ads should contain the same disclaimer at the end of the list of their successes: “ Past performance is not necessarily an indication of future performance.” We may be making judgments that are in fact no better than those we now see exploding before our eyes in the financial markets.

 

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Recently, I filed an amicus brief in the United States Supreme Court. The brief was critical of at least three Circuits who substituted their own policy choices for that of the Congress in order to impose liability on who they assumed had to be guilty regardless of the evidence. In my concluding remarks I pointed out that this was not merely reversible error; it was judicial conduct that threatened the legal system itself.

Where had this notion come from—the idea that judges and courts could not be trusted. The answer occurred to me today when a friend alerted me that John Moritmer had died. For those of you who do not recognize the name, or that of Horace Rumpole of the Bailey, you have missed an important lesson in what is required for our profession to function properly, a good dose of skepticism.
For Rumpole and Mortimer, the golden thread in the law was the presumption of innocence. Although that concept is associated with the criminal law, those of us in the defense bar that who fought to restrict the environmental movement to good science believed a similar presumption should apply in the civil law. In Re Bell Petroleum, the lawyer for defense said to 5th Circuit, referring to a case of mine,  that preceded Bell, United States v. Alcan, that before Alcan the Justice Department would introduce themselves in Superfund cases as follows: “If it please the Court, I am John Smith, attorney for the United States and I win.”

For those who have enjoyed the adventures of Horace Rumpole, one cannot miss the similarity in the judicial experience. Judges assisted the prosecutors. Guilt was presumed by the established legal community, outwitted only by the persistence of Rumpole who shunned all the attributes of rank and prestige that the profession had to offer to seek a more noble aim, often for little in the way of recognition or reward.  Rumpole appeared to have no aspiration to obtain silk, judicial posts or wealth; he measured success by some inner sense that he was striving to do what he felt was right.

This notion could do with some renewal today. It was an inspiration to me and we all should mourn the loss of John Mortimer and his creation, Horace Rumpole of the Bailey.
 

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Money of Course, ADR Now Threatens The Legal Profession.

Not too long ago ADR was wildly supported by the profession. It was largely touted as a means to save costs, and included in its supporters were even the most costly law firms who assured their clients they were not at fault for the large legal fees; it was the judicial system. Slowly, but steadily, study after study came out demonstrating that ADR did not lower costs, but the notion that ADR was somehow a preferential way to resolve disputes persisted.

Law schools jumped on the bandwagon. They were never that good at teaching you how to practice law, so it is not surprising they would launch into this area without any real clear objective, and no reliable data, that ADR provided the parties with a preferable outcome, or society with a preferable process. ADR however seemed to grow in reputation, and perhaps application, but I have not seen convincing data on that issue.

There seems to be a growing consensus that arbitration as a solution in business disputes between companies is disappearing, although attempts to enforce its application between companies and their employees and retail customers is growing. There also appears to be a growing consensus that arbitration is taking on all the procedural characteristics of a lawsuit—being destroyed as one commentator put it by “lawyers.”

So what is the problem? ADR has allowed, perhaps unintentionally, non lawyers into the dispute resolution process. The judicial process had locked out competition, but ADR opened the door and lawyers did not foresee this result, nor do they appear to like it. So what is their response—raise ethical issues—express concern about the clients. Use this to start imposing costs upon non-lawyer competitors.

At a recent Law School symposium on ADR, one lawyer presenter expressed concern about mediators requiring clients to sign a waiver of liability agreement. He pointed out that lawyers were precluded from doing this with their clients, so why should mediators be immune. The answer of course is obvious; laymen hire lawyers, but lawyers hire mediators. In fact, at least two lawyers hire a mediator and if they can not make a reasonable judgment about the skill and ability of the mediator they are hiring, they should be sued not the mediator.

This is simply the first step in trying to raise the costs of non lawyer competitors or perhaps regulate out the competition.
 

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Did you see the John Thain interview with Maria Bartiromo a short time ago? Every time Maria asked a troubling question, Thain simply blamed it on circumstances. For example, when she asked why he paid so much to hire new executives, Thain said that that was the market price last year and things were not bad yet! Apparently, he had not realized that the only reason he went to Merrill was that it was in a tenuous fiscal condition due to deterioration in the financial markets

When she asked him why he had said the company and its assets where in good financial shape, and shortly thereafter the assets the company held tanked, he explained that that resulted from circumstances that quickly changed.

In this turbulent time, when the issue of Wall Street bonuses is hitting the headlines, we are beginning to ask whether executive compensation levels were really justified by actual performance. The more we hear the more it appears they were not justified.

When results are good executives do not attribute that to circumstances or luck, but their unique skill and based that on that they demand ever increasing compensation. When things go bad, that is not a reflection of the fact that their skill was really quite mundane. Circumstances are to blame.

We lawyers are just as guilty. As a young lawyer at a large firm I was told by one of the partners that in the event we lose the case we tell the client that his case was just as great as we said, and we did a remarkable job, but the judge or jury was really bad. Those of you who have experience with test juries as I have you know that you can make the same presentation to numerous randomly selected jury panels at the same time and get quite different results.

Similarly, would a rigorous scientific study justify our assumption that the large prestigious firm to which we are paying a premium actually achieves statistically superior results; the existing studies suggest not; the only correlation with legal fees is the size of the firm. You do not necessarily get what you pay for, but you may certainly be paying for what you get!
 

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Recently, I read an article in the ACC Docket on Open Source Codes and as I understand it when you buy a company in which software plays a large role, you should be concerned as to whether it incorporated or used software that was available to the public because the source codes were publicly disclosed. If I understood the lawyer’s concern it was whether the seller had a proprietary interest in the software or it had been compromised because it incorporated open source material.

It got me to thinking about the importance of evaluating the real value of intellectual property in any business context. It would seem to me the first question for a lawyer to ask is how critical is a proprietary right in the software to the business model, even if it has a prominent role in the business operation. Stated another way is excluding others from using the proprietary property critical to the success of the business model?

Owning a substantial advantage in intellectual property does not mean that excluding others from using it gives you a business advantage. Enforcing exclusion can seriously harm your business as Sony learned when it refused access to its Beta video recording technology, which was clearly better than VHS. VHS was made available to many producers of equipment—they dominated the market and content vendors simply found it uneconomic to provide content in Beta.

I was similarly surprised a couple weekends ago at a local concert with the artist in residence at the Cuyahoga Valley National Park. This particular concert was very intimate with only about 40 in the audience, and during the concert there was active discussion between the audience and the performers. The artist in residence asked if anyone was recording the session. One shocked member of the audience said that he thought that was prohibited.

On the contrary said the artist we want you to record us and send the performance to as many people as possible—that maximizes our fan base, and presumably makes it easier for him to be invited to be an artist in residence. Copyright protection on music which the record industry has until recently vigorously tried use legal means to defend was justified as insuring that the artist be justly compensated for their work. Apparently, it now appears that the real motive was to try to maintain the economic relevance of the physical assets in the industry’s distribution business which had been rendered valueless by new technology. Music copyrights’ primary value in the old business model was to restrict other music distributors from taking your content—not protect the artist. That was the message from this artist.

What the moral of this story? The first issue for lawyers is not to determine if there are enforceable legal rights, but what role such a right might have in the business model, and even whether enforcement might have a negative business impact before they invest time and effort in determining whether such a right exists.

Tragically, law schools do not give lawyers the intellectual framework to think in that manner. The process paradigm results in lawyers mechanically focusing on the legal issue before they consider its economic relevance.
 

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ACC and Holland + Knight have teamed up to bring you Green-house Counsel, ACC's online feature which provides weekly resources, tips, and facts to help you persuade your company to adopt environmentally friendly (and often cost-effective!) policies. Check back every week for new tips on how to go green at  acc.com/gogreen.

 

This week's tip:

Help The Nation Rebuild Its Infastructure

President Obama has vowed to create jobs while rebuilding the nation's infrastructure.  Most of this infrastructure has important environmental implications‹consider the significance of the power grid, transportation system, and sewage treatment plants.  Such a large job creation program will affect your organization. Are you planning for it now? What can you do now to position your organization to take full advantage of the billions of dollars that will be invested in our nation's "physical plant"?

Read an article that discusses infrastructure and some of the challenges to rebuilding.

 

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ACC has some very exciting news to share:

President Obama Intends to Nominate Association of Corporate Counsel Chair Ivan Fong as U.S. Department of Homeland Security General Counsel
 
 
Washington, D.C. (January 30, 2009) — The Association of Corporate Counsel   (ACC) congratulates Ivan K. Fong, ACC Chair and Chief Legal Officer & Secretary for Cardinal Health, Inc., on the recent intention by President Obama to nominate him as General Counsel for the U.S. Department of Homeland Security (DHS).
 
“We congratulate Ivan on this outstanding honor,” says ACC President Frederick J. Krebs.  “He is an outstanding lawyer and strong leader which will serve him well as he faces the many challenges that lie ahead.  ACC’s loss will be our country’s gain.”  Since Mr. Fong will step down as ACC Chair upon confirmation by the U.S. Senate, the ACC Board of Directors will meet to designate a successor.
 
“By all means, this is a bittersweet moment. I am humbled to receive word of the intention to nominate me for such a role with the DHS and I thank ACC for all of its support,” explained ACC Chair Ivan K. Fong.  “This is a very exciting time and I am looking forward to the challenges that lie ahead.”
 
Mr. Fong has been a member of the ACC Central Ohio Chapter since 2005, and was previously a member of the Westchester/Southern Connecticut (WESFACCA) Chapter.  He has served as a member of the ACC Board of Directors since 2004. 

 

Read other ACC Press Releases

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I did not know that Harvard Business School offered courses in design and decorating offices. It appears that John Thain, the former CEO at Merrill concentrated in that area of study while he was there. Apparently office design and decorating is not a course limited to the business schools. You will be surprised to learn that law schools offer the same course, particularly if you are interested in becoming a federal judge.

I was recently in one the new federal court houses. The first thing I noticed was there was nobody around in the vast lobby except for four guards. Perhaps I missed the rush but it was mid-afternoon on Thursday.

When I left around five PM after my meeting, the lobby was just as empty. Not a soul to be seen except the four guards.

The vast space of the lobby was matched by the vast space of the judge’s chambers—not the Chief Judge mind you, I suspect I would have needed a GPS to find my way around the Chief Judge’s chambers. When you enter the chambers you walk down a long entrance aisle with doors with various labels such as “Do Not Enter Staff Only” until you come to one labeled Judge’s Reception. Along the other side of the aisle you see row after row of law books, apparently an entire paper library for this judge alone. I had been practicing for many years, and most of the law books I saw were back drops on television used to make whoever was in front look more prominent. For decades, our research has been almost exclusively electronic, but for reasons unknown to me this new court house appears to have a huge paper library for each judge.

When you enter the chambers area you are overwhelmed by the space. You could fit my old office in the judge’s receptionist’s alcove two perhaps, three times. I suspect the judge had law clerks, but they appeared to have been absorbed in the great expanse of the space between the outer wall we entered and an equally long inner wall which again had a series of doors. My former boss could have housed our entire former law department, 8 lawyers with support staff and modest a paper library that had some texts that had not been converted to electronic format between those two walls with space to spare.

Then there was the judge’s office—perhaps it did not have an $87,000 area rug; however, I cannot be sure because it was so vast it was simply impossible to scope out the entire area without going on an Australian Walkabout.

So what are federal judges around the country doing in these huge spaces, trying cases of great national and international import-perhaps, on some occasion in some court room? But on the whole, what is going on in federal court these days is not great deal more compelling than what is taking place in county court, where the contrast can not be more compelling. The county court house is full—I often have to scavenge for space when I mediate there. And the court rooms and chambers are nice, respectful and far more modest.

We are justly critical of the excesses of John Thain’s conduct and other business executives but we must keep an eye on our own profession’s conduct. The lesson that Thain’s conduct teaches is the size and expense of your office cannot create respect.
 

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On this month's NTI Committee call, Mark Sampson, Womble Carlyle Labor & Employment attorney presented the Legal Quickie on the new FMLA regulations.  The overview on how the regulations impact all employers with at least 50 or more employees covered:

• New categories of leave for military caregivers and certain qualified exigencies
• Clarifications of what constitutes a serious health condition
• Substantial modifications to employee and employer notice obligations
• Major adjustments to the medical certification process

With these new regulations also comes an entirely new and/or revised set of notices and forms that employers will be required to use. The regulations contain significant revisions which address numerous issues that have plagued employers and employees alike since the initial regulations were published nearly fifteen years ago.

Share your insights and or questions about the new FMLA regulations here and Mark and others will participate in the dialogue.

To contact Mark Sampson directly email him at msampson@wcsr.com or call him at (336) 574-8095.

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One thing lawyers should do is think critically. That requires that you be able to question statements of experts—your own as well as the opponents. So what have the economic experts been telling us? Deflation is bad. Why? Because they claim people will put off spending waiting for lower prices and that will slow the economy.

I think that deflation is great and it would have prevented the crisis we are in. People will not spend until the price they pay equals their consumption value and in a deflating environment that will happen when the actual use value of an item is so high (got to eat or heat my house today) that deferral makes no economic sense.

We should have an economy in which demand is generated by needs of consumption rather than speculation that the value of an item will inflate in value. People bought real estate in Florida in an expectation that it would go up in value even though there was no evidence that rental rates were increasing because there was no demand to occupy the realestate. Banks lent money to people who were high credit risks because they believed that the real estate that secured the loan would inflate in value.

What if that property was deflating? Those loans would have never been given and the excess inventory that far exceeds the needs of consumption would not exist.

So what about my house; it is going down in value. Well, there is no debt on it; I live in it; it still has the same number of rooms and it takes as just as long to cut the lawn. If I sell it, I will get less, but I still will be able to buy the same size and quality replacement.

How about my investments? True they are going down. However, even with a lower numerical amount to reinvest, I actually bought a larger portion of the index funds than I had when my reinvested investment returns were at an all time high a year ago; so I bought a larger fraction of the economy than before even if the numerical value is lower.

Trying to rekindle the economy by attempting to reconstitute inflation is bad policy and it won’t work. The market is telling us that it is adjusting by deflating—that is just the way it is.
 

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Did you see the news, Greg Fleming, the former President and Chief Operating officer is resigning from Merrill Lynch to take a job teaching at Yale Law School?   Other than graduating from Yale Law, Mr. Fleming’s most notable qualification to teach law appears to be that he never practiced law. I suppose that that simply demonstrates Yale’s commitment to the concept that actually having acquired and demonstrated the skills to practice is a distraction to teaching someone how to practice law.

So what skills will Greg Fleming teach? Well, he appears to be skilled at buying and selling “complex financial instruments” that everyone now claims were unintelligible. Ok, so perhaps legal writing is not his forte. Justice Thomas said his Yale Law degree was worth 15 cents, Fleming  is perhaps there to teach Yale Law students how to turn it into millions, simply by buying and selling legal documents which no one appears to understand.
 

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Academia is starting to raise its defense to the suggestion that perhaps it might have to accept some culpability for the present financial melt down. I am picking on Harvard not because it alone is to blame, but because CNBC raised the issue in a story on Harvard Business School and because Harvard had more than its fair share of graduates, both lawyers and businessmen, at the epicenter of the problem.

When CNBC, whose special on Harvard Business School, which was clearly designed to promote the institution, raised a few tough questions to maintain the appearance of objectivity, such as did the school contribute to the culture that created the problem we face, they answered the question by selecting to interview Jamie Dimon, the CEO of Chase. He defended the school by saying they do not teach you how to be bad people. That would certainly be an answer for an Enron situation, but it is hardly an answer to a wide spread systemic failure of the financial system. Too many graduates of Harvard Business School, Harvard Law School and a collection of other prestigious business schools and law schools had to be willing participants for this to be attributed to personal failures.

For all the claims about the value of case study method of Harvard and the optimistic predictions of a professor at Harvard Business School who is in self-denial, one thing is clear. These prestigious graduates engaged in fundamentally the same conduct that caused the tulip boom and crash of the 1600’s. So what was it they paid $180,000 to learn?
 

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A short time ago, I blogged about the importance of building a life line before you needed it. In that blog I described the value of the connections you would make with your ACC colleagues as an end in itself. Fred Krebs recently helped me reconnect with Bob Banks, former General Counsel of Zerox, and the father of ACC.

ACC was formed by a number of energetic and farsighted in-house lawyers. But among this group of talented lawyers one stood out.  For those of us who were around at ACC’s beginning, it was clear that Bob was the spark that created this organization.

