Fall-09 Brannan Paper - Workshop B (00315261).DOC

ADVANCED LITIGATION MANAGEMENT PRINCIPLES

In-house and outside counsel must work together in a coordinated and integrated manner when managing any dispute for the client. Outside counsel can either provide significant value to in-house counsel or he can cause frequent and continuing frustration. Outside counsel who understands his client’s business goals and objectives, truly listen to both the client and its in‑house counsel, and meets in-house counsel’s expectations is better positioned to add value and to help in-house counsel effectively advise the client.

I. MANAGING DISPUTES – GENERAL EXPECTATIONS

The recent economic downturn has highlighted and magnified what has always been the case; outside counsel must work closely with in-house counsel when managing the client’s disputes or risk straining, perhaps irreparably, his relationship with in-house counsel. In-house counsel’s expectations are necessarily high. Among other things, in-house counsel expects outside counsel to: (a) possess the requisite competence, experience, and creativity to effectively and efficiently handle the client’s dispute; (b) take ownership of the dispute; (c) communicate effectively and regularly with in-house counsel concerning all aspects of the dispute; and (d) act with honesty and integrity at all times.

A. Competence, Experience and Creativity

In-house counsel hire outside counsel principally for their expertise. Understandably, in-house counsel expects ─and insists─ that outside counsel possess the necessary subject matter expertise, as well as experience handling matters similar to the client’s dispute. In addition, depending on the size and complexity of the matter, outside counsel’s resources (e.g., staffing resources, ESI capabilities, intranet or electronic client workroom capabilities, etc.) may also be a significant factor in the decision to engage outside counsel. Further, outside counsel who understands the industry sector in which the client operates and how his client differentiates itself from its competitors typically is in a better position to understand some of the more subtle nuances that might present themselves during the course of the representation.

As important as possessing the requisite experience and expertise is the ability of outside counsel to appropriately staff the matter in a way that provides the greatest value to the client. Most in-house counsel appreciate it when outside counsel put a more senior associate on a matter to minimize costs, provided that the associate truly is regularly practicing in the applicable area of the law. As one of our speakers noted:

Recently, I had a partner introduce me to a senior level associate who practiced in that area of the law and was clearly interested in the legal issues, as well as learning to serve the corporate client. Eventually, I was able to go to the associate directly (after the partner monitored the associate’s work for us for a few months). It was a great way to address cost concerns for a client, give the associate experience, and assure that the client was happy with the legal services provided by the firm.

However, if in-house counsel receives a memorandum from an associate with outside counsel’s firm that in-house counsel could have prepared himself, in-house counsel is not likely to feel that he is receiving the work-product needed or any value from engaging outside counsel.

When selecting outside counsel to assist with the representation of the client, in-house counsel typically look for more than just a litigator. In-house counsel seeks to engage someone who will actively participate as an integral member of the client’s team at all stages of the representation. In-house counsel experience ever-increasing pressures to resolve the client’s disputes with increased efficiency, especially as cost constraints faced by most clients in today’s market take on an even greater significance. As a result, outside counsel who think creatively and have the ability to devise strategies that lead to an early or cost-efficient resolution of the client’s disputes bring added value to the table. In-house counsel recognize and appreciate that, while it is essential that outside counsel have the necessary expertise and experience to handle the client’s dispute, an outside counsel who also has the ability to bring a high level of creativity to the table adds far greater value to the client’s team than one who simply serves as a “hired gun.”

B. Take Ownership of the Dispute

When representing the client, it is imperative that in-house and outside counsel understand their respective roles so they know what to expect from one another. For instance, some in-house counsel want to be intimately involved in every step of the representation and take part in determining both case strategy and the day-to-day tactics employed to implement that strategy. Others may prefer to be involved only with determining case strategy and certain key events such as the filing of a complaint or motion for summary judgment. Still, the majority of in-house counsel probably fall somewhere in between those two extremes, with the level of their involvement based on factors such as the nature of the matter, the personnel involved, any possible precedent that may be established or other case-by-case considerations. To avoid misunderstandings and miscommunications at critical times during the course of the representation, it is worth investing the time up front to ensure that in-house counsel and outside counsel define and clearly establish their respective roles at the outset of the engagement. In the end, both in-house counsel and outside counsel are responsible for the proper handling of the client’s dispute and are more likely to achieve the desired result if they coordinate and understand their respective roles.

Regardless of the degree of involvement on in-house counsel’s part, in-house counsel generally expect outside counsel to take “ownership” of the client’s dispute. In-house counsel expects outside counsel to gain a full understanding of the facts and legal issues involved and to play an integral role in the development of a coordinated plan for achieving the desired result. Such a plan, by necessity, consists of both a strategy for resolving the dispute and achieving the desired result as well as an appropriate budget for doing so.

To develop both an effective strategy and an appropriate budget, outside counsel must understand and appreciate what the client hopes to achieve through a resolution of the dispute. In other words, what is it that the client considers to be a “win” with respect to the dispute at issue? For instance, while one client might define a “win” as an early pre-suit settlement, even if it requires a significant payment to achieve that settlement, another client might desire to vigorously defend that same claim because it does not want to encourage similar claims by others.

Once the client team formulates a strategy for achieving the client’s desired result, outside counsel typically will be charged with developing a budget for accomplishing this result. In-house counsel expects outside counsel to prepare and submit a proposed budget that is realistic and that includes all anticipated costs. A budget that does not account for all known costs—including expert consultants, outside counsel’s fees and costs, etc.—can be a source of irritation to in-house counsel and can even undermine his trust and confidence in outside counsel.

In-house counsel appreciates that outside counsel cannot predict with certainty how a matter will progress, whether pre-trial discovery will proceed smoothly or be fraught with disputes that require extensive motion practice, the extent of the adverse party’s (and perhaps even the client’s) electronically-stored information, or how aggressively the adverse party will litigate the matter. Nevertheless, in-house counsel expects outside counsel’s proposed budget to make reasonable assumptions concerning these and other matters concerning which there are uncertainties. It is important that outside counsel avoid developing a budget that is overly optimistic and assume that all will proceed smoothly. It is equally important, however, that outside counsel’s proposed budget not assume a “worst case” scenario. Neither of these approaches provides in-house counsel with the information he needs to properly manage the dispute for the client.