I came to know Bob through a reference of a lawyer at the Ohio Lawyer’s Disciplinary Commission. I had been referred to the Commission by the then Chief Judge of the Ohio Supreme Court to whom I had written questioning Ohio’s policy of not permitting one to count time spent in Ohio as an in-house lawyer towards reciprocity admission, while the same time could be counted for reciprocity admission in New York. The Judge, apparently unaware of the rule permitting in-house attorneys to practice in Ohio without being formally admitted, concluded that I was practicing in Ohio without a license and referred me the disciplinary commission.

Chief Judge Celebrezze (as distinguished from Anthony Celebrezze of the Sixth Circuit) was widely reported as using the disciplinary commission as a means of dealing with any controversy concerning his role in office, and there was quite a bit. The lawyer at the commission was understanding and disturbed by the misuse of the office and referred me to Bob Banks, who was reported according to him, as beginning an organization that might just address admission issues for in-house counsel and lawyers generally.

After talking with Bob on the phone I met him for the first time, and I have still have a vivid memory of the meeting, at the Corporate Counsel Institute at Northwestern University Law School. ACC, then ACCA, was an idea coming to life.

I renewed my correspondence with Bob a few days ago (thanks to Fred Krebs sending me a current e-mail address) and have begun once again to share ideas on current issues in the profession. It made me recall the hope and spirit of confronting challenges that infused ACC’s creation.

Bob and his colleagues who founded ACC gave us a great gift—an organization that permits us to change and improve ourselves and our profession in way that none of us could do without it. This Holiday Season we need to remember these founders who built an organization whose creation was not without opposition and controversy. And we should remember that we can best honor their effort by using the organization to its potential.
 

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Below is a guest post from the Law Department Management Committee's Program Chair, Richard Bates.

 

Fellow ACC Law Department Management Members, as you know this is the time of year all ACC committees devote to idea generation for Annual Meeting programs.  Attached are suggestions to date.  However, we need your input for more program topics to consider.  And, our deadline for submission of program topics -- with description -- is January 16, 2009.  Please take some time to comment to this blog post (and please include a brief description) of your program ideas. 

 1.    Confronting Communication Issues in a Diverse Workforce

Without effective communication among its members and between its personnel and others inside and outside the company, a law department will find success in its mission elusive.  To avoid misunderstandings and disparate expectations, we must communicate with our clients and colleagues in a way that takes into account how the audience is receiving our communication.  We may sometimes fail to recognize – or simply misinterpret -- the gender-, culture- or generation-based verbal and nonverbal cues that we transmit and receive during the interaction.  The panel will discuss how as in-house counsel we can increase our emotional intelligence and awareness in this area and be more effective in establishing broader and more productive relationships inside and outside of the organization.  

2.    Ethical Responsibilities of In-House Counsel to the Corporate Client

Most of the ABA Model Rules deal with the private practice of law and the fiduciary duties owed clients.  As in-house counsel, we have just one client: the company, our employer.  This session will revisit the current ethical rules governing the in-house practice of law -- including those rules that apply to both in-house and private practice – and how the application of those rules has of late come under pressure.  From in-house counsel’s ethical role in e-discovery to compliance reporting, this session is a welcome refresher on ethics and the in-house practice of law.
3.    Technology Open Forum/Ask the Experts

Faced with increasing budget constraints, legal departments are looking at technology solutions to help them do more with less.  But how do you find answers to the questions you have about maximizing usage of the systems you already have, or about new systems you may be considering?  This unique session is primarily devoted to Q&A so that attendees can ask their most pressing questions and obtain candid feedback from industry experts.  This panel will help you sort through issues and solutions regarding available technologies -- including integrations between and among systems -- involving matter management, e-billing, contract management, digital signatures, and document management systems.  This session will address prevalent questions collected through ACC listservs, as well as spontaneous questions and comments from the audience.

4.    Inexpensive/Free Applications for Your Law Department

If you are wondering which inexpensive or free technology-related solutions are available for your legal department, this session is for you.  The panel will cover solutions ranging from workflow efficiencies to professional/social collaboration and networking.  This session will also include live on-screen demonstrations and tips on how to customize these solutions to meet your individual and department needs.

5.    Making an Effective Imprint on the Business Side of the Company

As in-house lawyers, we interact with all business units of our employer organization.  Often we are viewed as an obstacle or bottleneck rather than as a facilitator to the business units.  How do we change the perception of in-house counsel within an organization from an obstacle to a valuable contributor to the development and implementation of business decisions?  This program will explore how in-house counsel can add value, and be perceived as adding value, to the departments outside of legal.

6.    Information Management

How can you, as in-house counsel, select and implement effectively an information (A/K/A records) management program?  What are the requirements you will need for your particular department and organization?  How can you make it part of a knowledge (or information) management program that is effective and intuitive?  How can you be proactive in the event of a discovery request?

7.    Challenges Facing In-House Counsel in Our Current Economy

Today’s economic climate heightens the urgency of securing the maximum value for your expenditures.  How should you work you’re your in-house and outside colleagues so as to meet the CEO’s and other management’s value-added expectations?  How can we effectively manage legal costs, both internally and of outside counsel, while building and maintaining a productive and effective legal team with a positive work-life balance?

8.    In-House Counsel Malpractice Insurance Coverage

The role of in-house counsel continues to evolve, from professional employee to trusted advisor for ever-broadening stakeholder segments of the company.  Whether it is necessary to purchase or obtain professional liability insurance becomes an important consideration in taking on these new roles.  The panel will review the types of coverage available and discuss the situations where the attorney-employee is potentially exposed to liability based on the legal services they provided.
 
 

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My wife and I have two sons, both appear be driven by a calling. The youngest graduated from college and headed off to Italy (we are dual citizens) to start his life, while becoming fluent in a second language, experiencing another culture by living it, and developing his skill and love for food. The oldest is in China, working to succeed in a business he and his college roommate created, while developing business skills well beyond the ability of any business school to teach. Both have lifestyles driven by their calling, in which income and lifestyle have taken a far back seat to their passion. Perhaps they will be financially successful someday, perhaps not, but for someone driven by a calling that does not appear to be important.

My oldest son sent me an article by Michael Lewis on this topic since he was undoubtedly aware of his state in life. It was a response to a young man who worked on Wall Street and he was contemplating going to Hollywood as he saw the opportunity to make money and the excitement of the Wall Street heyday melt around him. Lewis’ advice to this young man starts by distinguishing between a job, something that makes money so you can survive and pursue other interests and a calling which consumes your life. Both have their benefits and costs.

I mention this because some of you may find the consequences experienced by this young man impacting your career. Law school, unfortunately, is a default educational choice for many who really are not sure what they want to do. I know I should be telling you that it is a great profession, and for me, it was close to a calling for most of my career. But it is not that way for everyone—what type of job you have can make a big difference. For some of you the present economic condition may present you with a unique opportunity to ask yourself whether you are in a job or a calling. These conditions may well present you with an opportunity to make a change that you would not consider when economic security restricted your options.
 

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For many in our profession this holiday season is going to be a stressful time. The economy is taking its toll and some of our colleagues have already been laid-off while others are no doubt concerned what the New Year will bring. ACC can be a life line through connections you can develop with your ACC colleagues. However, as valuable as ACC can be; it is not the best time to start building a life line- you should have been doing that already.

Our local chapter had a winter social. NEO ACCA has energetic leadership and typically they have two social events a year. I must admit in the later years before my retirement  I had not attended many of their events, in part because my travel schedule kept my out of town. However, since I began writing this blog,  I have made an effort to attend these events and some of the local programming. It has been a great experience. I have met many people with varied interests beyond the law, and the food has been remarkable as well.

I asked the chapter administrator what percentage of the membership actively participated in the ACC activities. She said about ½. The other ½ she said would only show-up when they were in the job market. I have a couple of observations surrounding that fact. The first is that ACC connections can be a great resource of networking when you are looking for a job, but it can be a lot more effective if you build your relationships before you need to rely upon them. A strong personal acquaintance is a far better network connection than a passing contact. Second, actively participating in your chapter and the national organization is going to develop an invaluable group of acquaintances that will keep you connected to the profession and create opportunities even after you retire—you can take my word on that.

Finally, your ACC activities will help you develop and hone your legal skills, give you to access to abundant expertise and create life-long friendships. I got far more from my ACC activities than I ever gave and you will have created a life-line if you ever need it.

 

View upcoming ACC Events

Join an ACC Committee

Check out the ACC Jobline
 

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This is a guest post by ACC Board Chair, Ivan Fong. This was originally published in the December issue of the ACC Docket.

 

As I write my first ACC Chair message, the headlines are grim, relentless and frankly depressing: major companies announcing layoffs, cutting budgets and some even seeking government rescues. The global economy is interconnected and hence unavoidably in distress. We have a new president faced with unprecedented domestic and foreign policy challenges. I have no doubt that you, too, are worried about how the turmoil will affect your organization.

Despite these difficult times, it is important to remember to maintain perspective, pause, and reflect on our priorities. What should our priorities be? Let me offer three: First, we need to continue to provide the highest quality services to our corporate clients in the most efficient way possible. Second, as “gatekeepers,” we must remain vigilant on compliance matters and be pro-active, preventive, and protective of our clients’ reputations. And third, we must continue to build culture and community within our law departments, companies, broader communities, and family and friends.

The good news is that ACC’s resources can help. As part of this global association, you have unlimited access to best practices. Advice and guidance from other in-house counsel is readily available: MemberToMember, local chapter programs, committee
listserves, and webcasts , are here to connect you. Looking to delve in deeper on an
issue? Save time and money with ACC Docket articles and InfoPAKs^SM for substantial information on the issues you face. ACC’s surveys, and subsequent benchmarking data provides meaningful insight.  For those directly affected by the economy, ACC also has excellent job and career resources, ACC Jobline^SM.

With increased scrutiny on budgets also comes an imperative for in-house counsel to review and evaluate outside counsel spend. The ACC Value Challenge, a new initiative to reconnect costs and value for legal services, will help to drive an alignment of interests with a focus on high value. Toolkits are available for in-house counsel and law firms to help drive change in the performance of value-based legal services. You, too, can become engaged with this community, help enhance awareness, and communicate success stories.

I have had numerous conversations with ACC members and many agree that this economic storm will pass, though it may take some time and cause painful dislocations. An ACC Board Member commented recently that, “How you’ll be judged after the economic storm is over is by how you handled the storm itself.” We cannot, therefore, lose sight of the things that really matter: credibility, integrity, courage, and community.

Einstein said it best with his three rules of work: “Out of clutter, find simplicity. From discord, find harmony. In the middle of difficulty lies opportunity.” Take advantage of all that ACC has to offer, and don’t be dissuaded by the added scrutiny; don’t despair in the face of challenges; confront them, and through it all, look for the opportunities. If you have any thoughts or suggestions for how ACC can help you—and its 25,000 members
worldwide—please send me an email to acc.chair@acc.com.
 

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What is the connection? In The Future of an Illusion, Freud defined faith as a belief the validity of which is not subject to be proven or disproven. When Henry Paulson appeared before Congress to defend his actions in injecting liquidity into the banks rather than buying toxic assets from the banks, a position that he originally used to justify passage of the TARP, he faced stiff criticism of his credibility, not merely because he did not buy any toxic assets, having claimed that if the government did not we were all doomed, but because even the liquidity injection did not result in any significant increase in loans.

Paulson’s problem is he lacks common sense—banks will not lend money they think will never be paid back, no matter how well the bank is capitalized. However, unwilling to acknowledge this shortcoming he defended his action by claiming that things would have been much worse if he had not acted. Paulson has read Freud. He gave a reason which was beyond rebuke because like faith it could neither be proven nor disproven.

So you are in a settlement conference with your very prestigious outside firm. As the session progresses you notice that your attorney’s demeanor is changing. The enthusiasm with which he appeared to hold your position in the case is not the same as earlier in the lawsuit or even just before the conference, and he is now advocating that you pay a sizable amount. Finally, you agree.

As you walk out of the conference, the weight of your decision is pressing upon you. There were sizable legal fees and the settlement amount was much more than you expected. You glance over at your outside attorney who appears rather light hearted. You voice your concerns—you have managers that are going to question the investment in this case. He responds: “We saved a lot because the result would have been much worse if we tried the case.”
 

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I just filed an amicus brief in the United States Supreme Court on behalf of a free market advocacy group. I typed it—an exercise which itself could introduce more change into the language than two hundred years of development and certainly could rival texting English in removing unnecessary letters in getting your point across.

The brief was reviewed by others when being put into its final form, a necessity for these blogs which does not always occur; nonetheless, it had a few misspellings and if red or green does not show-up we are gradually being programmed to accept that there are no errors. In fact, those red and green lines are becoming much better in what they do.

When I sent copies of the briefs out, most responses commented on the substance. One, however, was rather amazing since it made no comment on the ideas expressed, but proceeded to critique the brief on grammar and spelling, and concluded by saying that the response was a reaction to this person’s service as a law clerk.

It reminded me of an experience in college. When I began my college career, I was very ill-equipped to compete with my classmates, many from private schools and very well respected public schools in large metropolitan areas. The consequence was that when we got into discussions and I appeared to be gaining the edge, they would use words I did not understand and concepts that I had never heard before. Intimidated, I would concede positions rather than admit that I did not understand what they had said. One day that was occurring in a debate, and to my surprise I blurted out: “I do not understand what you are saying can you please explain it to me simply.” My debate opponent turned bright red and walked out. He had been caught. He could not explain.

So I file a brief and  some people are not appalled at the concept that courts properly spell the requirement that I prove my waste is “environmentally benign”, a concept that has no scientific reality and can never be proved, but point out that somewhere in the brief  “that” was misspelled as “than”.

Why distract oneself from a clear idea and engage in a form of academic elitism? It is a defense mechanism whose foundation is intimation. If someone confronts you with a position that is clear, powerful, and painful, respond by criticizing their grammar. It makes you feel superior; you do not have to respond or acknowledge a position that makes you feel uncomfortable—and if you are really lucky you can intimidate its author and make it go way. Perhaps, needless to say at this point the brief was not a flattering critique of the courts—and if you had held your tenure as a law clerk in high esteem, it would not have been a pleasant read. 
 

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You would expect that everybody would know about collectability. The value of a contract is a function of and directly related to the likelihood that you can collect a judgment on it. Who missed this point recently? They are all those guys who bundled and sold mortgages and then bought insurance contracts to guarantee payment. No doubt that they got their legal advice from lawyers educated by Professor Prestige the famous law professor at the well known law school close to an ocean.

This is the first consideration in determining that whether a legal obligation rather than some other social obligation or business structure is going to be relied upon for performance. If you cannot collect on a judgment then do not spend a lot of money on a contract.

When I joined the company from which I retired, I came across an elegantly drafted contract for purchases above $25,000. A mandate from on high required formal contracts at that level. The company had paid a prestigious law firm a lot of money to draft that contract.  When I looked it over, it contained clause after clause limiting our rights. In fact, we were worse off than if we had purchased in the context of the battle of the forms.

I asked the law firm why these limiting terms were in the contract. They said that the engineers had told them that were the best they could expect to negotiate. Apparently, they neglected to mention that under the circumstances that collectability mandated no formal contract and no requirement that they be paid a large fee for a pointless project.

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Remember change the facts-change the law—our leaders in Washington have a variation on the theme—Wrong decision, claim the facts changed. You will remember that I was opposed to the Bear Stearns bailout. I thought that giving money to the auto companies was a huge mistake and could only be justified by giving a bailout to everybody . Although I made no comment in a blog on my views on the TARP you can guess my view was that it would not work because no matter how fancy your balance sheet, you were not going to lend unless you had reasonable confidence you would be paid back.

Thus far, the government is batting a 1000, nothing they have done has worked and they appear to be headed to demonstrating that they can continue that record rather than admit that the economy is just too big for the government to fix.

Watching Secretary Paulson on TV this week reminded me of the number of witnesses I crossed examined who, when caught in a contradiction, rather than admit they were wrong or dishonest conjured-up an explanation no matter how incredible. One expert who I confronted with the fact that his testimony of the value of his client’s contribution to household services after his allegedly severe injury was 3000% above average value for white males in his age category, and a whopping 15,000% above the average before the injury responded that this were simply his evaluation of the facts his client gave him.

Paulson and Bernanke were not wrong when they claimed Armageddon would result if they did not buy these toxic assets—the facts just changed. The rule—never blame yourself, just blame those fickle facts. 

 

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On tomorrow's New to In-house Committee Monthly Teleconference, Howard Steinberg, of McDermott, Will & Emery, will be presenting on the ways to bridge the gap between the compliance and legal departments. Here's a quick description of the discussion:

"The current economic crisis and its ramifications are putting legal and compliance departments under additional stress.  This presentation will discuss the intense focus on risk, from a management and disclosure perspective, and the role of legal and compliance departments in the risk process. It will also touch on hot button issues du jour for law and compliance, including greater transparency, executive compensation, and shareholder access, all in the context of reduced resources, lower budgets and likely changes with a new administration in Washington."

If you're new to the in-house community, I highly recommend that you take a minute and sign up for the committee. It's a great place to reach out to your peers, and to help get a feel for what in-house life is all about.

 

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So you never heard of collateral consequences in your contract course. That is because you are a lawyer and went to law school. Law professors are simply concerned about the legal consequences of the contract, not the practical consequences. To them what is important is whether the contract is legally enforceable as a theoretical issue. In the first C we learned that one might have a legally enforceable contract that is simply uneconomic to enforce.

Collateral consequences examine the notion that contract enforcement has different practical implications, such as it is not such a good business strategy to sue your best customer, even if you win. But the there are far reaching implications to collateral consequences when you design a contract. For example, in my lecture we examined alternative design options that achieve the same legal objective but resulted in profoundly different competitive advantages.

The good news is that you have now heard about the concept. The bad news is your wasted a lot of tuition money in a school that should have examined these concepts, but largely serves as a barrier to entry.
 

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Another example of an alternative to the hourly billing arrangement that was offered at the NEO ACCA conference was the contingency fee. The example they used was actually a reverse contingency. A client, who had sustained a judgment, apparently with another firm trying the case, came to the firm for an appeal. The firm agreed to take the appeal for a percentage of the amount by which the judgment was reduced. The judgment was reversed in its entirety, and I assume that the case was then over, although the topic was not discussed.

The arrangement would be a bit less appealing in the context of an appellate ruling where the judgment was reversed and a new trial ordered; however, one might be able to able to agree on a number in that case. Presumably, the amount agreed upon would be more than the hourly rate, so this format might not actually result in lower costs. However, one might argue that it is actually better than a straight hourly rate, since the firm is sharing the risk of loss and, therefore, will only invest time that has a real prospect of generating a return.

I would think that in this context the in-house attorney without a good understanding the details of trying the case may be at a big disadvantage in negotiating a fee.

Using a contingency fee in the context of a pure defense effort prior to a monetized judgment presents the problem of valuing the defense effort. Plaintiffs often plead millions and the real value of the claim is often less. There have been a lot of efforts in evaluating claims at the initiation of the suit. To my knowledge none has really gained widespread acceptance—I have seen reserves for SEC or insurance purposes vary wildly.

I have been in case where the exposure of the case would varying substantially based on judicial decision in another case concerning the proper inclusion of a cause of action. In that context assessment of exposure might be difficult. Nonetheless, there does not seem to be insurmountable reasons for not considering contingent fees in the defense context.

Although often thought of as a billing tool for lawyers suing companies, there does not appear to be any reason why the contingency might not be used in offensive action where the company is the plaintiff. No example of such a use was offered at the conference, but I see no reason why that might not serve as an excellent method of cost control. The firms most interested in such an arrangement are probably one’s with extensive controls on overhead, which I will suggest later, might make it an unattractive option for many in-house attorneys.
 

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Well, for those of you who have not read my series of blogs “There is Trouble in River City” I would go back and read them. Last week I participated in the first effort to develop a course that would teach business men how to manage legal issues and lawyers—that means you. The basic theme is that law schools teach students to think like lawyers, and that is the problem and our hero and his general counsel experienced that lesson in River City.

So what specifically did I tell the MBA class? First, that should not let their lawyers draft contracts; they should design contracts and run them by their lawyers for any legal comments that they lawyers may have.  How can this be—lawyers are supposed to draft contracts with clarity. Have you read a contract written by a lawyer lately?

I have litigated contracts drafted by prestigious firms, hard bound and all, and I was amazed at the ambiguity compounded by the confusing testimony of the lawyers who drafted it. So much for a lawyer’s drafting skills.

Perhaps more importantly, lawyers have not been trained nor are they sensitive to the three C’s of contract design. The three C’s are three critical business parameters inherent in contract structure. Law schools are preoccupied with teaching legal doctrine—and quite frankly that is almost an insignificant in terms of being a manageable parameter in a contract dispute, and often has little or no impact on the essential cost parameters of contract enforcement.

Next blog – the first of the three C’s, Law School Deans out there pay attention or you law schools will become even less relevant to the practice of law than they are already.
 

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The following articles concerning the ACC/Serengeti 2008 Managing Outside Counsel Survey appeared in the press:

Reuters – October 29, 2008 (Also appeared in Economic Times, Financial Week, and The Guardian)
Crisis Means Big Fees for Some Lawyers

Fulton County Daily Report – October 27, 2008
Standardized Work, Cost Cutting Alter GC Relationship With Outside Counsel

Wired GC – October 24, 2008
Managing Outside Counsel Survey – Part II

In Search of Perfect Client Service – October 23, 2008
More On Law Firms Raising Their Rates In Bad Economy

Law Marketing Portal – October 23, 2008
ACC/Serengeti Survey: The Economic Picture for Law Firms Gets Worse

National Post – October 22, 2008
In-House Lawyers Fret About Illegal Activities of Outside Counsel, Survey Finds

Inhouse Insider - October 21, 2008
Corporations Spend More on In-House Lawyers, Less on Outside Firms

Law360 – October 21, 2008  (subscription required)
In-House Counsel Tightens Grip On Law Firms: Study

Legal Post – October 21, 2008
Corporations Slash Legal Fees to Record Lows

Yahoo! Canada – October 21, 2008
Study: Corporations Slash Spending on Outside Counsel
Redistributed in Canada

The American Lawyer/AM Law Daily - October 20, 2008
Study: Corporate Spending on Law Firms Dropping

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First, I did not know that Henry Paulson and Ben Bernanke were reading my blog--when I advocated a bailout for everybody I was joking. Apparently, they took me seriously or at least they are trying to do it for the entire financial industry.

Is there a lesson in this for lawyers? Remember the days when everyone admired those highly paid Wall Street investment bankers. They were all described as really bright. Their compensation, their offices we assumed had to be a reflection of their intellectual prowess.

What about lawyers--do the location of their office or the hourly rate really reflect intellectual prowess, or it merely a reflection of the same market aberration we are seeing in the investment community? Just a thought.

-Larry Salibra
View Bio

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In my last few blogs, I have been describing how we lawyers have used words to substitute for or manipulate reality, and how Judge Posner even wrote a book about it.

My last blog described how Hank Greenberg used words to draw an artificial distinction between the financial conditions of Lehman and AIG and suggesting that this excused us from re-examining the correctness of our conduct. Recently John Snow, former Treasury Secretary, and now the proud owner of Chrysler was on CNBC describing why the subsidized loans that Detroit automakers seek are not bailouts like Bear, Fannie, Freddie and AIG; he said they are "unfunded mandates". This means he would like the same bailouts as the other entities, but he does not want shareholder value impaired or his management role terminated.

What were these mandates--Congress wanted the automakers to make fuel efficient cars. Like these automakers could happily skip along making SUV's but for this Congressional mandate?



-Larry Salibra
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That phrase, "Plasticity of Legal Rhetoric" is not mine, but Judge Posner's which he uses in his book, "Overcoming Law. However, I had recognized the concept long before I read it in Posner's book, which, in fact, had been brought to my attention by a judge friend of mine who had been subjected to my ravings on the topic.

I decided to discuss this issue just after looking at the non-precedential conduct, because it fits into an underlying theme, we have a legal system that has very serious flaws--one of which is the ability to ignore real facts or create fictitious facts to get a result. If judges feel comfortable doing this, then non-precedential conduct becomes an extremely useful tool in helping, as Judge Arnold noted to hide the conduct.

So how did I describe plasticity of legal rhetoric? It is stating that a fact it true and repeating it two times in place of scientific evidence, or to refute scientific evidence to the contrary. Stated another way it is holding that a brick wall does not exist as matter of law and then making sure you are not in the vicinity of the brick wall as the speeding car approaches it.

It also has other very troubling manifestations.

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This rule is attributed to Warren Buffett, but I do not know that to be true. When I heard about it, I immediately thought about they way lawyers draft contracts

The rule says first come innovators, second there are imitators and finally come idiots. The commentator who described this rule and attributed it to Buffett was using the rule to describe how rational risk distribution became widespread and finally irrational.

I have litigated very bulky contracts drafted by very distinguished law firms, and was amazed at the level of confusion described in those large, undoubtedly very expensive, bound volumes.

The three I's have an analogue in contract drafting. Initially a distinct problem is confronted by creative lawyers who draft a provision to address that issue. Then come the imitators, the bulk of our profession, they look at all those provisions in various contracts and copy them into their contract often without a complete understanding as to their relevance to the transaction--it is called boilerplate and tends to grow exponentially.

Then comes the last of the I's. I actually saw a contract term that was in substance as follows: "In the event of two conflicting decisions by the United States Supreme Court on an issue addressed by this contract, the latter shall govern."

Notwithstanding the extremely remote possibility that such a situation would exist, being invaded by an army from Pluto is probably more likely, this term does appear to state the obvious.

By the way, I did not make up this provision--someone was actually putting these in contracts.

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Any thoughts about what Ted Claypoole shared with the New to In-house Committee today on Second Life and the issues surrounding it?

Below is the description of the Legal Quickie from today's call:

Business Risks and Rewards in Online Virtual Worlds.

Moderator: Susanna McDonald, General Counsel, Claimant Management Systems
Guest speaker: Ted Claypoole, authority on internet law at Womble Carlyle Sandridge & Rice, PLLC

Topic Description:
Millions of people participate in online virtual worlds, and millions of dollars are spent in them. The three-dimensional immersive computing that characterizes these worlds will probably be the future of interactivity online for nearly all businesses. Companies are beginning to participate in these online communities, but the risks and rewards are not always clear.

This presentation will define and explain the significant online virtual worlds and will discuss who is participating in them. The speaker will discuss the various ways that corporations are playing and profiting from these social networks, and the new economies created by new worlds. Finally, the group will analyze and discuss the legal risks and business risks that your company may face if it chooses to play or profit in the virtual space.

In particular, the presentation will focus on legal risks highlighted bhttp://www.blogger.com/img/gl.link.gify the Second Life Banking Crisis of 2007-2008, and on case studies of corporate commitments to virtual worlds.

For more information on virtual worlds, including Second Life, visit the links below.

http://en.wikipedia.org/wiki/Virtual_world
http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9018238&pageNumber=4
http://virtuallyblind.com/2007/05/04/trademark-infringement-vws/

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I waited until Tuesday to write this because I wanted the emotion of the moment to fade. Those of you who have been reading my blogs have known that I have not been a fan of government intervention.

Today for those of you not in financial institutions your biggest concern maybe whether you will ever be able to afford to retire. But for our colleagues in financial institutions I am wondering what is going through their minds.

As a trial lawyer, the moment the jury went out or at the close of an appellate argument, I would begin reexamining every decision I made in the conduct of the trial or the argument and if the jury or panel returned with an adverse verdict, that re-examination would go on for weeks.

I am wondering if they are looking at those "complex financial instruments" and wondering like I did what they could have done differently, or whether their legal education even prepared them for this experience.

I was listening to Hank Greenberg this morning on CNBC attempting to distinguish AIG from Lehman. He said Lehman was insolvent, whereas AIG was simply illiquid. To me being illiquid means, there is money in my checking account, but I cannot cash a check today because the banks are closed; however, tomorrow it is virtually certain I will have the cash--I should have not problem pledging that check as collateral.

Insolvency means there is no money in the checking account. If AIG is in fact simply illiquid, why has it not been able to pledge its assets as collateral? I am wondering what AIG's lawyers are telling their client--is illiquidity simply the asset owner's euphuism for insolvency? Are we once again trying to make words dominate reality?

-Larry Salibra
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Recently, I had the opportunity to chat with a friend and former Chief Judge of a State Supreme Court. I was disappointed because, Illinois State Supreme Court that had apparently fought the politically correct position of adopting a mandatory CLE requirement had succumbed a few years ago.

I mentioned to my friend the fact that mandatory CLE was in my view a pointless exercise designed by the State Supreme Courts to avoid criticism for lawyer incompetence. Put another way if they adopted mandatory CLE they could avoid having to seriously address the issue or even think about it.

To my surprise, my friend readily agreed that mandatory CLE was a joke. Anyone hiring a lawyer who relies on the fact that the lawyer is up to date on his mandatory CLE is making serious misjudgment.

One has only to visit those CLE classes held between Christmas and New Year's and look at the partially awake, well partied lawyers reading the paper, most of whom never had and never will practice estate planning to get a real a picture of the "well, it is got to be done" CLE.

Then there is the let's make the best of it CLE, where tax planning in definitely a prime focus. You check in at the Royal Hawaiian, looking down the corridor at the blue Pacific and think to yourself, that a little torts and civil procedure is well worth the deductibility just for the view--not to mention that it is snowing back home. What this profession will do to insure they are fulfilling the public trust is remarkable.

Judges--do you really want to insure the public has cost effective competent legal service--competition is the answer--not mandatory CLE. Reduce artificial restrictions on access to practice and competition will solve the problem. In addition you will eliminate the administrative costs of monitoring CLE compliance.

-Larry Salibra
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Just as you visit your doctor to get your annual physical, as an in-house attorney, it is prudent at least once a year to diagnose your nonprofit organization's legal health and well-being. Even if not an expert in every area of law, a successful in-house nonprofit counsel needs to be able to spot legal red flags and be able to effectively
manage them.

Later today on the Nonprofit Organizations Committee conference call, we'll be presenting a "legal quickie" on a number of the most significant legal issues faced by the typical nonprofit organization today. Topics will include everything from meeting contracts to tax exemption to lobbying disclosure to copyrights and trademarks and more.


Identified in our ACC Top Ten article on the same topic are ten key current legal issues and trends to which every nonprofit organization should pay close attention. Alongside each issue is a link to one or more articles on the topic, to provide you with additional information necessary to do some legal self-examination.

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WHY FEDERAL COURTS DO NOT APPLY THE RULE OF LAW: Part 7: Epilogue

First, let me point out an error I made on the prior blogs. I stated that Anastasoff (blog 1) was seeking to have a prior unpublished opinion applied so she could obtain a refund. That is not correct; she wanted the prior case unpublished case ignored so she could get the refund. Although this error does not impair the point I was making that the essence of common law requires the similar treatment between similarly situated parties, I am a bit surprised no one pointed out the error.

There has been much written about this topic and you can access a lot of it at this site. Many of the articles have direct hotlinks to a pdf file of the article.

What is most troubling is the recent emergence of this practice in Britain, described by Lee Peoples in his article comparing the practices in the US and Britain. A review of the history of the development of the common law in this article incorporates a reference to the limitations that technology placed on publication. The obvious limitations of the oral decisions of judges and hardbound publication have largely been eliminated by technology. The justification for the emergence of this practice in England, efficiency, by saving lawyers judging time and money, basically the Alito position, Peoples describes as "a sharp break with centuries of tradition".

Why now? Why with technology dramatically reducing both time and cost in seeking relevant cases are the courts so concerned about efficiency? Why didn't they adopt a rule prohibiting the introduction of recollections of oral rulings and limit precedent to only the few cases they chose to be considered precedent centuries ago?

Perhaps more now than ever before the technology is doing to judges that which it is doing to the rest of us--making them more accountable for the quality and consistency of their decision making. We no longer have the luxury of arguing that we were not speeding at the time of the collision when the computer chip in our car says we were speeding.

More than any other branch of government, the judiciary is the most opaque--an in certain respects more dangerous. Perhaps it might not be able to reek cataclysmic havoc on us with the same overwhelming scale and intensity as the other branches--but such havoc has an important check--the fact that it impact is highly visible and strikes many at the same time, and therefore is far more likely to face strident opposition.

Judicial malfeasance is less visible, but its impact on those subject to its abuse is no less traumatic and in many cases the victims more defenseless.
In the web site I mentioned you will get many points of view, particularly from academics whose policy arguments often lack a critical perspective--that of looking down the barrel. For the criminal defendant who is denied a fair trial or the defendant unjustly forced to pay a judgment, efficiency may not seem to be a very important goal.

However, there is one major fallacy in the efficiency argument known to anyone who has tried a case and done a Lexis search on the law--the real cost of the litigation is generally not involved in preparation of your jury instructions or memorandum of law. It is in the development of the facts.