Not surprisingly, the client’s definition of what constitutes a “win,” the client team’s strategy for achieving that result, and the budget for implementing the client team’s strategy are all inextricably intertwined. If you re-define what constitutes a “win,” you likely will have to alter the strategy for achieving the client’s desired result. And, if you alter the strategy that will be employed, you no doubt will need to adjust the budget to account for the altered strategy. In-house counsel expect outside counsel to be mindful of changing external factors (e.g., discovery disputes, ESI issues and attendant costs, etc.), as well as the relationship between and among the client’s desired result, the case strategy and the budget, and to alert in-house counsel when changes to the anticipated budget are expected.

One factor that directly affects the budget is the hourly rates for the attorneys working on a matter. Law firms typically adjust hourly rates on an annual basis. As one might expect, these adjustments in hourly rates can have a significant impact on the budget. As a result, it is very important to advise in-house counsel concerning rate increases before they are implemented and also explain the reasons for the increases. In doing so, outside counsel should be sensitive to the fact that, especially in difficult economic times, many in-house counsel are being asked to accomplish more and more with fewer and fewer resources and may not be receiving salary raises themselves as a result of the client’s cost constraints. Further, in order to meet the demands imposed by internal budget cuts brought on by the recent economic downturn, in-house counsel may even be required to lay off employees in the in-house counsel’s office. Consequently, for these and other reasons, outside counsel should anticipate that he will have to justify any increases in hourly rates to in-house counsel. Depending on the potential lifespan of a dispute, outside counsel may wish to offer the courtesy of locking in hourly rates through the course of the matter.

Nothing signals to in-house counsel whether outside counsel truly has taken ownership of a dispute more than the creativity that outside counsel brings both to the client team’s discussions and the development of the coordinated case strategy and budget, how responsive outside counsel is to in-house counsel’s concerns and inquiries, and the frequency, nature and quality of outside counsel’s communications concerning the matter.

C. Communicate Concerning All Aspects of the Representation

One real key to any successful relationship is effective communication. This is no different for in-house and outside counsel. The frequency of communication may vary depending on how in-house counsel and outside counsel’s roles are defined. For instance, one in-house counsel may want to receive copies of everything (e.g., pleadings, discovery, notices, memoranda, correspondence, emails, etc.) while another in-house counsel may only want to receive important or “key” documents and correspondence from outside counsel. As noted above, it is important to define and understand in-house counsel’s and outside counsel’s respective roles at the outset of the engagement to ensure that outside counsel is providing in-house counsel with the desired level of communication.

Effective communication must be a two-way exercise. In-house counsel expects outside counsel to provide advice, but perhaps even more importantly, in-house counsel expects outside counsel to truly listen to him and the client. Outside counsel can talk to in-house counsel all he desires, but if outside counsel does not listen to in-house counsel and the client, he in all likelihood will not know what is expected. And, if outside counsel does not know what is expected, he will only meet in-house counsel’s expectations by chance.

Regardless of the level of communication desired by in-house counsel, outside counsel would be well advised to let in-house counsel know whenever there has been a significant development in the case or a noteworthy change in circumstances. For instance, at a minimum, any time there is a substantive ruling by the court, a notable change in status, or any other material development that impact’s outside counsel’s evaluation of the case, outside counsel should update in-house counsel. Further, should any development of this nature significantly impact the anticipated budget for the matter, outside counsel ought to update in-house counsel accordingly.

Similarly, in-house counsel typically expects outside counsel to regularly review and revise his evaluation of the case to account for then-current information and the anticipated budget for the matter. This should be done on a periodic basis, as agreed between in-house and outside counsel, and whenever a significant event occurs that materially impacts the case evaluation and/or the anticipated budget.

As a rule, whenever possible, outside counsel should advise ─and not surprise─ in-house counsel. Understandably, outside counsel appreciates knowing what is likely to occur, even if it is not particularly palatable, and would prefer not to hear about a possible adverse development or court ruling for the first time after the development or ruling has occurred. In-house counsel understands that outside counsel’s advice may be based on less than perfect information and that oftentimes there likely is no “perfect” answer. Outside counsel must advise in-house counsel based on best available information, tempered by outside counsel’s experience and judgment.

When, as will happen from time to time, outside counsel fails to anticipate a significant development or adverse ruling, he should advise in-house counsel sooner rather than later. Rarely does a bad or embarrassing situation get better with the passage of time or by failing to timely advise in-house counsel accordingly. Outside counsel should always give in-house counsel ample notice of and the opportunity to attend a hearing, as well as his opinion concerning whether it may be beneficial to have the client present at the hearing. Litigators often have a good feel for whether the client’s presence will have a positive effect.

On a more practical note, when sending documents or emails with attachments to in-house counsel, outside counsel should make an effort to highlight the significance of the document for in-house counsel or focus in-house counsel’s attention on the significant portions of the pertinent documents. Simply forwarding lengthy documents to in-house counsel for his review without providing this type of explanation is not particularly helpful and certainly falls short of communicating effectively with in-house counsel.

Further, in-house counsel generally expects outside counsel to be available within a reasonable period of time to answer questions or discuss issues relating to the pending dispute. In-house counsel operate today in a fast-paced corporate environment where they are expected to respond to the client within an hour or two, if not immediately. As a result, if outside counsel is going to provide in-house counsel with the information and advice he needs to timely and effectively respond to client inquiries, then outside counsel must endeavor to promptly respond to in-house counsel’s calls and emails in a similar fashion (i.e., within a couple of hours whenever possible).

D. Act with Honesty and Integrity at All Times

Outside counsel has a professional and moral obligation to represent the client with honesty and integrity. In-house counsel also expects ─and even demands─ that outside counsel conduct himself self with honesty and integrity at all times. Outside counsel represents and is a reflection of both the client and in-house counsel. Any adverse or inappropriate conduct by outside counsel will reflect poorly on both the client and in-house counsel and could jeopardize the client’s interests and possibly in-house counsel’s position. In-house counsel is charged with managing outside counsel. If outside counsel acts in a way that reflects that he is not being properly managed by in-house counsel or should not have been initially engaged by the client, it understandably will reflect poorly on in-house counsel.