I have had the opportunity to find cases of judges with rulings contrary to the position they wanted to take with respect to my client, and watched them squirm when the ruling was brought to their attention--they do not like the feeling and that is why the non-publication--non citation rule exists.


-Larry Salibra
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No doubt that you all received e-mails from ACC including the personal note from Fred Krebs announcing the victory in changing DOJ policy on the attorney-client privilege. I want to extend my congratulations, particularly to Susan Hackett who has led the ACC effort.

However, in our enthusiasm, let us not forget that this was a joint effort among many organizations, including the National Chamber of Commerce, WLF and others and we need to jointly reaffirm our coalition because the job is not over. Winston S. Churchill said following the victory at El Alameinin in North Africa in WWII: "Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning."

In a series of blogs I described the systematic erosion of federal business civil liberties detailed by a paper recently published by the Washington Legal Foundation. Steve Bokat detailed the extensive participation of many organizations that have worked alongside ACC and WLF to confront these issues as a community. The present victory corrects an important part, but just a part of the overall problem. The judicial expansion of the crime fraud exception, for example, has many of the same detrimental impacts on the attorney-client privilege.

Of course we need to recognize the present achievement, but we also need to reaffirm our cooperation with coalition of which ACC is a part and use this opportunity to renew our commitment to win the war.


-Larry Salibra
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Part 6, Justification #4: A non-precedential opinion can be argued for its persuasiveness, even though it is not precedential.

This position appears to be the present state of affairs in the federal courts--the old rule was that if you cite a non-precedential case you will be sent to the eighth circle of the Inferno; now such a citation simply risks being sent to Purgatorio.

The position was advocated by Justice Samuel Alito and unfortunately reflects a fundamental misunderstanding of the common law and the nature of precedent. It was advocated by him (when he was at the Third Circuit) at the Congressional Hearing on the topic and was justified by the argument that if every opinion was written to be precedential judges would not enough time.

First, the "I am overworked" argument of the federal bench is meritless. The reason we have an opinion is for the bench to explain to the litigants the legally operative facts, how the law applies to those facts and therefore, the result. We do this to insure as, Judge Arnold (blog 1) noted, that the judiciary has a legitimate basis for the decision. If the federal judge is overworked -too bad, get another job. There is a long line out there looking to replace you, including a number of state judges in Ohio, who have far larger caseloads where every case is precedential.

Second, it conflicts with Judge Becker's(Blog 4) position that even if a case is not precedential, the judiciary should provide the litigants with an explanation for the outcome. It seems that such an explanation should include a description of the operative legal facts and a description of how the law requires that result under those facts. Is that not a description of precedent?

Third, a case is persuasive because it has the same operative legal facts as the case before the court and is not legally disguisable. It is in fact precedent and similarly situated parties require similar treatment. With all due respect to Justice Alito, whom I know, how else can a case be persuasive? The reasoning sounds good because it is written in iambic pentameter?

-Larry Salibra
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In my bio, I said that one of my objectives was to get you to think about things that the preoccupation of your careers and family duties would prevent. Today, I realized that time to think might be more scarce than I might have imagined. It just may be that the frantic pace of our lives to increase productivity might actually start to become counterproductive when the consequence of the pressure to produce begins to preclude our ability to think about what we are doing.

For those of you who do not know--I am a big time tool guy. Not only do I have the full panoply of wood working machinery, commercial quality of course, but I also have a metal lathe, welding equipment etc. During my career I did a lot of work with my tools, designing and building cabinets and furniture among the numerous other repairs and improvements that a house requires.

In the last 10 years or so of my formal working career I did less and less of this work and the jobs requiring attention around the house accumulated. When I retired the jobs needing attention was overwhelming. In addition, I was older, and the ability to use brute force to move things was not the alternative it used to be.

Have you noticed the change in the profession the last 15 years or so--the fact that you appear to have less time to think about what you are doing because of the pressure to get it done or is just me?

Well today I was tackling the repair of my 100+ year old stable (really a shed) converted to a workshop. Rafters had to be replaced--and there I was with 12 ft water-soaked rot resistant 2X6s. Brute force to get these into place under an existing roof was not an option. But do you know what I had--I had time to think about how to do it by myself. And with time to think about a solution, it turned out to be quite a manageable task. I have found that time and again lately--the time to think about a problem made its solution manageable and quite efficient.

It occurred to me that the same might be true if I had to confront a legal problem. Rather than being forced to leap in by time pressure for a solution--if I had time to think that solution might be better and more efficient--any thoughts?

Shortly, I will begin to develop my theories about why lawyers automatically apply legal process to solve problems and do not think about alternative, more efficient solutions at a graduate school of business. Hopefully businessmen will be able to recognize and manage the problem. Law schools are part of the cause of this problem, but not taking or having time to think about solutions might well be another.

-Larry Salibra
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It was a good day for attorney-client privilege junkies like me here at ACC
(and that means if you're corporate counsel, it was a REALLY good day for
you and your clients' rights): the DOJ finally issued its promised
revisions to the McNulty Memo and (are you seated?) actually reversed every
single issue we've protested in the Holder/Thompson/McNulty Memo process.
Every one. No more privilege waiver as a condition of cooperation; no more
assertion that work product claims aren't valid if the work product includes
otherwise non-privileged facts; no more forcing companies to fire employees
or revoke their right to attorneys fees before the facts are in and as a
condition of cooperation credit; no more tactics that suggest that companies
have to throw employees under the bus in order to defend themselves.

The link to the new document that governs US attorney consideration of the
criteria of corporate cooperation is not yet up on the DOJ's site, but we've
got a copy. And we've had the DAG's assurances - he was looking us in the
eye when he said so.

Now here's the really interesting part: DOJ didn't issue a new memo. They
instead inserted this new guidance into the US attorney's manual as a new
section of the manual. In case you're not familiar with it, the manual is
not a policy which can reside at the bottom of the fifth file cabinet down
the hall. It is on every prosecutor's desktop and is the bedrock governing
prosecutorial conduct. US Attorneys take it very seriously and are very
proud of it, too. What this signals is DOJ's attempt to not only amend the
policy with words, but also to convey to prosecutors in the field that their
feet will be held to the fire for non-compliance with this policy. That was
clearly not the message that the previous memos (residing in the fifth
cabinet down the hall) conveyed to prosecutors prior to this announcement.

And so ... I still want legislation that provides finality and comprehensive
coverage across every agency of the US government with a copycat McNulty
policy (since DOJ reversing it's policy does nothing to reign in the SEC,
the DOL, the HUD, the IRS, and so on), but I am proud to announce that we
have won a DOJ policy with teeth (and trust me when I tell you that we've
fought hard for this for over 3 years, so I'm serious when I say we've
"won"). We have a DOJ policy that includes paragraphs on the importance of
the attorney-client privilege to the responsible behavior of well-governed
and well-counseled companies. We have a Department that is committed to
assuring the success of this policy. And we have an agreement that
privilege belongs to the client, and it is not the province of DOJ to
request, demand, or dismiss its waiver at will.

After watching so much political convention coverage in the last few days, I
feel like I should end my post as virtually every speaker for the last 3
days has: "God Bless You, God Bless DAG Filip, and God Bless the Our Legal
System and its Protection of the Fundamental Client Right to Attorney-Client
Confidentiality!"

-Susan Hackett

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I've been doing a little research about the location of this year's Annual Meeting- Seattle, WA. An interesting fact- Seattle was named one of the top ten green cities in the nation by National Geographic. In fact, the Washington State Convention & Trade Center (WSCTC) in downtown Seattle announced the availability of the nation's first completely compostable water bottles available for convention center clients. The center's new, .5 liter water bottles are made from corn-based resin (PLA) and the entire bottle, cap, label and contents are 100 percent recyclable, biodegradable and compostable. By contrast, traditional petroleum-based resin water bottles take up to 5,000 years to decompose.

We're very proud to have our meeting in Seattle, as ACC continues to 'go green'. Last year, we moved away from our printed course materials (books that were easily hundreds of pages of printed paper for each attendee) and gave everyone electronic versions of the materials. We'll be doing the same this year.

I can see why Seattle is recognized as a clean, environmentally conscious city- they have wonderful national treasures to preserve. If you're getting into Seattle before the meeting, take a walk through Pike Place Market, eat in the international district, or take an Orca spotting tour. Why not take in a Mariners/Seahawks game, or a dinner cruise on the Puget sound? Take a ferry ride, check out Discovery Park, the Space Needle or ride the monorail. And don't forget to take public transportation; all of the buses are either electric or run on biodiesel! These of course, are all things I hope to do while in Seattle. Do you have any other suggestions? Send them along!

Still haven't registered for Annual Meeting? What are you waiting for? Register Now!

-Nichole Opkins

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So we're 7 ½ weeks out from the big show- The 2008 ACC Annual Meeting. This will be my 4th meeting with ACC, and I have to say, probably my most exciting since I've spent the last year working closely with 2 of our 16 committees- IT, Privacy & eCommerce, and New to In-house. These have been great committees to work with- the members are committed and interested in the monthly teleconferences, the creation of their programs for AM, and to the overall success of their fellow committee members. And, I am proud to announce that the New to In-house Committee won the Committee of the Year Award- A great accomplishment which they share with the Employment and Labor Committee. This was on top of a Sponsor of the Year Award given to NTI's co-sponsor Womble Carlyle.

I look forward to attending the Leadership Dinner on Sunday, October 19th, at the Experience Music Project, where these awards will be presented.

-Nichole Opkins

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In honor of the hard work, honesty and moral fortitude of my father and grandfather, I wrote an entry contrasting their behavior with the euphuisms bandied about Wall Street and the media to distract one's attention from the fundamental causes of the credit crisis. Since then the government (both parties) have engaged in further conduct that disregarded the fact that people made blatantly bad choices and are now forcing the rest of us to bail them out. Bear Stearns was followed by foreclosure bailouts, and then Fannie and Freddie.

I suppose that I should not be surprised that the Detroit automakers are preparing to stick their hands out. For those of you in our profession who are helping them polish the cups that they intended to pass around Washington, you have my sincere condolences. But there is good news. I have found a solution that will solve all the problems that we face.

The solution is a comprehensive bailout for everyone. Rather than the piece meal approach, we simply prepare a bailout application form to be included in all the IRS form packages. The form will permit each US citizen to apply for a billion dollar bailout. They need simply fill out the form and answer a few simple questions to qualify for a check from Uncle Sam for a billion dollars.

Beyond the general identification information, they need to check one of four questions explaining their need for the bailout. The form will state as follows:

Please state your justification for requiring the bailout by checking one or more of the four boxes below:

1. I have run my business with the same skill as the CEO of GM, with similar results, but did not get anything near his salary.

2. I take private investors money, insuring them a great return by taking companies private and running them with my skill and judgment, and if things do not pan out, I will get my friends in DC to cover up my gross misjudgments.

3. Before I went to work on Wall Street I got a MBA from Harvard and no one there ever mentioned "risk" in the entire time I was at the Business School (My colleagues from Wharton, Yale and other business schools were not told about risk either).

4. None of the above applies to me, but they are such silly reasons, I deserve a bailout too.

Once every citizen gets his billion dollar check the housing crisis will disappear. People in foreclosure will be able to make their payments; prices will go up as the inventory is absorbed because everyone will be able to afford a minimum of four houses.

Admittedly, business in the US might suffer a little wage inflation because many will leave the workforce choosing a life of leisure. GM may have to move everything out of the country, but jobs for people in Michigan will be irrelevant.

Wait you say, we don't have enough money to give out that kind of bailout. I thought about that -we are going to borrow it from China.

But what happens when it becomes clear that we cannot service the debt because we are not producing anything--China may threaten dire action--Got that covered too! We simply point out: "WE ARE TOO BIG TO FAIL."


-Larry Salibra
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Part 5, Justification #3: Judges Need to Select The Proper Case As Vehicle to Announce A Principle Of Common Law Which Limits Its Misuse By Lawyers.


This justification is the most peculiar of the lot and to the extent I can determine is advocated largely by Judge Kozinski of the Ninth Circuit. His thesis is that by selecting the proper case to articulate a doctrine of common law one can minimize the improper use of opinion by lawyers to achieve a result unintended by the judges articulating that opinion.

There are a number of problems with this justification. First, research has demonstrated that judges are simply unable to predict which cases are likely to have long term precedential impact. See: Foa, Pamela, "A Snake in the Path of The Law: The Seventh Circuit's Non-Publication Rule" 39 U Pitt Law Rev. 309 (1977-78). Thus the facts of the case you treat as non-precedential may have the most profound unintended consequences.

Second, there are costs to leaving an area of law unclear waiting for the perfect case. Any idea what the perfect case looks like?

Third, it is hard to believe that a reasonably competent judge can not explain why a result can be distinguished from or is comparable to a prior decision. If he is troubled by the quality of his explanation, perhaps as Judge Arnold (first blog on this topic) noted, this more likely signals a cause for concern about the quality of the decision rather than its potential for misuse.

Finally, who is to say it is a misuse. Would Anastastoff have been misusing a case because she felt that if a prior party was entitled to a refund even though the IRS received the application after the due date which was mailed before the due date that she was entitled to the same result if she mailed her application before the due date?

Seems to me she was simply asking for equal treatment under the rule of law.

-Larry Salibra
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Part 4, Justification #2- Federal Judges Are Overworked and Can Dispense With Cases Faster If They Are Unpublished and Non-Precedential

Read Justification #1

This argument posed by the late Judge Becker and his academic supporters can be viewed in full in "Controversial Cases Disappear", CORPORATE LEGAL TIMES, November 1999, Vol 9. No.96. The late Judge Becker felt that as long as the court offered some explanation for the decision to the parties; it was otherwise fine for a case to be non-precedential because it relieved the court's work load. The notion of speed of adjudication was supported by an Assistant Professor of Law at Auburn University, who cited a study that concluded that unpublished decisions speeded the resolution of cases. He stated in Corporate Legal Times Article: '"If justice is delayed justice is denied, then the limited publication rules do reduce the delay and denial of justice"...'

Both arguments demonstrate a profound misunderstanding of the common law. Precedential impact is important because at the very least it is a check on inconsistent judicial behavior. If a case is clear, undisputed then it should be a simple matter to describe the facts, the applicable law and the result, such that similarly situated parties are treated the same.

One could just imagine Vinny Gambini's (My Cousin Vinny) response to these assertions applied to facts in the Anastasoff case that concerned Judge Arnold (Part 1): " Are you telling me that plaintiff A, who mailed her tax refund at the same time as plaintiff B, before the deadline date and both refunds were received by the IRS after the deadline date, that A is not entitled to a judicial ruling that the IRS was compelled to honor the refund even though B got such a ruling because B's ruling was non-precedential? Judge Becker says it's OK because we explained the ruling to A--'B's decision was not precedential' and the Auburn Professor says it was fast--therefore A got justice!"

I am done with this one!


-Larry Salibra
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Part 3: Justification # 1--Outcomes in Non-Precedential Cases Are Not Subject To Reasonable Differences of Opinion

To my mind, the most persuasive justification for treating a decision in a non-precedential manner would be that the result is so obvious that there is literally no dispute concerning the nature of the outcome. Stated another way, no reasonable minded person would reach a different conclusion concerning who wins and who loses. Unfortunately, the objective data simply does not support this justification.

In an article in Forbes, entitled "Justice in the Dark", October 10, 2000, the author debunks that myth with some startling statistics. In the 79% of the cases that are unpublished and non-precedential the district courts are reversed an astounding 37% of the time and there is disagreement among the panel that results in a dissent 24% of the time.

In the year these statistics were gathered there were 26,819 federal appellate decisions. There were 7,839 reversals in unpublished non-precedential opinions. There were only 5,682 precedential opinions in that year!

That great trial lawyer Vinny Gambini in My Cousin Vinny stated: "Are we to believe that water soaks into a grit faster in your kitchen than anywhere else on the face of the earth?" To paraphrase Vinny: "Are we to believe that there are more district court reversals in cases that are supposedly beyond dispute, than the entire universe of precedential cases, which presumably are intended resolve controversial situations?"

I am done with this one!

-Larry Salibra
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I looked at the ACC blog on e-discovery and read Nichole Opkins' article, Online Social Networking and Your Career: Are You Staying Ahead of the Game?, ACC Docket, July/August 2008. Both describe dramatic changes in technology and their implications on the practice of law. I had heard these before over my career. No doubt I have seen much in the way of technological improvements in my career, and I am not that old. However, I can not say that I have the impression that a great deal has changed.