Effective representation of the client requires a concerted and coordinated effort by legal professionals, both in-house counsel and outside counsel, to implement a strategy designed to achieve the client’s desired result. At times, outside counsel may not necessarily agree with the client’s goals and objectives. As a professional, outside counsel should raise his concerns with in-house counsel and propose alternative approaches concerning the dispute that outside counsel believes may be more in line with what he perceives to be the client’s best interests. However, once these alternatives have been vetted and the client decides on its goals and objectives, i.e., the client defines what it considers to be a “win,” outside counsel owes a duty to the client to adopt those goals and objectives as if they were his own and proceed in a manner designed to achieve them in the most efficient way possible. Outside counsel must always remember that it is the client’s case!

II. INCEPTION OF MATTER

A. What is expected in preparing and managing litigation budgets?

“How much is this going to cost?” One of the major, and possibly the most heavily weighted, factors in the analysis of whether an issue is worth pursuing using some sort of legal recourse, is whether the benefit will outweigh the risk and the cost of getting to a result. In-house counsel, a majority of whom came from the ranks of outside counsel themselves, know that predicting the costs which will be incurred over the course of pursuing an action, whether it be administrative, arbitration, litigation, or some other means, is difficult. We know the feeling in the pit of your stomach when you hear those seven words emanating from your speakerphone. Still, as in-house counsel face pressures from their CEOs, Boards of Directors and Controllers to estimate legal expenses in order to better assess the financial risk, and budget accordingly, it is vitally important that in-house counsel receive honest, well-reasoned and detailed budgets from outside counsel when requested. In the Association of Corporate Counsel’s 2008 survey of 619 Chief Legal Officers, 57% of respondents replied that outside counsel could improve their relationships with corporate counsel by improving their “Focus on Matter and Budget Management.”[1] (That response was second only to the 60% who cited “Alternative Fees/Fixed Fees/Discounted Rates” as an area in which outside counsel could improve, which is discussed below).

So, what is expected? The answer to that question varies greatly. Different corporate counsel expect different degrees of detail in the budgets they receive, and even the same counsel may expect different things in a budget depending on the type of matter, the locale, the way the case is going to be handled, the layers of alternative dispute resolution anticipated, the judge involved, the personality and approach of opposing counsel, and so on and so on.

Even after outside counsel takes into consideration all those factors and believes he has mastered those shifting sands, there is the overriding dread of setting the budget too low, only to exceed it later and be forced to explain why and how his original budget missed the mark. This may cause outside counsel to pad its budget, and leave corporate counsel with an inaccurate, inflated budget that is essentially unreliable. More importantly, if corporate counsel expects budget padding is occurring, it can undermine his trust in outside counsel and make him even more wary of each and every invoice he receives throughout the prosecution of the matter.

As with all issues addressed in this paper, the most crucial component to the corporate counsel/outside counsel relationship is communication. If there are areas in the budget about which outside counsel is uncertain, instead of inflating estimated costs in those areas to accommodate uncertainty, explain to corporate counsel why this is a difficult area to quantify. Work through the number with corporate counsel so that a number which is as accurate as possible is the one ultimately included in the budget.

Moreover, if circumstances change as the case progresses, inform corporate counsel as soon and in as detailed a manner as possible what factors have changed and why and how the change will impact the budget. Much as the owner of a construction project dislikes being blind-sided by an unexpected change order, corporate counsel dislikes an unexpected increase in legal costs when receiving an invoice for legal services. One approach is to agree from the onset of the case that outside counsel will submit revised budgets for review on a periodic basis, whether monthly, bi-monthly, upon achievement of key milestones, etc. This approach can help to address questions concerning corporate counsel’s expectations, and can facilitate a clearer understanding concerning the timing of budget revisions.

Especially if corporate counsel was not involved in formulating your strategy, it generally is appreciated if you make an effort to be clear and precise concerning how you intend to prosecute or defend the case, how you will staff the matter in a way that will reduce costs, what document handling services will be used, what electronic discovery tools you intend to utilize, etc. Corporate counsel would rather know these details and their attendant costs up front than suffer “a death by a thousand cuts” when the additional costs, as insignificant as they may independently seem, accumulate over the course of the engagement.

For comparison purposes, attached to this paper as Appendices A and B are two examples of actual budget forms provided by corporate counsel. While some counsel prefer the less-detailed and wide-ranged version attached as Appendix A, more and more counsel operating under the traditional hourly billing approach for matters have grown accustomed to and expect a more detailed approach similar to that attached as Appendix B.

One in-house counsel reports that she dislikes receiving an invoice indicating time was billed to prepare a report for her. This aversion, she notes, is because “outside counsel should be in regular contact with me so that such ‘reports’ are unnecessary. Reasonable billing for time spent preparing budget updates, however, is expected.”

Corporate counsel expects outside counsel to provide his or her best educated guess as to what the matter will cost, together with ongoing communication concerning appropriate budget modifications. Corporate counsel understands the difficulty in predicting the costs of prosecuting or defending a matter, as well as the volatility of any legal process, but relies on outside counsel to help them make recommendations within their organizations. In summary, the worst thing that can happen when budgeting for these matters, for both outside and corporate counsel, is an unwelcome surprise of any magnitude.

1. Alternative Billing Methods

Because of the common distaste for the uncertainty inherent in the traditional hourly-billing approach, a trend has recently developed to increase the use of alternative billing approaches. As mentioned above, the most noted area in which corporate counsel felt outside counsel could improve their relationship is to consider billing methods varying from the traditional hourly billing approach.[2] (Interestingly, as noted in the 2008 survey results, this was the top-cited area in the ACC’s 2007 survey as well.)

One respondent, in responding to the question, “What is the next big issue you will face in providing client services, fulfilling your client’s objectives, managing outside counsel, managing your legal department, or in other areas?” stated: “Efficient use of outside counsel and alternative fee arrangements to increase the predictability of legal expenditures will be of increasing importance in 2009.” Several other findings in the survey reflect that a majority of the respondents share that attitude:

· 60% of respondents believe there is a disconnect between the traditional billable-hour-based model and the value-focused model that a corporate law department favors. Another 32% believe there is “somewhat” of a disconnect.

· 22% of respondents reported that their outside counsel “spend” is currently based at least in part on alternative fee arrangements. Further, 77% of respondents indicated that they would like to increase the use of alternative fee arrangements for their outside legal needs.[3]

The primary reason cited for the desire to explore alternative fee arrangements was very simple: certainty. As will be explored in greater detail below, one of the most popular alternative billing types – task-based billing – has grown in popularity principally because of the certainty that comes along with it. In addition to the certainty of the differing arrangements, other reasons cited in support of the differing alternative fee arrangements include:

· A desire for the “legal team” to share in the risks of the matter;

· Wanting outside counsel to have some interest in the outcome (“skin in the game”) instead of a reason to rack up billable hours; and

· Believing that the law firm should be responsible for its own inefficiencies, coordination of duties, billing mistakes, etc.[4]

As with any change, as the survey shows, alternative fee arrangements are not exactly becoming the norm overnight. There are concerns about receiving diluted services, being taken advantage of due to unfamiliarity with the new arrangement, and, as one respondent stated, a general “fear of the unfamiliar.” Still, the author believes that a basic understanding of some of the most popular alternative fee arrangements would be beneficial. The following are the “top five” alternative fee arrangements as determined by the 2008 ACC survey, noting the percentage of use by those respondents using these alternative fee arrangements:

a. Discounted Hourly Rates (25%)

This most popular alternative fee arrangement is most applicable to the “repeat customer” relationship between outside counsel and a client. A client may receive a “bulk discount,” or a stepped discount based on the amount of billings on a matter. For instance, a firm may give a 5% discount for the first $10,000 billed on a matter, a 7% discount on the next $10,000 and so on. It’s somewhat surprising to this author that this is the most utilized alternative fee method as it does not seem to address what was identified as the most important factor to corporate counsel: certainty. While the company/client saves money in reduced fees, there is no incentive for outside counsel to be efficient. In fact, the fee structure seems to encourage the opposite.

b. Fixed (Flat Fee) Billing (24%)

As its name reflects, pursuant to this type of arrangement, corporate counsel and his outside counsel agree up front what the client will pay for the handling of a specific matter or type of matter. This method definitely addresses the certainty issue, but because of the risk in setting the price at the beginning of the matter, it is most commonly used for high volume, repetitive and routine matters, such as workers’ compensation cases. Although this method does provide the certainty which corporate counsel desires, and may force outside counsel to perform more efficiently, the concern in using this method is that it clearly promotes the taking of shortcuts and cutting back on research and other actions peripheral to the matter by outside counsel, particularly in situations where there are unexpected hurdles and situations which make the handling of the case more labor-intensive than first believed or than the “normal case” of that type or other circumstances causing cost overruns. Another concern is that the agreement must clearly define exactly what services are included in the agreement, which may be difficult to do at the outset of the matter.

c. Blended Hourly Rates (12%)

Under this approach, one hourly rate is applied to anyone who happens to work on a case, whether that person is a partner, associate or paralegal. The benefit, of course, is that a partner’s higher rates are reduced to a level closer to that of an associate’s. Theoretically, assuming that all the work is being handled in the same manner, costs are reduced. The danger, though, is that because of the arrangement, the bulk of the work may be performed by less senior attorneys, the work product suffers, and the client does not receive the benefit and insight that it would have received if the senior partner paid more attention to the case. Additionally, this approach does not provide a disincentive for the firm to perform what might be unnecessary work.

d. Task-Based Billing (12%)

Again, it is difficult to imagine why this method has become popular given the stated importance of certainty, at least in a litigation setting. By this approach, outside and corporate counsel retrospectively determine the value of each task performed during the prosecution of a matter. Task-based billing is perhaps best suited to non-litigation work – such as collections, mergers and acquisitions, and other general corporate work. For dispute resolution, however, setting aside the likelihood that coming to an agreement on valuation of each task involved in a complex lawsuit would be nearly impossible, because the costs are determined retrospectively, there is no advantage provided for advance budgeting.

e. Contingency (12%)

Finally, traditional contingency billing is a familiar arrangement, most prevalent in personal injury and collection cases where outside counsel’s fee is determined solely by the outcome of the case. The greatest advantage to this arrangement is that counsel actually has “skin in the game” as some corporate counsel prefer. Over the years, several variations of contingency fee billing have been developed, including base-plus-fee and defense contingency billing. Under the former, the client pays a base fee and then an additional fee based on the outcome of the case while a client utilizing the latter arrangement determines what it believes is a fair dollar value liability result and then if counsel resolves the matter for less than that value, he shares in the savings, but if he fails, he shares in “the pain” by accepting a reduced fee.[5]

There are several decided benefits to this arrangement for corporate counsel. First, the potential liability for fees is capped. Next, unless outside counsel actually gets the results desired, there is little, if any, outlay of fees by the client. Finally, this approach most definitely inspires efficiency (without shortcuts) by outside counsel as the outcome directly impacts his bottom line.

One perceived problem, however, is that quality counsel may be unwilling to share in the risk, instead preferring to be paid hourly no matter the outcome. There is also the potential conflict between outside counsel and the interests of the client if the matter requires more labor than counsel anticipated, and therefore he may attempt to push the case to settle, when, aside from counsel’s sunk costs, it may otherwise be contrary to the interests of the client to do so.

There are several additional types of alternative billing out there, including capped rates, volume discounts, phased billing, and incentive billing, and each has its plusses and minuses.[6] It’s unclear whether any of these methods will ever overtake traditional hourly-fee billing as the primary means by which law firms are paid, but there is no question that they are being considered on an increasing basis as companies are looking for ways to reduce their legal costs and better predict what future costs will be.