Lawyers fret today about the e-mails that people write because to an large extent people treat an e-mail like a telephone call, forgetting that an e-mail lives on. I have been in lawsuits where such e-mails were problems for our case, but, people being rather similar, I was also the beneficiary of similar e-mails from the other side. I am not convinced there was a net impact on the outcome of the case, the nature of the dispute or the justice system. I have not read the University of Denver materials referred to in the ACC blog that suggests huge potential for change as a result of e-discovery--they may convince me otherwise, but I have heard such claims before.

I recall a visit to ZEROX as the guest of Bob Banks, ACC's first Chairman, who proudly showed me a new scanner, that was huge and expensive, and gobbling up documents fed to it by a battery of paralegals. The internet was in its infancy at the time; it would be years before we would get e-mail at my company. This ability to manage and sort all these documents was touted as something that was going to dramatically change the practice of law--it did in that everyone started collecting and collating thousands of documents, where before it may have only been hundreds. We all fretted about all those documents that were now accessible.

Believe or not, for you younger folk, we even fretted about the photo-copier. For those of us who remember carbon paper, the photo-copier was viewed as something that really impaired our ability to control troublesome documents because of the ease of proliferation; it was seen a portending huge changes.

I have won cases on very rare occasions because I was able to get the smoking gun through discovery. For those of you who, like me, still admire Perry Mason, we did not prevail like Perry because we were able to whip out the document at trial in a dramatic reversal of fortune, as we were on the edge of losing. Typically, the other side has the document too and congeniality returns to the litigation. What was notable about these documents is that they were the result of simple common sense document requests you would have requested and reviewed, even if the only technology was carbon paper.

Has technology resulted in changes in the profession-certainly? Has it been as profound as we might have thought it might be? Well, there is a possible answer in a very insightful observation that Nichole quotes from the CLO of Cisco at the beginning of her article: '[T]he legal industry seems to be "the last vestige of the medieval guild system to survive into the 21st century".' Does that need to change--certainly? Is technology likely to be a significant cause of the change--it has not been to date!

Whether the huge increase in available information will create untold potential impacts that Nichole outlines or whether in the end it will diminish the impact of any single piece of information by making readers and users more skeptical, less sensitive and more demanding in terms of confirmation is not clear to me, but it is definitely worth thinking about.

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Click here to read Part 1

Part 2 In The Beginning

If you ask proponents in the federal judiciary to justify the practice of non-precedential, unpublished opinions, they list of serious sounding justifications--things like these cases have a clear and undisputed outcome and don't add to the development of the law--things like that? Are these really the reason for the initiation of the practice?

Yes and no is the answer. We will review these explanations and the critical studies on their validity in future blogs. But the primary motivation for the practice was that books were too expensive. Presumably, there was some effort in selection to try to select the important cases for publication. However, trying to do that and successfully doing that are two different things and presumably, there can be some negative consequences if you are wrong--for instance when the facts of non-precedential cases prove to be more relevant to future circumstances than the case that is published.

The idea was that publishing all the cases put small practitioners at a disadvantage because they could not afford to maintain the libraries of large firms--by limiting publication the disadvantage would be minimized. Not such a bad notion if case law really had that much relevance to determining the outcomes of a case--a notion we will examine in a future blog.

However, not long after the policy was adopted its justification was eliminated by technology with services like Lexis and Westlaw, and now the internet generally. The potential technological impact of these new services was like solder-in vacuum tubes to make portable radios small (I have a few hanging around) that had a life span that was so short most people my age that lived through their existence, probably never saw one. Transistors eliminated the vacuum tube portable radio in a flash. Paper law libraries had a longer life span.

Paper libraries lived on in large firms long after technology made them irrelevant since they had become a marketing show piece for client tours as well as functional entities. Their cost was also hidden in law firm overhead and not separately charged, and of course, there was the ability to maximize associate billing time by making associates walk to the library and around it if the book they were looking for was out of the stack.

So why does the practice of un-published, non-precedential opinions live on? We will examine that in future blogs.


-Larry Salibra
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Last week, the chair of the ACC New to In-house Committee, Adam Palmer, was asked to be a guest blogger for The Washington Post. Thanks for letting us know about this, Adam. I encourage all of you to take a look at what he had to share.

Do you have a blog you'd like your fellow in-house counsel to know about? Let us know!

-Nichole Opkins
Assistant General Counsel, ACC.

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This topic presented itself because of a phone call I received a couple of days ago from a lawyer who had a client that received second class treatment from the federal courts. Is it common? Last time I saw the number about 80% of federal cases treated the parties as second class citizens--the opinion is deemed non-precedential.

The lawyer called me because he believed I was a one man campaign against the practice of non-precedential opinions. There were a few others. The ABA opposes the practice, but not very loudly. Most law schools and law professors rather than being outraged and railing against the practice have largely been oblivious to the conduct, content to focus on the 20% of the cases that might appear in the case books.

In the next few blogs I will explore the history and review the attempts at judicial justifications for the practice. I will also try to pay tribute to a unique federal appellate judge who was equally troubled by this practice, and died tragically at far too young an age. Richard Arnold, was more than a fine judge--he was a fine person. Although I never met him in person, I enjoyed our numerous conversations on the topic.

Judge Arnold faced the consequences of this practice in its most blatant form. The government was arguing that the fact that a prior litigant whose position was factually indistinguishable had been found entitled to a refund could be ignored by the court who was free to rule against the present litigant because the prior decision had been designated by the Circuit as "non-precedential." Judge Arnold expressed his concern like this:

If, for example, precedent is cited, and the other side offers a distinction, and the judges on the panel cannot think of a good answer to the distinction, but nevertheless, for some extraneous reason, wish to reject it, they can easily do so through the device of an abbreviated unpublished opinion, and no one will be the wiser... . Or after hearing oral argument, a judge in conference thinks that a certain decision should be reached, but also believes that the decision is hard to justify under the law, he or she can achieve the result, assuming agreement by the other members of the panel by deciding the case in an unpublished opinion and sweeping the difficulties under the rug...a system that encourages this sort of behavior, or is at least open to it, has to be subject to question in any world in which judges are human beings.

Anastasoff v. United States, 223 F. 3rd 898 ( 8th Cir. 2000); the opinion was vacated on other grounds.


-Larry Salibra
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In the prior blogs on this topic I have hopefully persuaded you that this is a matter of considerable concern. Although the first reaction of many might have been less than sympathetic, it is clear that business is being faced with the potential for criminal prosecution that does not have the protection of the public good as its objective. Prosecuting authorities fabricate evidence and use it to intimidate the innocent in order to pursue their own agendas.

The exponentially expanding potential liability is growing faster than even the most arduous counsel can master, and the doing so in such an vague and confusing manner that determining a course of conduct to avoid liability is challenging at best, totally impossible at worse.

Civil remedies had been largely ineffective in discouraging abusive conduct and the federal courts, beyond acknowledging improper conduct, have done little to exercise their authority to sanction those who are guilty of even the most egregious conduct.

You might ask what more can happen. The answer is there is more--the development of governmental and judicial policies whose objective is to deprive business the effective representation of counsel. Beginning in 1999 the DOJ began the attack permitting business the right to effective representation of counsel using enforcement policy that encouraged the waiver of the attorney-client and work product privilege. Waiver of these privileges became a gauge of cooperation. Such a policy places a wedge between in-house counsel and their client who can never be sure whether waiver of the privilege will expose them to having their in-house counsel become an instrument that is adverse to their interests, causing company employees to be suspicious of in-house counsel and less than candid in their conversation.

The courts have also been a part of this problem by expanding the Crime -Fraud exception in a manner that threatened the exposure of counsel's conversations with his clients in an environment where advice of counsel had become critically important. I had the privilege of writing the Introduction to a WLF monograph on the topic written by the Honorable Richard Thornburgh, "Attorney-Client Privilege and 'Crime-Fraud' Exception: The Erosion of Business Privacy", Sept 1999.

What can you do? First, get the WLF monograph available from WLF, at www.wlf.org. It is far more comprehensive than my brief blogs and has detailed recommendations for change. Second, support WLF's efforts. Third, support ACC's efforts; it has also been in the fore front of the efforts to confront this challenge.

Protecting business rights is as important as protecting individual rights. When prosecuting authorities and the judiciary lose sight of the proper role of criminal enforcement with respect to business activities, it is only the naïve who believe that individuals will be immune from similar conduct.

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When Does Criminal Risk Arise?

In the prior blogs on this subject I have said that you and your clients are in an environment in which criminal prosecution could occur without reasonable expectation, and that enforcement agencies have demonstrated little judgment in exercising restraint.

In addition, other than expressing written outrage at some prosecutorial misconduct, the Federal Courts have demonstrated little inclination to exercise judicial sanctions to restrain or discourage even the most outrageous conduct.

I hope I convinced you that the extent of the potential liability is far greater than you imagined. After over 30 years of practice, the WLF report surprised me when it described the extent of potential federal criminal liability.

The next issue is whether the criminal laws are sufficiently clear that you can give your client advice with some reasonable degree of certainty that if they follow it they will avoid criminal exposure. The answer is no for two reasons.

The first is that many of these laws and regulations defy reasonable understanding. "I believe we have five people in the agency who understand what 'hazardous waste' is." United States v. White . 766 F. Supp 873,882 (E.D. Wash. 1991). "Businesses and individuals are faced with a 'regulatory hydra', and regulatory terms suggestive of "Alice in Wonderland' as one court put it . United States v Mills, 817 F. Supp 1546, 1548 (N.D. Fla. 1993)

The second is that the courts have diluted the mens rea requirement to the point of meaninglessness. One court in 1987 found the mens rea requirement was met when no individual in a company had the necessary intent, but combined they reached a "critical mass" under the so called "collective knowledge" doctrine.

As the WLF reports notes what makes matters worse is that targets of criminal prosecution include not only individuals who actually committed the regulatory offense, but also the company under the doctrine of vicarious liability, and corporate officers, under the so called responsible corporate officer doctrine, even though they were neither aware of nor condoned the conduct.

You have got your work cut out for you.



-Larry Salibra
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According to a recent national survey, electronic discovery is ranked as the issue that will have the biggest impact on the practice of law in the next five years. Recognizing the accelerating impact of e-discovery, the Institute for the Advancement of the American Legal System (IAALS) at the University of Denver has released two new publications on this major issue.

The first publication, The Emerging Challenge of Electronic Discovery, Strategies for American Businesses, provides businesses and organizations with strategies to proactively prepare for e-discovery. The second report, Electronic Discovery: A View from the Front Lines, presents a real-time snapshot of today's electronic discovery landscape. Both publications may be downloaded free of charge by visiting our Web site, www.du.edu/legalinstitute.

IAALS is a national, non-partisan organization dedicated to improving the process and culture of the civil justice system. They provide principled leadership, conduct comprehensive and objective research, and develop innovative and practical solutions - all focused on serving the individuals and organization who rely on the system to clarify rights and resolve disputes.

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The extent to which the Federal government has criminalized conduct is extra-ordinary. By 1900 there were 165 federal criminal laws. That number had increased to around 2000 by 1970. In 1998 the number had grown to 3,300 and by 2004 to more than 4000.

This is only part of the problem. The Code of Federal Regulations contains many regulations that can be criminally enforced. Estimates are that there are as many as 300,000 criminally enforceable regulations.

So for those of you out there who considered yourself a civil lawyer and only watched Perry Mason for entertainment, think again. You may be closer to being a criminal lawyer than you think.

But you respond, we always gave advice on matters that could result in criminal prosecution--violating various securities rules for example. How about those other 290,000 and 3500 regulations and statutes that posses the potential for criminal sanctions, do you know what they are? More importantly, would you even recognize them if you saw them? Chances are you are thinking no is the answer to both questions.

Perhaps what is even more of a concern, even if you happened to be aware of the potential for a criminal sanction could you confidently give advice to avoid a violation?
We will address that in the next in this series.

-Larry Salibra
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An important aspect of a co-tenancy clause can be the types of replacement tenants that are deemed satisfactory to a tenant if the initial co-tenant ceases operations, particularly if the co-tenant has the right to cease operations under its lease, or is not otherwise bound by an operating covenant. A landlord that does not have the express right to replace co-tenants can be in an untenable position if a named co-tenant, or the co-tenant in a required category goes bankrupt or otherwise ceases operating, and often the specific named co-tenant is less important to a tenant than having a quality retailer that will continue to draw foot traffic into the shopping center. The replacement tenant concept is most likely to be acceptable to a tenant in an ongoing co-tenancy clause; tenants, as business people, generally understand that the landlord cannot control a tenant's business model and can't prevent a tenant from going dark or bankrupt. As the goal of a co-tenancy clause is mainly to keep the tenant in an active center, a replacement retailer bringing in comparable foot traffic should be acceptable. A clothing store co-tenant should be easily replaceable with an alternate clothing store of similar quality. With respect to a named co-tenant, the acceptable replacement co-tenants may not be in the same general category. A landlord would not want to be bound to replace a co-tenant Lowe's only with Home Depot as the business reasons causing the first tenant to close will often be applicable to another retailer with such a similar concept. Instead, particularly with 'big box' tenants, landlords try to negotiate the right to break up large spaces and replace co-tenants with general categories like "national retailers" so that a Lowe's can be replaced by 3 or more 20,000 square foot national retailers in any category.
With respect to remedies for co-tenancy failures, the standard ones are alternate rent and termination remedies. The loss of a co-tenant typically has an economic impact on the tenant so some adjustment or abatement of the tenant's rent is the most direct way to compensate for the loss. A co-tenancy failure will often have more of an impact over time, so it is not unusual for there to be a 'grace period' before an alternate rent would be payable. This gives the landlord some time to exercise any remedies available against the co-tenant causing the failure and/or to seek a replacement co-tenant and mitigate the effect of the failure. An alternate rent remedy may allow a tenant to reduce base rent by a certain percentage, or to pay a percentage of gross sales in lieu of base rent during the continuance of the co-tenancy failure. In some cases, particularly if a co-tenancy failure continues for an extended period of time, a tenant may negotiate full rent abatement as a remedy. Landlords may require a tenant to show that the co-tenancy failure caused an economic impact by comparing gross sales prior to the failure to gross sales after the failure. Tenants generally resist such requirements. Whatever alternate rent structure is agreed upon, landlords often insist that a tenant continue to pay any CAM charges or bill backs for services that are owed as the tenant will still be taking advantage of shopping center services. If a co-tenancy failure continues for an extended period of time, tenants will argue that the business deal has changed substantially and it should have the right to terminate its lease. This is often the ultimate remedy on an escalating scale of remedies over the course of the co-tenancy failure. The tenant has had the opportunity to operate during the co-tenancy failure and can generally judge whether the impact has been great enough to require an exit from the center. In most cases, the landlord will want the tenant to exercise its termination right as soon as it has accrued, or waive it - a thirty (30) day window to exercise such a right is typical. If the co-tenancy failure has been ongoing for some months, the tenant has had time to evaluate the economic impact, and if the tenant elects not to exercise a termination right, the tenant has presumably determined that the location remains profitable. Under this theory, the landlord will require a tenant to revert to full rent if a termination right is waived. Similarly, if the tenant exercises a renewal option during a co-tenancy failure, a co-tenancy clause may deem that exercise a waiver of any remedies for the failure.

Sample Co-Tenancy Clause

-Connie Simmons Taylor
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A continuation of the legal quick hit which took place on today's New to In-house Committee Monthly Teleconference. For more information about committee teleconferences, click here.

The Export Administration Regulations ("EAR"), 15 C.F.R. §§ 730-774, promulgated under the authority of the Export Administration Act ("EAA"), 50 U.S.C. App. §§ 2401-2420, control the export and re-export of commodities having (i) both military and commercial applications (i.e. dual-use items), and (ii) strictly commercial applications. The U.S. Department of Commerce administers the EAR through its Bureau of Industry and Security ("BIS"). The EAR regulate "controlled" products, software, technologies, and materials designated on the Commerce Control List ("CCL"). Items on the CCL may be subject to licensing or other requirements, depending on end-destination, end-user, end-use, and the availability of prescribed exceptions.

Under the Arms Export Control Act ("AECA"), 22 U.S.C. § 2778 (1994), the U.S. Department of State, Directorate of Defense Trade Controls ("DDTC"), administers the International Traffic In Arms Regulations ("ITAR"), 22 C.F.R. §§ 120-130, which control the export of defense articles and related technology, information and services from the U.S. to foreign destinations and persons. The U.S. Munitions List ("USML") designates those items subject to control by the ITAR, for which a license must be obtained prior to export. The ITAR also prescribe registration, record-keeping and reporting obligations for exporters and manufacturers of defense articles.