B. How are internal investigations most effectively conducted?

Internal investigations have become a hot topic in recent years due to several high profile situations involving the misconduct of high-level executives (Enron, Arthur Anderson or WorldCom ring any bells?). While most contemporary articles and treatises dealing with internal investigations focus on executive misconduct primarily because of those lightning rod cases, corporate counsel in the construction industry may be faced with a wide variety of issues requiring investigation. Not only are corporate counsel subjected to questions regarding corporate procedures and practices, but construction company corporate counsel may also be asked to investigate wide-ranging claims and issues in areas such as employment discrimination, sexual harassment, workmen’s compensation, bidding inconsistencies, antitrust, employee theft, non-competition agreements, and numerous other types of issues arising on a day-to-day basis.

Many articles and voluminous treaties have dealt with the topic of internal investigations, especially post-Enron. The methods for conducting an internal investigation, as well as the factors and circumstances involved, can be as varied as the types of issues which are their subject. This makes it difficult to develop a Standard Operating Procedure for the handling of these investigations. Instead of attempting to take a bite out of that elephant, because the central theme of this paper and conference is the relationship between corporate counsel and their outside counsel counterparts, this section will address the internal investigation issue through the narrow lens of that relationship and only briefly touch on the other factors associated with an internal investigation. Additionally, instead of attempting to address each factual scenario calling for an internal investigation, for the purposes of this section, a generic act of executive misconduct that gives rise to the investigation is assumed.

1. Square One: Deciding to Investigate, Selecting the Investigation Team

Before addressing the inside/outside counsel relationship, a short discussion of how we get to that point is warranted. Upon receipt of a complaint or notification of possible impropriety, corporate counsel must determine if an internal investigation is necessary. Because of factors such as potential exposure and the litigious society in which we live, corporate counsel must err on the side of caution and act immediately and appropriately when an investigation is warranted. As a result, the decision to investigate or not must be made quickly and decisively when a complaint is brought to counsel’s attention. However, whether to investigate may not be a black or white decision. Most complaints fall somewhere along the continuum between a complaint that an employee is pilfering staples and the other end of the spectrum – an allegation of securities fraud. Counsel may want to take into account such factors as:

· The source of the complaint. Some sources deserve more credence than others, i.e., a regulatory agency vs. an anonymous source or a source with personal bias or self-interest.

· The form of the complaint. Complaints can come to you via news story, anonymous note, or a call to a company helpline.

· The substance of the complaint. This may vary greatly and may be the first indication of the need to consult with outside counsel.

· Indicia of credibility. Has the company received similar complaints? Is the information the type that only certain people would know?[7]

Other factors which may also be considered include the magnitude of the alleged harm, the existence of any governmental inquiry, the number of employees allegedly involved, the duration of the alleged wrongdoing, the prior disciplinary history of the company, the company culture, and the aggressiveness of the Company’s Board of Directors.[8]

If counsel takes into consideration all the foregoing, and determines that an investigation is warranted, the next step is to determine the scope of the investigation and who shall comprise the Investigation Team. The scope of the investigation is context and case specific, so it would be difficult to discuss here. The makeup of the Investigation Team, and whether outside counsel should be involved, however, falls squarely within the focus of this paper.

2. Should Outside Counsel Conduct the Investigation?

The foremost considerations in conducting an internal investigation are fairness, accuracy, thoroughness, credibility and timeliness. The inclusion of outside counsel positively impacts the credibility factor probably most directly because findings from someone independent of company culture and politics is generally viewed as more credible. Aside from the independence issue, a relatively recent article[9] lists pros and cons to having outside counsel conduct the investigation.

Pros:

· Some courts still cloud the issue as to whether privilege applies to corporate counsel. The use of outside counsel alleviates that concern.

· If the issue carries a high risk or is particularly sensitive in nature (involving alleged misconduct of high level executives), employing outside counsel avoids a potential conflict of interest situation.

· Outside counsel may have specific knowledge of some applicable area of law which corporate counsel lacks.

· Outside counsel may be viewed as more independent and without bias. Frequently, corporate counsel interacts regularly with members of the executive management of a company, and with the company’s Board, so there is an inherent prejudice should an investigation involve any of those people.[10]

Cons:

· Cost. Utilizing outside counsel specializing in conducting these internal investigations is not cheap. At least not as cheap as utilizing someone on the company’s payroll. Additionally, an independent law firm with no history with the company faces a learning curve about company policies, culture, etc., and the company will pay for that education.

· In cases involving government regulation, post-Enron, there were increasing pressures and mechanisms to waive privilege, even if outside counsel was involved. If that is the case, the benefit of protecting privilege is obviated.

· The presence of outside counsel may cool employees’ willingness to be forthright and forthcoming during the investigation.

3. The Waiver of Privilege Issue

Of the factors to be considered, the maintenance of privilege is the topic which garners the most attention. Corporate counsel in the post-Enron era is in a precarious position. The federal prosecutor involved may attempt to coerce counsel to waive the privilege in exchange for “favorable” treatment – what the author cited above referred to as “pressures and mechanisms” following Enron whereby prosecutors were successful in forcing companies to waive attorney-client privilege. That “Enron effect” was supposedly softened in December, 2006, by the Department of Justice’s issuance of the “McNulty Memorandum,” which cautioned prosecutors to seek a waiver only in rare circumstances and that a refusal to waive cannot be held against a company in making charging decisions.[11] Still, prosecutors have certain latitude, and it remains to be seen how a company’s cooperation, i.e., voluntary waiver of privilege, or lack thereof, may affect how it is treated by the DOJ.