The EAR and ITAR are not the only controls on exports. Numerous other agencies' regulations govern export of specialty items, such as controlled substances (Drug Enforcement Administration), fish and wildlife (Department of Interior), medical devices (Food & Drug Administration), natural gas and electric power (Department of Energy), nuclear materials and equipment (Nuclear Regulatory Commission), nuclear technology (Department of Energy), and patent filing data (Patent & Trademark Office).

In addition, the EAR also prescribe "antiboycott" regulations which prohibit the active or passive participation in boycotts or restrictive trade practices not supported by the U.S. See EAR Part 760. The antiboycott regulations require entities who receive requests by third parties to participate in a boycott to report to BIS the nature of the request, the entity or person making the request, the type of documents in which the request was received, and the response, if any, provided to the requester.

Also, both BIS under the EAR (see, e.g. EAR Part 746) and the U.S. Department of the Treasury, through the Office of Foreign Assets Control ("OFAC"), share responsibilities for the enforcement of economic sanctions on trade with foreign countries. OFAC administers the Foreign Assets Control Regulations (hereinafter "OFAC Regulations"), 31 C.F.R. Parts 500-597, issued pursuant to the Trading with the Enemy Act ("TWEA"), 50 U.S.C. §§ 1-44 and the International Emergency Economic Powers Act ("IEEPA"), 50 U.S.C. §§ 1701-1706. The OFAC Regulations implement statutory economic trade sanctions imposed against several foreign countries. The sanctions range from partial to full trade embargoes and are imposed in addition to other U.S. export control law penalties.

-James Kearney
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Did you ever fly fish? If you haven't, you should try it because it will give you sense of the problem faced by those in the legal marketing community. You will see that in the bio's that lawyers use to sell their services--they all look remarkably the same. Perhaps you can make some distinction based on the school they attended, but beyond that they all present themselves as extremely effective in what they do.

Since you are no doubt overwhelmed by legal marketing, you probably are not very sympathetic to my concern about the plight of these marketers since a lot seem to be gainfully employed. But they have got a real problem, since there are two major things they won't and don't do. First, they do not compete on price, at least openly, so that puts a real dent in what you can do on the internet. Second, they do not engage in comparative advertising. Even when I was a youngster you could compare yourself with Brand X, until somebody discovered it was not illegal to mention a competitor.

So what you get are three things. First, you get a line of serious faces with a blurb describing an unending series of victories. I mentioned to a close friend at a firm that I had seen his description on the firm's internet site, and it appeared from his description that he had never lost a case. His brief reply was that he settled the ones he would lose. Funny, I lost cases I should have won. Second, if the marketers went to their convention and listened to ACC's presentation, you get an unending series of firms claiming that would be better partners than Tonto was for the Lone Ranger--one could almost imagine an audio rendition of Sidekick Heaven by Riders in the Sky playing in the background. (See earlier ACC blogs on Partnering with Your Firm)

Then, of course, you get the thoughtful brochure courteously describing how you and your client are about to run afoul of one or more legal rules that are likely to subject your client to financial ruin--generally they don't tell you how to avoid this result, but suggest they would be delighted to describe more if you just call, so they can bill you. I can not be too hard on lawyers. My cousin works for a medical group and every time I get put on hold, I don't get elevator music, but rather a serious sounding fellow describing a series of maladies I did not know I had. I suppose if one is left on hold long enough you might decide to call 911 and summon an ambulance.

When you fly fish you learn there are a number of hatches of insects during the day. Rule one; match your insect to the one the fish are eating at the time. That is the simple part. The second is read the water to see where a fish is eating and place your fly upstream so the current takes it over the fish, and he eats your fly, rather than the other ten billion choices he has. That unfortunately is the predicament that legal marketers have when you don't have product differentiation and price as two key components of your marketing plan.

-Larry Salibra
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"In response to the U.S. Supreme Court's ruling last year in Massachusetts v. EPA, the Environmental Protection Agency (EPA) is on the verge of issuing an Advanced Notice of Proposed Rulemaking (ANPR) regarding regulating Greenhouse Gas (GHG) emissions under the Clean Air Act (CAA). EPA will need either to make an endangerment finding or explain why there is sufficient scientific uncertainty that it cannot make a reasoned judgment on this issue. EPA also intends to examine how regulation under one part of the CAA might lead to regulation of GHG emissions under other sections of the Act. Finally, EPA intends to respond to petitions and comments it has received requesting that GHG emissions be regulated under other sections of the CAA, such as in pre-construction permits or under the New Source Performance Standards."

By: Amy.Edwards@hklaw.com

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I know what you are thinking. He has gone off the deep end again. He is talking about the abuse of prosecution of some individuals--it was terrible, but what on earth does it have to do with in-house practice? Unfortunately, it is my task to tell you that it has a great deal to do with in-house practice.

The Duke situation involved a politically motivated prosecutor who undertook to destroy individual's rights and liberties in what appeared to be the most blatant abuse of the legal system. As lawyers we all felt vindicated when the prosecutor's credentials as a lawyer were removed. Problem solved! I am afraid not.

The Duke situation garnered widespread media attention which no doubt contributed to justice prevailing. However, everyday individuals, small businesses and large businesses are being subjected to abusive prosecution with little media attention perhaps because the prosecution derives from commercial activity and is therefore not seen as having the same importance. Tragically, prosecutorial conduct in these cases is often far more abusive than that in the Duke case, and the consequences just as personally destructive.

Equally concerning, is a judiciary, which on occasion expresses concern over the persecutor's behavior in these commercially based prosecutions but rarely if ever holds the persecutors, often members of the United States Justice Department to same standard of accountability as we saw in the Duke case.

So who is leading the effort to expose this abuse, not the ACLU, but the Washington Legal Foundation whose well researched and documented publication, Federal Erosion of Federal Civil Liberties is a must read for every in-house lawyer. I have had the pleasure of working with WLF over my years of practice. In some of my most challenging litigation involving over zealous enforcement of regulatory legislation the WLF alone stood at our side while other free enterprise groups expressed sympathy at a distance.

I have the honor of writing the Introduction of a monograph , Attorney-Client Privilege and "Crime-Fraud Exception: The Erosion Of Business Privacy" authored by the Honorable Dick Thornburg which described in chilling detail the growing unwillingness of the judiciary to honor the attorney-client privilege in corporate prosecutions.

Over the next few blogs, I will describe some of the cases in which the WLF participated in the defense of the criminal prosecution of commercial conduct, which make the Duke situation look mild and the courts, in my opinion, unresponsive to their duty to control this conduct, and share my amazement of extent to which the criminalization of commercial behavior has permeated the regulatory area.

-Larry Salibra
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My guess is you are wrong -that statement shocked both me and my GC, but I began to think. What did a compliance program presume I was managing, and how did I know it was the cause of the problem? Suddenly, it occurred to me that it implied that we were producing and selling a lot of defective products, that was the bulk of the litigation caseload. "There is nothing wrong with our products," my thought involuntarily verbalized itself. "I hope not," said Superstar, "but that is where your analysis should start. Compliance programs only work where there is actual liability. These cases fall into what we call the Perry Mason Classic model. The other models are the Perry Mason Look Alike, where there are allegations of liability, but we believe none exists, and Government Policy Cases is the last model. The critical point is what you are able to control in the last two cases."

My GC and I looked at each other, hoping each hoping the other had the answer. Suddenly my GC said: "Variable Transaction Costs." "Exactly" said Superstar. "Now let's get these cases modeled and if necessary I would like you to present me with a plan to control those costs."

As we walked down the hall and were well beyond audible distance from Superstar's office, I said to my GC: "How did you know-you did even sound like a lawyer with that answer." "ACC blog" she said. "This blog, E=MC2 for In House Counsel. It had a formula that described how one could calculate settlement values, and what it demonstrated was that if transaction costs, which are the variable costs of defending a case, are high particularly in comparison to the litigation risk, those costs start determining your litigation strategy. It never occurred to me before but you could think you are saving money by settling a case and reducing your legal expenses, but its your high transaction costs that are driving the settlements and creating an incentive for illegitimate litigation. Without significant controls on defense costs, our management of litigation could be severely crippled. We need to have a structure that makes it economical to try these cases and that alone may result in fewer cases"


My GC stopped and looked directly at me. "Two things-- we are going to talk to those professors at Superstar's business school about doing some in-house training for the law department and I will being accepting Professor Prestige's invitation to speak at my law school and let them know what is going on in the fly over zone."

- Larry Sailbra
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Yesterday, I was at my yacht club. Did say yacht club? That title may suggest more prestige and status than actually exists by being associated with this club. Since I retired I finally consented to serving as one of the trustees. We do not meet in blazers emblazoned with the club's logo, although I did see someone wearing one once. As a trustee you get to do really important things, like today I have to get up on the roof of our covered patio and patch a leak in the rubber roof membrane.

So what does this have to do with in-house counsel? Wait and I will tell you.

Many of the club's members are small business owners who have done well, but are not outrageously wealthy. There is one college president, a financial advisor, a doctor, some school teachers and a few of us who worked for large companies. We do not have a restaurant in the facility and put on most of our own social events, except the end of the season commodore's ball. One of our newest innovative forms of entertainment occurs on every Friday night during the season and the first Friday night of the month off season. Everyone brings a side and dessert to share and their own entrée, and we have dinner together.

Recently, our conversations had shifted. Some members pointed out that they were not getting a new car as often as they had in the past. Other discussed the fact that they were finding friends and acquaintances less concerned about appearance and were taking pride in being frugal. The Club had always been a place that focused on boating. If you wanted to be seen near your boat rather than on it there was another club that provided an environment for that at considerably higher cost.

When I returned home yesterday after one of these discussions, I was perusing the CNBC web site and found a blog entitled: "Cheap is Sexy." Its author stated that the idea of shopping smart, thrifty and within your means was now becoming admirable. This was the first time she said that she can recall an economic downturn created a "high end validated shift-to-thrift."

OK, now the in-house connection. At about the same time this was occurring I received a summer update to former ACC directors from Fred Krebs. Among the things he mentioned was an ACC initiative called "The ACC Value Challenge. " The objective is to "reconnect value with the cost of outside legal services." I, for one, am looking forward to seeing whether this effort has substance or whether it is simply another renamed ruse in a long line of ruses that Robert Banks, the first Chairman ACC described as in-counsels' effort to look like they are managing outside legal fees rather than actually managing them. I did note that there was no mention of doing something like getting up and patching the patio roof yourself, but it could be one part of the process.

It will be interesting to keep our eyes on what develops. If it is half as successful as the Friday night dinner at my yacht club, it will be a real achievement.

-Larry Salibra
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My GC called Super Lawyer and we discussed this notion of economically modeling litigation. He had not heard of such a thing, but called a friend who had gotten his MBA from one of those schools that was very close to an ocean, and therefore, a considerable amount of credibility. He confirmed that no such concept existed. With renewed confidence, we prepared a single sheet for Superstar that summarized the logic for recommending a compliance program as a solution to the growing inventory of litigation. It did not address economic modeling at all.

My GC arranged for my next meeting with Superstar and accompanied me. We entered the room. Superstar was cordial and invited us to sit down. My CG initiated the conversation, explaining that I had come to her with the issue of modeling. We thoroughly explored it together and with other significant figures in the both the legal and business community, and there was a consensus that the approach we described in this sheet was the best solution. She selected best solution approach because she did not want to come right out and say no such thing as economically modeling cases existed. She handed the document to Superstar.

Superstar leaned back and began reviewing document. He began to drift into deep thought and for a long time remained silent, in mesmerized state he stared above the paper and out the window to our left. Suddenly, he recovered from this thought and said: "Do you recall that song from the Music Man, where the Professor persuades the town of their need for a band by suggesting it is a solution to problems they did not perceive, such as the negative influence of pool on the town's youth?" "Yes, 'Trouble' was the name of the song, 'Trouble in River City', but what on earth does that have with a legal compliance program," said my GC.

"Nothing, directly, it just came to mind when I thought about the effort it might require to convince the legal profession they have a problem, Trouble with a Capital 'T' that rhymes 'P' that stands for 'Process'." Superstar continued, "In my MBA program we were given an analytical framework to evaluate the social and economic structure of legal issues. Law schools teach lawyers a process which they instinctively implement without a critical eye for the implications of that process in its social and economic context. In one case study we examined how this type of reflex response gave economic and legal reality to an alleged disease that had no scientific basis in fact. It was only the restructuring of the defense posture of the entire industry by few insightful industry lawyers that made success possible. When I asked you to economically model cases, I wanted you to step back and examine what were the manageable elements of the case. Your analysis presumes a certain manageable element and my guess is that it is wrong.'

-Larry Salibra
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Click here for the previous episode of Trouble . . .

When I walked into my GC's office, she saw the signs of concern inscribed across my expression. "Superstar ?", she asked without hesitation. "Yes", I said. "He wants me to economically model our litigation," the words came spilling out without any apparent exercise of volition on my part. "I have never heard of economically modeling litigation; I went to one of the best law schools in the country and I have never heard of it. I have a lot of CLE, I have simply never heard of it. I heard of ADR, mediation, arbitration, third party neutrals, and I got A's in civil procedure and federal jurisdiction--I have simply never heard of economically modeling cases".

"Don't worry," she said, "I haven't either". "But I have heard that since Superstar has come back from the MBA program at this local University, he has appeared to have acquired a number of new notions about the law and lawyers--it is a passing fad. These unusual ideas have not made their way into any of the well known, established schools. Moreover, I am sure that there is a simple explanation that we can get from Professor Prestige, at my law school. He wrote the authoritative case book on civil procedure. I have remained in touch and we can call him and get an explanation; I will help you prepare your response to Superstar."

Professor Prestige had a national reputation. He was often a talking face on TV and sought out by the media to opine on noteworthy litigation. His case book, The Essentials of Civil Procedure, had become the standard text around the country and was in its fourth addition.

My CG placed a conference call. "Nonsense," said Professor Prestige, "Economically modeling cases--never heard of such a thing." The imperial tone of his response gave one a sense of confidence. As the conversation was ending, Professor Prestige, was complementing my GC on her career: "Well Ms. Ruddock (he was known for addressing everyone in this formal manner; it distanced him from his students) you have had quite a successful career. If you are near the Law School be sure to stop by; we would love to have you talk to the students."

As the conversation was ending, I said automatically, "Professor how many cases have you actually tried?" The question was like sending an electric shock. 'Tried!" said the Professor with the most imperial tone of the entire conversation. "I study the law and I am up to date with every reported appellate case on civil procedure," he said in manner the suggested that further conversation on this topic was not welcome.

-Larry Salibra
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I attended a graduation tonight. I was not a graduate, but I received a gift.

The graduates were five adults who were graduating from "Read To Succeed", the adult literacy program run by the YMCA in which I am a volunteer tutor. This is not an English as a second language course. This is for English speakers (with some dual language speakers) who have never learned to read. Some made it through public schools. Some dropped out. What they have in common is a desire and commitment to better themselves. Some want better jobs. Some just want to read to their children or grandchildren.

Most of them work full time and go to school four nights a week for two hours per night. Some have two jobs. One woman works nights and comes straight from work to class. Many yawn through their lessons, but most make it through the two-year program.

Each gave a graduation speech that they wrote. The common thread was how the inability to read had completely eroded their self-confidence.

I was most touched by Lisa, a mother of about forty- five. Lisa said that she had grown up as one of nine children in a French-Canadian home. Her parents spoke neither French nor English well and only one of her siblings graduated from high school. She said she was ridiculed in school for her poor vocabulary and hid her inability to read by avoiding people. At parent-teacher conferences, she told the teachers that she would not be able to help her kids with homework because she had a learning disability. She was constantly ashamed. She now reads two newspapers a day and may start her GED. Luis, Seth, Iman and Iris each had a similar story to tell.

The gift that I got was helping each of these people take a big step up in life. Each day that I helped someone learn that "an e at the end of a word is silent and the vowel before it is long", I was one rule closer to helping that person become literate; to take the fireman's exam or to read "Cloudy With a Chance of Meatballs" to their kids.

I know that this sounds like a United Way public service announcement. Well maybe it is. My point is that this volunteer work, teaching one-on-one and seeing adults go from reading the alphabet to reading one syllable words to reading three and four syllable words is one of the most rewarding things I've done. It helps them and it makes me feel good.

As a group, adult illiterates are invisible. I'm sure that there is some group in your city that's like "Read To Succeed". Find a little bit of time to teach one evening a week. Best thing you've ever done.

-Mike Schnipper
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In Quanta Computer, Inc. v. LG Electronics, Inc., the Supreme Court recently addressed the 150 year old doctrine of patent exhaustion. The doctrine limits "the patent rights that survive the initial authorized sale of a patented item[,]" arguably forcing patent holders to collect royalties from one level of distribution, rather than from every subsequent level of buyer and sellers. The case has implications for downstream licensing, as a defense to patent infringement, perhaps altering the focus of claim drafting, and emphasizing contractual remedies in patent licensing.

The Supreme Court reversed the Federal Circuit's ruling, holding that LGE's authorized sale of microprocessors and chipsets to Intel exhausted both their system and method patent rights. The Court considered the arguments in three stages.

First, the Court addressed the notion that method patents could not be exhausted, holding that "[n]othing in [the] Court's approach to patent exhaustion supports LGE's argument that method patents cannot be exhausted."

Second, the Court "consider[ed] the extent to which a product must embody a patent in order to trigger exhaustion." Relying on Univis, the Court found that all of LGE's patents were exhausted. In Univis, the lens blanks had no utility until they were made into lenses. Similarly, the microprocessors at issue only functioned when incorporated into buses and memory to form a computer system. The Court concluded that both the lens blanks and microprocessors "constitute a material part of the patented invention and all but completely practice the patent." The key determination for the Court here was that Quanta was not required to make any creative or inventive decision when adding the Intel parts to its computer system, holding that "Quanta had no alternative but to follow Intel's specifications in incorporating the Intel Products into its computers . . . ."

Finally, the Court addressed whether the sale of the patents to Quanta exhausted LGE's patent rights. Noting that only an authorized sale will trigger exhaustion, the Court held that "[n]othing in the License Agreement restricts Intel's right to sell its microprocessors and chipsets to purchasers who intend to combine them with non-Intel parts." LGE gave Intel the authority to sell regardless of whether Quanta promised to abide by the restrictions put on third parties in a side agreement. The Court did leave open the possibility that LGE could recover other damages, stating that it expresses "no opinion on whether contract damages might be available even though exhaustion operates to eliminate patent damages."

-Ken Godlewski
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***DISCLAIMER*** Treasury Department Circular 230 Disclosure: To ensure compliance with requirements imposed by the Treasury Department, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein...

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I am at sea about the upcoming election.

John Kennedy was my only childhood hero (aside from perhaps The Cisco Kid or Hopalong Cassidy).

I am a liberal democrat who came of age in the sixties. At Columbia, many of the SDS members were classmates and, even though I did not occupy a building in 1968, my sympathies were more with than against those who did.

My first two jobs after law school were representing the labor movement.

If someone said that we could provide health care to all Americans if I paid $1,000 more in taxes, I would gladly do so.

I was raised by parents who lived through the Depression and who did not have credit cards. Following their example, I saved, paid off my credit cards every month, made reasonable investments, never bought a house that I could not afford to carry and generally acted as a financially responsible citizen.

Here's the dilemma.

I cannot vote for John McCain for lots of reasons that I'm not going to detail.

With some trepidation (similar to that with which I supported Jimmy Carter) I want to vote for Obama. However, I have reached that stage of life at which my retirement funds have to last for perhaps thirty or more years (my parents are 94 and 95 and pretty darned healthy). Obama's position on raising the capital gains tax seems to be that it would be "fair" to do so, his example being "the top 50 hedge fund managers made $29 billion last year--$29 billion for 50 individuals". I'm no hedge fund manager, and doubling the tax puts a substantial crimp in my plans.

I have always voted for the person who, I felt, was best for the country.

When, if ever, is it appropriate (if that's the right word) to vote my self-interest? Do I abstain when I go into the booth this year?

I guess I have five months to figure it out.

-Michael Schnipper
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I felt relatively confident that I could handle any question Superstar could put to me and my recommendation for a response to our escalating litigation claims was clear. We needed a comprehensive compliance program. It seemed clear from Super Lawyer's presentation that our focus on ADR had dramatically reduced our costs.

When I walked into Superstar's office, he had been working feverishly with some papers. He looked up as I walked in and motioned to me to sit on the sofa in the far left corner of the office. I did so and spread the charts and graphs on the coffee table.

He walked over and quietly surveyed the collection of papers I had spread out. "I see you have been working on the problem--bottom line first," he said. "What do you recommend?" The quick question caught me off guard--I had fully prepared to take him through the same analysis that Superstar had done and demonstrate how effective we had been in keeping our costs under control through our use of ADR to set the stage for the conclusion.

"A compliance program," I uttered, involuntarily. "Compliance on what," he asked. "Well product liability for sure," I said. "What about the other cases?" I had not really thought about them? "How do you know it will work?" That question really caught me off guard. "Well," I said " we are already keeping our litigation costs under control through ADR, more aggressive litigation would simply increase those costs, compliance is the only other alternative and we can do it for a lot less than trying cases."

He looked up at me, stared me straight in the eye and said "You did not sort these cases by economic modeling so you really do not know what factors you can control." I was shocked, not because I had not done it, but because I have never heard of it. Superstar did not let me answer--he said: "I suggest you allocate these cases among a set of economic models that permits us to evaluate what we can control--then let's talk."

I left the room and headed straight to my GC's office.

-Larry Salibra
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I called Super Lawyer to explain my problem. He said he would get together with the head of his litigation department and review the cases they had for that division. We had to center all the litigation at Super Lawyer's firm because we believed that we could save money since the firms lawyers would not have to relearn the nature of our business, the technology of our product line and there would be economies of scale with similar litigation.

When I arrived a few days later at the ACE firm, Super Lawyer and his colleagues had collected and charted out litigation. It fell into three categories, product liability claims in our widget product line, a couple of employment claims and a substantial tax claim disputing the constitutionality of a certain tax that was hurting our ability to import raw materials in order to be competitive with non-domestic supplier.

The firm had graphed the claims over a 5 year period. Only the product liability claims of which there was a great number showed a study increase. They also graphed the division's quarterly expense of the litigation and it became immediately clear why Superstar had focused on this area. Costs had been going up steadily and when taken as a whole over time, it was clear why it was something he was interested in.

I asked Super Lawyer whether he thought could control this escalation of claims? He suggested that we undertake a comprehensive program to review both our quality control procedures and our product labeling. He also suggested
a series of presentations by his firm to operations personal that would increase their sensitivity to product liability exposure.

What about more aggressive litigation posture? We considered that he said as he produced another graph. We have taken the position that ADR and cost reduction was a key policy objective. We have graphed amount we would have spent if we had litigated to a resolution and the amount we settled for. In almost every case we paid less in settlement than it would have cost to litigate. This does not seem to be an economic option.

I left the meeting with the recommendations in hand to present to Superstar.

-Larry Salibra
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In our discussion regarding opinions of in-house counsel, we noted that the inside counsel who signs a closing opinion has personal responsibility for satisfying the duty of care owed to the recipient. The manner in which this risk is managed by corporate counsel will depend upon the right of the corporate counsel/opinion giver to be indemnified and the availability of insurance. Each company's situation will be different. In addition to directors and officers liability insurance, some companies procure malpractice insurance for their corporate lawyers. It would be interesting to know whether it is common practice for companies to obtain Employed Lawyers Professional Liability Policies and, if so, whether adequate attention is being paid to the integration of the policy with the directors and officers liability insurance. Any comments regarding your experience with Employed Lawyers Professional Liability Policies would be of benefit to the group.

Check out the agenda and minutes from the ACC Small Law Department Committee Calls

-John R. Miller
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Excuse me for taking a short break from writing the last episodes of "THERE MAY BE TROUBLE IN RIVER CITY", but I was watching CNBC this morning, a channel to which I had become somewhat addicted after my retirement. This morning the commentators were in a tizzy about Lehman Brothers 2.8 Billion loss and their need to raise 6.0 billion in capital. How could the Chief Financial Officer not know said one commentator? Lehman had said all was fine not too long ago.

Before I begin, let me make my bias clear. I was against the Bear Stearns bailout notwithstanding the claims by the sophisticated that it was necessary to prevent financial collapse. I have a similar position on attempts by the government, of all forms, to deal with the housing crisis. We got there without government help; we will just have to get out of it without government help.

So how did we get here and what does my father and grandfather (on my mother's side, my Dad's father died before I was born) have to do with this? Neither was well educated. My father completed high school and my grandfather who emigrated from Italy did not make it that far. They certainly would not been able to carry on a conversation with graduates of Harvard or Wharton Business Schools. But to paraphrase the wizard in the Wizard of OZ, what did they have that the graduates of these schools did not have-"common sense."

What they were not able to do, or perhaps unwilling to do was to engage in semantic calisthenics to disguise the obvious. Let me share with you how I think they would have redefined the standard terms used to describe the present and continuing financial crisis.

"EXOTIC FINANCIAL INSTRUMENT": My father and grandfather would describe this as lending money at an unusually high interest rate to a borrower who had no hope of servicing the debt or repaying the principle.

"COMPLEX AND NOVEL FINANCIAL INSTRUMENT": My father and grandfather would describe this as a lot of people lending a lot of money at an usually high interest rate to a lot of borrowers who had no hope of servicing the debt or repaying the principle.

"CREATIVE ACCOUNTING": My father and grandfather would describe this as ignoring the fact that you had lent a lot of money at an usually high interest rate to a lot of borrowers who had no hope servicing the debt or paying back the principle.

"WALL STREET BONUS": My father and grandfather would understand this to mean getting paid an amount of money they could not imagine any human being needing or productively using in their lifetime for selling a lot of "Complex and Novel Financial Instruments" to people who because of the education you would expect to know better.

The sad thing about this is that there were no doubt many in our profession who participated in this activity and should have known better as well.

-Larry Salibra
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EPISODE: 2 SUPERSTAR'S FIRST ASSIGNMENT

As my GC warned the day came when Superstar called and asked that I come to see him in his office. Since my meeting with my GC the official announcement of Superstar's appointment of division president took place, and for the next couple of weeks a flurry of additional announcements took place describing new assignments in the Superstar's division as he replaced or rearranged the management structure to his liking. This was not unusual; of course, management changes typically took place when new leadership was installed in a division. However, there was a different tone to these changes.

In the past one could somewhat predict the changes in personnel--it was sort of musical chairs, people changed chairs but the people were the same. This was different. Positions were filled by people no one had heard of before. Serious change was in the air.

When I arrived at Superstar's office, he invited me in and was very cordial, but it was clear I was under review. He explained that it was his intention to re-examine every aspect of the division's operation, including the way its legal issues were managed. His review of the legal area suggested that major expenses were being incurred in the litigation area. He said it was his intention to understand why that was occurring and then determine the appropriate response. He wanted me to undertake that effort.

As I walked out, two obvious options occurred to me, a more strident defense posture as a deterrent or a compliance program to improve the employees understanding of their legal obligations. But I was not sure, so I decided to consult Super Lawyer at our outside law firm, the ACE firm in downtown River City. We had long ago established a partnership (see partnership debate in prior blogs) in the manner in which we related--they could help I thought.

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Your GC has just called you into her office to tell you that there may be difficult times ahead for the law department. Superstar has just been appointed to run your division and he is the head on favorite to become President and CEO. Superstar was an engineer by training and his aggressive management style that resulted in the complete turn around of a plant that had been scheduled to be shut down had caught the attention of senior management and the Board.

They are grooming him for the top spot and had sent him off to get his MBA at some college that was in the fly-over-zone (that is the vast area between the coasts where perhaps only one or two academic institutions are taken seriously). Typically, this would not be considered a problem; however, this particular graduate school had apparently developed a new approach to teaching law in their curriculum--they not only taught doctrine, they apparently give their students an analytical paradigm that provided them with the ability to effectively manage legal issues and their lawyers. They could understand the economic implications of different choices in designing and implementing contracts and they expected their lawyers to integrate business alternatives in their contractual design (yes, they called it design not drafting).

The GC said she also understood that they also were challenging the validity of traditional case analysis as an effective way to predict legal outcomes, and appeared to understand the economic implications of legal procedure. The GC conceded that although she was a graduate of Super U Law School, she did not recall being exposed to much of this. She said that she had heard that Superstar was concerned about the extent of litigation in his division and one of his priorities was to contact you to address this problem. She wanted you to know and said she would do all she could to help you, but simply did not know what to expect.

You walked out of her office waiting for the call from Superstar.

-Larry Salibra
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If you have not read David Mowry's piece in the June "Change is Good" I commend it to you. David describes his change from outside litigation lawyer to inside transactional lawyer. He makes a good point about how much his litigation experience has contributed to his new role as a transactional lawyer because he approaches it with a "seer's perspective."

Don't get me wrong transactional lawyers are nice people, I even did acquisitions and divestures, but I try not to publicize it too much. The problem is that transactional lawyers sometimes tend to become mesmerized by their language skills. They describe a concept, or sometimes just string together a rather impressive collection of words with out any real sense as to how those words will be implemented in a litigation context.

I have had the opportunity to try contract cases involving large commercial agreements that were drafted by law firms of substantial reputation. They were even bound. Notwithstanding the imposing appearance of these documents one is amazed at the level of ambiguity that can exist that I am sure was not apparent to its drafters, but might be to someone like David who is accustomed to looking at these agreements in their least flattering light.

David's perspective might well distinguish between three alternative ways of addressing an issue because his knowledge on civil procedure can reveal one to have the most cost effective manner of developing facts and getting them into evidence to support a claim than the other two alternatives.

Great point David--good luck in your new career. By the way I was close friends with former Xerox, General Counsel and ACC founder, Bob Banks, who had lawyers who worked for him that argued Xerox cases before the US Supreme Court--there is history there at Xerox that may get you back in court for your employer some day!

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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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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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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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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.

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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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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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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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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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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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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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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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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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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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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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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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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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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

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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

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

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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.

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Law.com is reporting how some big firms are looking to alternative fees deals to retain the business of their corporate clients. Read Zusha Elinson's article Are Big Firms Warming Up to Alternative Fee Deals?

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Check out Mike Dillon's blog entry regarding the role of in-house counsel and the future of big law firms. Instead of rushing off to the mega firm every time you encounter an issue you're not familiar with, try a different approach. His point: lean on fellow corporate counsel for advice and use the ACC resources readily available to you at ACC Online. These two simple solutions can save you time and money.

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It's bad enough that the divorce rate in this country is over 50%, now we're joking about it? Check out this article which discusses the billboard that proclaimed, "Life's short. Get a Divorce," hung by a law firm in Chicago. The billboard drew many complaints and was ripped down. Stay tuned for the pending legal action against the city workers who did so.

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I was glad to see this article on law.com today. The author, Zusha Elinson of The Recorder, mentions our very own Susan Hackett and her concerns about these salary increases and their lack of consideration for the corporate client.

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Great article by Sue Reisinger at law.com titled How the Seminoles' GC Helped Land $965 Million Hard Rock Deal.
Seminole GC, Jim Shore, was the first Seminole to ever graduate from law school. Take a minute to read a little about him and the great negotiating he did to win his tribe the Hard Rock corporation.

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Who knew that there's no public policy reason against rehiring a Garden State Parkway toll-taker who fired a paintball gun at a vehicle in a fit of road rage. Read the New Jersey Law Journal's article for all of the details on the NJ's Supreme Court's decision that was upheld by an appellate court. Personally, I feel we should all leave our paintball guns at home.

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Take a look at Kelly Talcott's article about the freshest legal news on the blogosphere. She pulls together some good places you need visit on the web to keep up with your legal news. Of course, we love Law.com for great legal updates and news as well.

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Exterro has come to the table with it's flagship product Fusion, which combines BPM with collaboration capabilities and centralized management in an intergrated environment.

Read Law.com's piece Exterro Gets E-Discovery Down to Business

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As promised, I tried to track down the "survey" mentioned by Corporate Counsel in their recent story about GCs operating in states where they are not licensed. The story said "...past surveys by ACC of its membership suggest that [the number of in-house counsel in this situation] could be in the hundreds or even thousands."

As it turns out, there is no such survey (ha!). In a conversation with the reporter an ACC staff member [identity protected] said that we have seen anecdotal evidence that at least some of our members are in this situation, and suggested that it could be "hundreds or thousands," but "we just don't know."

Certainly, it's more exciting the way Corporate Counsel wrote it, but is it accurate? I'll let you be the judge. Here's a link to the story again.

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According to Corporate Counsel magazine, they've found 8 GCs from Fortune 250 companies who are not licensed in the states in which they are practicing...and they name names. They also spoke to some of the folks on the list, including ArvinMeritor's Vernon Baker who said "you got me" (as a joke, apparently). The story also references an unnamed ACC survey that "suggests" that the number of unlicensed attorneys could be in the "hundreds or thousands." Read the full story here.

In the meantime, I'm going to try to track down the mystery survey.