At the least, corporate counsel should follow a few guidelines to protect privilege:

· Counsel should structure the investigation to maximize the likelihood that privileges will apply. Because privilege applies only to communications made for the purpose of obtaining legal advice, counsel must make it clear form the outset that all communications related to the investigation are for the purpose of providing legal advice to the company about its rights and obligations relating to the investigation. Additionally, in order to protect work product, all materials generated by the investigation team should be prepared by or under the direction of an attorney. [12]

· Counsel must recognize that no decision to waive privilege should be made until after the investigation is concluded. Only those communications intended to be confidential are subject to privilege, so if the company waives privilege at some point during the investigation, it could be argued that any subsequent communications were not intended to be confidential, and therefore the waiver applies to them. [13]

· Counsel must remember that any disclosure of the results of an internal investigation can operate as a broad waiver of the attorney-client privilege and work product protection. [14]

· Counsel must be careful in deciding to waive privilege and produce documents to a governmental agency to ward off prosecution or to obtain favorable treatment as some courts have held that the party cannot later claim privilege for the same documents previously provided to a governmental agency, the “selective waiver” doctrine.[15]

· Counsel must also be cautious of agreements to try to limit the scope of a waiver. Courts have held that such an agreement is not applicable to a third party.[16]

The protection of privilege when conducting an internal investigation is a minefield, plain and simple. The best corporate counsel can do is to take practical steps to do everything possible to preserve the privilege and make an educated decision concerning whether waiving the privilege (if asked) is prudent. Privilege, and the inadvertent waiver thereof, is discussed at greater length in section III below.

4. Regular vs. Specialized Counsel

Another issue to consider is whether the law firm that represents a company on a regular and ongoing basis should be involved in the internal investigation. Should you employ the company’s “regular” outside counsel or a firm with a specialty in the area at issue or that holds itself out as specializing in the type of investigation necessary? Using the company’s regular outside counsel naturally leads to some questions about whether the law firm, with history, relationships and a fiduciary interest in the success of the company, can be objective in conducting the investigation. The flip side of that is that regular counsel possesses background information about the company which may prove helpful in conducting the investigation. It is not, therefore, always a clear or straightforward decision, and in deciding whether to use specialty counsel for the investigation, corporate counsel may consider factors such as (a) whether regular counsel was involved in or rendered advice relating to the activities in question, (b) whether regular counsel is familiar with the criminal laws and the law of corporate responsibility, (c) whether regular counsel has subject matter expertise, (d) regular counsel’s familiarity with any governmental agencies (and their personnel which may be involved), and (e) whether regular counsel possesses the resources to conduct the investigation.

5. A Few Recommendations Re: Internal Investigations

In summary, the issue of how to conduct an internal investigation is somewhat of a moving target, and must be addressed not only with an eye toward your own company’s culture, history and personnel, but also based on the specific situation, event or circumstances that gives rise to the need for the investigation. A few recommendations:

1. If corporate counsel decides to administer the investigation, he should ensure that the investigation is fair, accurate, thorough, credible and timely. The prevailing charge of all such investigations is that the integrity of the investigation is preserved, so the appearance of independence and objectivity is paramount.

2. Privilege, and the waiver thereof, is always a priority in conducting an internal investigation. Counsel should take steps to avoid inadvertently waiving privilege.

3. If outside counsel is hired, corporate counsel must analyze whether to use the company’s regular outside counsel or counsel specializing in the area in which the investigation is to be conducted, considering such factors as a) whether regular counsel was involved in or rendered advice relating to the activities in question, (b) whether regular counsel is familiar with the criminal laws and the law of corporate responsibility, (c) whether regular counsel has subject matter expertise, (d) regular counsel’s familiarity with any governmental agencies (and their personnel which may be involved), and (e) whether regular counsel possesses the resources to conduct the investigation. Corporate counsel’s knowledge of the company culture, processes, procedures and personnel can be a vital resource to investigating counsel. Open and ongoing communication between corporate counsel and investigating counsel is, therefore, very important.

4. In addition to counsel, depending on the situation and the subject matter, the Investigation Team may also consist of experienced investigators and industry-specific experts. Counsel must take special precaution to ensure that communications with members of the Investigation Team fall within the veil of privilege.

C. When or should mediation be considered, and what role should in-house counsel play?

Fifteen years ago, mediation in construction disputes was a rarity. Now it is the norm. Nearly 150 years ago, a very wise lawyer once opined about the values of mediation:

Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser – in fees, expenses and waste of time. As peacemaker, the lawyer has a superior opportunity of being a good man. There will be business enough.

The man offering that advice – Abraham Lincoln. It seems that the construction industry has embraced those words of advice, and an informal poll of corporate counsel confirmed to the author that corporate counsel almost unanimously prefer to use some version of the mediation process as a means by which to more expeditiously and economically dispose of disputes. With litigation and other forms of alternative dispute resolution, such as arbitration, consistently growing more and more costly, parties are more and more willing to see if their disputes can be resolved through early mediation. As a result, mediation has become a standard process for all types of disputes faced by corporate counsel in the construction industry.

The purpose of this section is not to convince the reader that mediation is the only path to take to resolve a dispute. However, there are some distinct advantages to mediation: [17]

· Finality. A settlement will be a final contract which is not subject to appeal, and is immediately enforceable.

· Even an unsuccessful mediation can narrow the issues in dispute.

· Because it is less adversarial, mediation can help preserve business relationships which would otherwise be jeopardized.

· Mediation is cheaper and faster than other processes.

· The parties retain control of the process and therefore avoid unexpected, unacceptable results.

· Confidentiality can be maintained.

· Allows the parties to preview an alternative reality, and provides a reality check that can be used to adjust risk allocation assumptions.

· The process allows the true decision makers to allocate the risk personally and perhaps more accurately than others involved in the process.

· Mediation settlement may offer non-monetary settlement options that are unavailable in other processes.

Not all disputes lend themselves to mediation, however, so the question for corporate counsel becomes, “Is my particular dispute the kind for which mediation will serve my company’s interests?” Some types of disputes for which mediation may not be the best option may include a scenario where one party seeks to set a precedent with the action for future cases, or if the dispute involves an immutable law, statute, regulation or principle for which one party is seeking to change the interpretation, or, quite simply, if one party does not wish to listen to the other’s claims.[18] Still, in a vast majority of the disputes facing corporate construction counsel, mediation is a viable, and preferable, means to an end.