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The New York State Bar Association House of Delegates proposed important amendments to the rules of professional conduct in New York, and specifically proposed a new Rule 5.5, which was formerly the state's Unauthorized Practice of Law rule, but would be amended to include new multijurisdictional practice (MJP) reforms. New York's proposed Rule 5.5 would permit a lawyer who is not admitted in New York the ability to provide legal services “on a temporary basis” if their services “arise out of or are reasonably related to the lawyer’s practice” in a lawyer’s home jurisdiction. See the full article on this development.

In completely unrelated, but welcome news to all you Zamboni drivers out there, a Superior Court judge has ruled that:

a) Zamboni machines are not motor vehicles
b) therefore, an inebriated Zamboni driver cannot be convicted of drunk driving

See the full story on (where else?!) law.com.

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Today ACC hosted a meeting with the China International Economic and Trade Arbitration Commission .
The parties met to explore the formation of a beneficial relationship; extending CIETAC's valuable information and resources to ACC members. Check out CIETAC's Arbitration Rules.
Pace University also has a great database of arbitration proceedings by country.

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David Ambrose, of Ambrose Law Group (Portland, OR), tells The National Law Journal that since his firm has switched from the billable hour to a flat-rate fee, they have seen a 90% increase in profits. 90%! Hard to believe? His theory behind the increase: "Technology is fueling the drive for flat fees . . . something that [used to] take two house, we can now do in 10 minutes."
Would your company benefit from working with a firm who charges a flat-rate?

Read the article

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Have you seen the ads? Coca-Cola has released several commercials where two actors, posing as Coke brand managers, inquire as to whether they can sue Coke Zero for 'taste infringement.' Check out this article with links to the commercials.

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Susan Hackett, ACC General Counsel, wonders why in-house aren't staging a revolt against associate pay hikes. "I've heard disgusted buzzing about this among corporate counsel at private luncheon meetings. But that's all. There's been no hint of the revolution that I was sure would erupt. In-house counsel of the world: What are you waiting for? Who's managing your company's legal spending: you, or the firms?"

See Susan's complete column on law.com. Let us know what you think.

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2007 marks ACC's 25th Anniversary and we are looking forward to reminiscing about all of the great strides ACC has made through the years. From the growth of the membership (to over 20,000 members!) to the services we provide, ACC is proud to be The In-house Bar Association.

Check out what we're all about!

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ACC's General Counsel, Susan Hackett, was interviewed on NPR sharing her insight on the new eDiscovery rules. New rules take effect that help companies decide how many e-mails and other digital items they have to keep in case someone sues them and demands the documents be brought to court. Even small companies can generate millions of digital documents in a very short time, and systems for managing them can be expensive.

Click here to listen

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Jessie Seyfer, of The Recorder, writes about the worlds biggest tech companies and their scramble to fill leadership positions within their legal departments. Click here to read more.

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In a story covered by law.com, a New Jersey judge has ordered Merck & Co. to release records documenting how much it spent on a trial involving its Vioxx painkiller. Outside counsel for Merck disagreed with the judge's decision and stated that what defense lawyers spend has no relation to plaintiffs lawyers' expenses. But since the order was made as part of the discovery process, Merck couldn't appeal.

Merck has reserved $970 million for legal costs and spent $285 million of that last year. So, how much was spent on litigating whether Vioxx caused the victims heart attacks or the consumer fraud issue?

Read this article on law.com

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The ACC Annual Meeting is less than a week away. The office is a buzz with activity, as we prepare to journey across the country to meet our members. This will be my second Annual Meeting, and I must say, I'm more than excited. It's always such a pleasure to get out of the office and meet the membership. It gives me a chance to find out what it is you're looking for from ACC Online. My ears are always open--what do you want to see more of on our site? How do you like our recent website redesign? How can we make your visit to acc.com more productive? Looking forward to seeing some old faces and meeting some new ones! See you in San Diego.

Nichole Opkins, Esq.

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That's what the Wall Street Journal's Ashby Jones is reporting today on page A12. The story says that "at least seven general counsels...have left their jobs in the wake of a backdating investigation." You should be able to access this story on the WSJ's law page. (Registration may be required.)

Now, will someone remind the WSJ that counsel needs no "s" when plural? Thanks.

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Lawyers are always on the go. Whether it's off to a contract negotiation or running to the courtroom we are always moving. And the technology that gives us the leverage to keep on top of what's going on back in the office, no matter where we are, is priceless. But are attorneys using it to the fullest extent possible?Read Laura Ikens article on attorneys and their technology woes at law.com in her article 2006 ABA Survey: Lawyers More Mobile but Stuck on Basics

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GE's Ben Heineman, one of the in-house counsel community's most noted members, discusses why transnational corporations need to be proactive in their public policy efforts. He explains GE's approach and identifies the roles of both in-house and outside counsel.

You can see his insights on--you guessed it!--law.com today.

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The always reliable law.com has a very nice story about corporate legal departments' pro bono efforts, which focus specifically on programs pioneered by ACC: Corporate Pro Bono and Streetlaw. Find out what companies like Merck are doing and get inspired.

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Take a look at Bob Gans, Legal Times article, 13 Simple Steps: What In-house Lawyers Wish Law Firms Knew. He covers the high points, for sure. What else do you wish your outside counsel understood about you and your business?

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I am Reilly Morse, a third-generation Mississippi attorney with the

Mississippi Center for Justice. MCJ is our only independent home-grown, home-owned statewide public interest lawfirm. Its focus is social and economic justice. Our headquarters is in the state capitol, Jackson. In December, 2005, MCJ opened its first branch office in Biloxi to assist with the legal needs of hurricane victims across the Mississippi Gulf Coast.

ACC’s sponsorship of my position at MCJ has assured there will be a voice speaking for the lowest-income residents in the poorest state in the nation impacted by the worst hurricane in American history. Thank you for this indispensable resource.

Traditionally, MCJ focuses on impact litigation rather than direct services. However, Hurricane Katrina destroyed offices and residences of coastal legal services centers, and so MCJ stepped in to help fill the gap. In cooperation with the Lawyers Committee for Civil Rights Under Law and an array of volunteer lawyers from the smallest firms to national corporate law departments, MCJ manned disaster recovery centers and conducted over 20 disaster recovery workshops in impacted minority communities across the coast. We worked on FEMA benefits, SBA loans, insurance, evictions, foreclosures, contract disputes, and more. To get an idea of what we faced, take a look at MCJ’s short film, New Foundations and the Lawyers Committee’s short film, The New Homeless.


The voice for vulnerable storm victims was also heard in official chambers through my participation in the Affordable Housing Sub-Committee of the Governor’s Commission, and the Governor’s Housing Policy Council. Working with national and local partners, MCJ also presented comments to the US Department of Housing and Urban Development urging greater equity in Mississippi’s plans to use federal hurricane recovery funds and gathered thousands of supporting signatures.

MCJ played a pivotal role in the formation of an alliance of over 30 service organizations focusing on low-income and minority populations known as the Steps Coalition. “Steps” draws its inspiration from the concrete steps that alone remain after a hurricane. The Steps Alliance was highlighted at a joint Oxfam-America – NAACP Town Meeting in Gulfport on August 26, 2006, attended by the heads of Oxfam, NAACP, the Lawyers Committee, and actor/activist Danny Glover. I was a member of the local panel of experts which followed.

I contributed a section on predatory lending to “Envisioning A Better Mississippi,” the NAACP report on Hurricane Katrina. I also was acknowledged in Oxfam America’s “Forgotten Communities, Unmet Promises” report.

In the coming weeks, I hope to interest ACC members in augmenting these efforts with pro bono assistance on tax, corporate, and real estate aspects of the Hurricane Katrina recovery.

Written By:
Reilly Morse
ACC's Equal Justice Works Katrina Fellow
through the Equal Justice Works Program

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Which law firm is the favorite of Fortune 250 general counsel? Which are the top firms for litigation? Why have DC firms mysteriously disappeared from the list? Are companies still going through the "convergence" process? Was going to the Fortune 500 just too much effort?

To get the answers to these questions (except the Fortune 500 one), check out the story on law.com. You can also access a chart showing which law firms companies use...if you register.

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Are GC's especially vulnerable in the current wave of backdating scandals? One reporter thinks so and points to the case of Kent Hart Roberts, GC of McAfee, Inc., fired over a stock backdating "episode." You can read the full article on law.com.

If you want to know how to be prepared when it comes to questions about backdating stock options, register for ACC's upcoming webcast on September 7.

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New Jersey Law Journal probes whether more public companies are going private or "going dark" (deregistering their stock with the SEC) in order to avoid the onerous reporting requirements of Sarbanes-Oxley. Read all about it on law.com today.

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Corporate Counsel's Sue Reisinger reports on the increase in deferred prosecution and non-prosecution deals between the DOJ and companies under investigation. Read the full story, "Trying Not to Keep Up With the Andersons" on law.com.

Bonus: ACC's Susan Hackett is quoted in the article...twice!

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A New Jersey Supreme Court ethics panel ruled to prohibit New Jersey lawyers from advertising their inclusion in or participating in the selection process for two lawyer guides, "Best Lawyers in America" and "SuperLawyers." The panel believes these types of guides violate the rule of professional conduct by suggesting that one lawyer is better than another. Read the full story.

Is this a victory for the profession or an ill-conceived crusade? What do you think?

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Like any good summer blockbuster, the thrills just keep on coming in the KPMG case. Previously, Judge Kaplan ruled that prosecutors had gone to too far by demanding that KPMG cut off legal fees for the 17 defendants in the case if it wished to be deemed "cooperative." Kaplan went so far as to urge the defendants to sue KPMG for said legal fees...and they did. Now, three of the defendants are seeking to suppress proffer statements they made to prosecutors, arguing that they would have never met with prosecutors had the legal fees issue not been hanging over their heads. Kaplan has yet to rule.

Read all about it on law.com today.

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Media coverage of backdating scandals, newly-released research indicating widespread backdating practices in corporations, and hush-hush hints of allegations pending and charges soon to be filed, dominated the business news pages of the Wall Street Journal, Financial Times, and the legal media for the last few days. What's really going on here?

My conversations with CLOs on this issue indicate that while "true" backdating is a heinous practice, many of the current allegations levied by the governance ratings organizations, the SEC, and the media have swept into that category a whole bunch of practices that:

a.) aren't illegal (and indeed were tacitly condoned by auditors and the SEC)
b.) have been common practice in companies that have always prided themselves on the integrity in their compensation processes,
c.) have been openly disclosed (so there's no concern over super-secret executive shenanigans) and
d.) have CLOS and the business leaders they advise furious about being categorized as engaging in corrupt practices that inappropriately enriched company executives.

Companies that as a common practice choose a prospective or current date to grant options and then get that grant authorized by the Board's compensation committee members for approval (say, by passing a date of July 6 through telephonic approval on or before July 6), but who did not complete the paperwork to make the transaction complete for accounting purposes until later (say, July 19) are not appropriately swept into the same category as folks who decide on July 19 that they'd like to grant options dated July 6. To my (admittedly-non-securities-expert) mind, these two activities are entirely different things, and evidence entirely different mind-sets. But I'm talking to lots of people whose companies are being investigated for the former practice, as if they've engaged in some kind of secret criminal conspiracy to unjustly enrich business team members.

Clearly, one of the benchmarks emerging for companies that may have chosen dates ad hoc in the past is to consider setting dates that options will be granted for a regular schedule in the future (so that no one can claim that backdating to choose more advantageous dates was practiced).

But in the meantime, practitioner groups are forming to push back on what is being perceived as yet another attempt to criminalize non-criminal behavior, while at the same time that the SEC, investor groups, and even a special task force in San Francisco (will the State AGs be far behind?) are forming ranks to pursue possible charges against companies and execs that include a whole bunch of folks who never had a clue that their above-board and board-condoned options grant practices were going to be future classified as shady dealings. Certainly the SEC and auditors, which knew about many of the practices they now sweep into a general category of inappropriate backdating, never before suggested they had any problems with the practices. Just to cover the bases, the
SEC has supposedly asked the PCAOB to delay an examination and proposals regarding this issue for the moment. Kind of hard to know what to advise when only hindsight is 20/20, eh?

Of course there are egregious practices in the backdating scandals currently under scrutiny, but there seem to be a whole lot more folks who may be implicated (and essentially blackmailed into either expense defensive tactics or settlements) whose practices were above-board, non-criminal, and -- frankly -- widely considered just good business sense and common practice by regulators, in-house counsel, and so-called governance experts. What's your take?

Susan Hackett
Senior Vice President and General Counsel
hackett@acca.com

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Corporate Counsel magazine has pulled together all the details of the compensation packages of the top GCs. Find out who got that $4.5 million bonus we've all been dreaming of and who got no bonus at all (and dropped from 17 to 71 on the annual list). You can read an article about the survey right now, but will need to register (free) to see the full roster.

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In a not unexpected move, the former KPMG employees who had the coverage of their legal fees capped by the company and who earned the support of Judge Lewis A. Kaplan in uncapping said fees, have filed suit against KPMG to...you guessed it!...compel the company to advance their legal fees.

You can read the full article (as usual) on law.com.

Bonus: The story contains a list of the defendants and notes who is representing each.

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By making an employee's alleged theft of its trade secrets public, The Coca-Cola Co. accomplished three things, experts say. It managed to control the message about the incident, it demonstrated its commitment to prosecute such thefts and it raised a red flag about the risks all companies face in protecting their most valuable possession -- their intellectual property. In a memo to Coke employees, CEO Neville Isdell said he has ordered a thorough review of the company's information protection practices. How would your company respond to an attempt to steal it's IP?

Read More

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How important is pro bono work to you? Do you hold your law firms to the same standard? However you answer, it should still be interesting to see how the top 200 law firms stack up in a ranking of their pro bono efforts. You can read the related article "AmLaw 200 Firms Still Have a Way to Go on Pro Bono" on law.com, but you'll need a subscription to see the whole list.

Do you want to confirm your commitment to pro bono? Take CPBO's Corporate Pro Bono Challenge.

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My favorite source for legal news, law.com, has a story on the conflict between the Sarbox whistleblower requirement in the US vs. the European take on the issue.

But this isn't really news. The issue was covered in the ACC Docket article, "Clash of the Titans," back in the April issue. Read both and tell me which is better.

And now for something completely different: I noticed today that my grocery store's new slogan is "Experience the Unexpected." Not sure that's really what I want from my grocery store. I'm just sayin'.

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According to the ABA's Market Research Department, there are 1,116,967 lawyers licensed to practice in the United States in 2006. The U.S. Department of Labor's Bureau of Labor Statistics reported in 2004 that there were 735,000 actually practicing then.
According to Lexblog founder and CEO Kevin O'Keefe, there are only between 1,200 to 2,000 blawgs in existence now.

Doing the math, only about 1 percent of lawyers are blogging.

What's the deal, lawyers? Why are we so timid when it comes to sharing our opinions on a blog? What do you think?

Read more about this at Law.com

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Federal judge Lewis A. Kaplan of the Southern District of New York excoriated US attorneys for violating the Constitutional rights of former KPMG partners by pressuring KPMG to cut off legal fees provided under the terms of their partnership agreements. Kaplan said, “KPMG refused to pay because the government held the proverbial gun to its head.” Prosecutors had used the Thompson Memo to justify their actions.

This is a huge victory for the justice system and validates ACC's position that government prosecutors have gone too far in their tactics to get convictions. Kaplan concurred saying that the government has "let its zeal get in the way of its judgment."


See ACC's press release

Review Judge Kaplan's ruling.

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No, wait, yes I will!

From law.com: Sen. John McCain thought he had a deal when President Bush, faced with a veto-proof margin in Congress, agreed to sign a bill banning the torture of detainees.

Not quite.

While Bush signed the new law, he also quietly approved another document: a signing statement reserving his right to ignore the law. McCain was furious, and so were other lawmakers.

Read the full story.

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Two weeks ago, ACC launched its new Top 10 feature with "Top 10 Things Your Board Needs to Know About Effective Compliance and Ethics Programs." Since then, it has been one of the most visited pages on the site.

Today, law.com features its own take on the Top 10 phenomenon, with "10 Ways to Encourage Discrimination and Harassment Claims." Yes, you read that right...

Do you have an idea for a top 10 list? Let us know.

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Apparently annoyed about the inability of opposing attorneys to come to agreement on anything, a federal judge ordered them to engage in a "rock, paper, scissors" face-off. Read the story on law.com.

On a somewhat more serious note, Corporate Counsel explores the role of in-house counsel in China. If the article doesn't sate your need for information on this topic, you should check out ACC's initiatives in China.

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