What role, then, should corporate counsel play in a mediation? If the primary goal of mediation is to resolve a dispute early and at the least expense, then it makes sense that a mediation be handled solely by corporate counsel. Setting aside the isolated argument that corporate counsel conducting a mediation in a forum in which he is not licensed might constitute the improper practice of law, a vast majority of the corporate counsel with whom the author spoke preferred to attempt to handle their early or pre-suit mediations in-house. Corporate counsel may decide to bring in outside counsel if:

· The subject matter of the dispute is outside corporate counsel’s expertise;

· Corporate counsel does not have the staff, resources or time to devote to a mediation;

· Outside counsel was more involved in the investigation of the underlying cause of the dispute and therefore possesses intimate knowledge of the facts and circumstances underlying the dispute; or

· Corporate counsel is doubtful the mediation will resolve the dispute, and therefore desires for the counsel who will be litigating or arbitrating the matter to be exposed to the other side, their positions and their personnel;

If outside counsel is brought in to handle the mediation, corporate counsel should be kept in the loop about how the mediation is going to be handled. Corporate counsel may have certain preferences or dislikes, may find certain methods, such as Powerpoint presentations, construction of models, use of charts and graphs or participation and attendance of experts, superfluous and counterproductive to the economic benefits of mediation, and may generally want a say in how aggressive a tact or approach is adopted by counsel during the mediation conference. Most of the corporate counsel interviewed said that they will attend mediations in almost all but the most insignificant matters, even if outside counsel is taking the lead. The overriding message here, as in other sections, is that the most important consideration for outside counsel is to maintain open communications with corporate counsel and to keep him well-informed when mediating a matter.

D. What are the best practices for retaining and managing outside local counsel?

Because most construction companies eventually step outside their hometown or region, it is increasingly important for corporate counsel to be able to find good, dependable local outside counsel when prosecuting or defending a claim or lawsuit away from the company’s home base. This, quite frankly, can be a very difficult search and decision when treading into unknown territory. So, how does corporate counsel begin the search? A 2005 ACCA survey revealed that corporate counsel approved of the following methods in the stated percentages:

79.7% - Referral from other outside counsel

50.4% - Company-approved outside counsel list

49.6% - Referral from other in-house counsel in company

48.9% - Referral from in-house counsel at another company

22.6% - From other employees at their company

18.8% - Online directories

18.05% - Published directories

17.29% - Search of law firm websites[19]

The results of the survey show the importance given to word of mouth referrals as four of the top five methods listed involve direct recommendations, and the fifth is a recommendation in an indirect form. Outside counsel, it would seem, would be well-served to make friends in other locales. (One source that didn’t appear on the survey, oddly enough, was a recommendation from the company’s insurance carrier, which, in certain cases, may trump all others.)

After the initial referral, the methods by which corporate counsel narrow their search vary greatly. One tried and true method, though, is the “beauty contest” in which the finalists are allowed a chance to make presentations to show how they, indeed, are the law firm corporate counsel should choose. There are even sources available which provide corporate counsel lists of questions to ask during these “interviews.”[20]

So what traits does or should corporate counsel look for in an outside law firm? Some of those traits may include:

· Recognized expertise and experience in his field

· Clearly translates/applies legal advice into the context of the client’s business and in a form most conducive to the client’s business objectives

· Anticipates client’s needs

· Proactively solves problems

· Is a creative, strategic thinker and effective communicator

· Is timely, available, responsive and result-oriented

· Identifies what adds value to the client, delivers that value, and is able to demonstrate that he does so

· Consistently delivers more than expected.[21]

As the overriding theme, the most important part of the process of locating and enlisting the services of outside counsel is communication. Corporate counsel must clearly express its expectations with regard to costs and fees, of course, but also should educate prospective counsel about the culture and approach of the company, the level of aggressiveness sought in a certain matter or in general, expectations about availability, response time, the scope of outside counsel’s authority and the degree of corporate counsel’s involvement in the handling of matters. As with any relationship, the establishment of trust and confidence at the onset serves as the foundation, so clear communication of expectations is a must.

III. PROTECTING PRIVILEGED COMMUNICATIONS AND PROPRIETARY INFORMATION (THE NEW FRE 502)

A. The Purpose of New Federal Rule of Evidence 502, Subsection b.

The theme of this paper is, of course, how certain issues impact the relationship between in-house and outside counsel. The inadvertent waiver of attorney-client privilege and/or work product protection, should that occur, will undoubtedly result in a marked and understandable strain on that relationship. A new Federal Rule of Evidence on the topic warrants discussion here, and one cannot discuss its impact without first discussing the Rule itself.

On September 19, 2008, President Bush signed into law the new Federal Rule of Evidence 502, including subsection b. thereof entitled “Inadvertent Disclosure.” The purpose of FRE 502(b) is two-fold: (a) to resolve conflicts between and among federal courts over the issue of waiver of attorney-client and work product privileges, specifically, through the voluntary but inadvertent disclosure of privileged information, and (b) to limit the effects of inadvertent waiver through production to remove the fear of inadvertent subject matter waiver of all protected documents, thereby curbing the rising expense of electronic discovery by lessening the need to carefully review each and every document produced.[22]

The first stated goal is rather straightforward and attainable. Subsection 502(b) clearly sets forth a three-pronged approach to what inadvertently revealed information is not to be the basis for subject matter waiver:

b. Inadvertent Disclosure - When made in a Federal proceeding or to a Federal office or agency, the disclosure does not operate as a waiver in a Federal or State proceeding if:

1. the disclosure is inadvertent;

2. the holder of the privilege or protection took reasonable steps to prevent disclosure; and

3. the holder promptly took reasonable steps to rectify the error, including (if applicable) following Federal Rule of Civil Procedure 26(b)(5)(B).[23]

The only interpretive question mark with the Rule as drafted really revolves around what will be considered “reasonable steps” to prevent disclosure and to rectify the error once discovered. Because of the novelty of the Rule, courts have yet to create law interpreting those terms. However, the drafters noted several factors which may be taken into consideration, including (a) the number of documents to be reviewed, (b) the time constraints for production, (c) the implementation of an efficient system of records management before litigation, (d) the use of advanced analytical software programs to screen for privileged documents, (e) the time taken to rectify the error, and (f) the “overriding issue of fairness.”[24]

Addressing the second goal, some have already questioned whether the cost-savings espoused by Congress in enacting the bill will ever be realized in practice. As stated by one author:

FRE 502 is based on the premise that litigants spend millions of dollars on privilege review, which they would not otherwise spend, out of fear that the waiver of attorney-client privilege or work product protection will result from the inadvertent production of protected documents. Thus, the scope and cost of privilege review can be reduced if the risk of waiver is minimized. While avoiding waiver is important, the practice of reviewing potentially privileged documents on a document-by-document basis is motivated primarily by the desire to prevent disclosure of the protected information contained in the reviewed documents to adversaries. Avoiding waiver is a worthwhile goal, but the risk of disclosure, itself, warrants close scrutiny of potentially privileged documents.[25]

In other words, why would litigants review the documents they intend to produce any less diligently based on a softer waiver rule when the ultimate goal of the review is not to produce that information in the first place? It seems illogical, then, that FRE 502 will result in the savings intended. Moreover, one could argue that, although the term is undefined, a court faced with this situation is likely to determine that anything short of a document-by-document review would fail the “reasonable steps” test required to prevent waiver. Therefore, it appears that the Rule itself may require what its authors seek to avoid.

The first goal of the Rule, to clear up and limit the actual impact of such an inadvertent waiver, seems far more attainable.

B. What must outside counsel do/advise to avoid inadvertent waivers?

It may be impossible to preclude any and all inadvertent waivers, no matter how careful or “on top of things” corporate counsel may be. Still, involvement and close attention by corporate counsel can reduce that risk to the extent possible. Obviously, the “perfect” answer concerning how best to avoid inadvertent waivers is for corporate counsel to review, line by line, anything that is produced in a lawsuit, arbitration, or other dispute resolution process. The reality, of course, is that corporate counsel do not have the opportunity, nor the desire, to do so. Realistically, corporate counsel rely on others to assist them with the review of documents, and that reliance may leave the door open for mistakes or inconsistent treatment of privileged documents.

One corporate counsel that was interviewed made a point of emphasizing the importance of regular and consistent training of those responsible for reviewing documents as perhaps the most important way to reduce the risk of inadvertent disclosures. She conducts training on an annual basis concerning the meaning of “privilege,” how it can be inadvertently waived, and what steps can and should be taken to prevent its waiver. As a part of this training, she addresses many common misconceptions, emphasizing for instance that simply including counsel’s name on correspondence, etc., does not necessarily mean that the contents of the communication somehow magically become privileged. Further, she explains that the language included in her memoranda stating that they provide “requested legal advice not for business concerns” serves an important purpose.

IV. EXPERT WITNESSES

A. How should in-house counsel participate in expert selection and management?

Assuming that the list of potential experts has been narrowed by qualifications and expertise, some corporate counsel are very involved with the final selection, and some leave that decision entirely with outside counsel. This is yet another area where the approach of corporate counsel can vary greatly based on a number of factors: What is the scope of the expert’s investigative/reporting/testifying duties? What kind of expert is needed – investigative or testifying? How familiar is corporate counsel with the area for which an expert is sought? Does corporate counsel have some expertise in the area? Is corporate counsel familiar with experts in the geographic area or specializing in the topic? Has outside counsel had prior experience with the expert he is recommending? Does corporate counsel prefer using one-stop shopping consulting firms, or those more specialized in the specific area for which their expertise is sought?

Regardless of the level of corporate counsel’s participation in the selection of the experts, it is imperative that corporate counsel is comfortable with the expert come time to go into battle. Corporate counsel must be comfortable with the expert’s approach, demeanor, ability to express his opinions to his anticipated audience, as well as acumen and knowledge of the subject matter. By and large, corporate counsel does not want any surprises when it comes to experts, and if he’s not involved in the selection process at all, if his first exposure to the expert is at the receipt of his report, it may be too late at that point to replace him. Again, upfront and clear communication of expectations is paramount to the successful selection and utilization of experts.

V. Cost-Effective Discovery

In complex construction litigation, winning is everything – or almost everything – depending on the proverbial economies of scale for a client. Indeed, a successful outcome at trial is dependent in large measure on the factual development of each case through the discovery process. With so much at stake and countless opportunities to maximize a client’s likelihood of success, it is not surprising that discovery can often yield a turning point in a case. This is not just true for discovery that yields a “smoking gun.” Parties to complex litigation can gain momentum from subtle, yet tactical advantages garnered through discovery.[26] For example, a discovery-savvy lawyer can obtain a more beneficial discovery plan than his/her opponent at a Rule 26 conference by having a full grasp of the client’s production limitations and capabilities. A trial attorney who learns the structure of his/her opponent’s document production is able to take more effective depositions. If counsel recognizes an opponent’s document production deficiencies early on, that problem could yield an award of sanctions against the opponent requiring negative inferences to be deduced from the deficient production. Indeed, the array of mini-victories either side may achieve during discovery is countless.

But what about the costs to engage in discovery? Discovery typically represents 50% of the litigation costs in an average case and “up to 90% of the litigation costs in cases in which it is actively pursued.”[27] Given these figures, consider the broad spectrum of discovery approaches lawyers can and do take concerning the price tag quotient. On one end of the spectrum, some lawyers consider discovery a “necessary evil” that must be dealt with instead of managed efficiently. In that scenario, budget concerns take priority over factual development of the case, or worse, counsel find themselves behind the learning curve of knowing and gaining a full understanding of their client’s documents and/or document management system and policies. On the other end, some counsel employ discovery approaches that “leave no stone unturned” where no document, no matter how insignificant, is exempted from attorney review and e-discovery costs soar without any real effort to maintain them. In such a circumstance, discovery costs end up dwarfing and overriding the litigation budget without much value to the client or to the development of the case. Somewhere in the middle is where most attorneys strive to be – balancing cost concerns with zealous representation through technical and strategic discovery know-how. Such is the aim of this section – to help identify and articulate techniques garnered from both in-house and outside counsel in finding that middle ground in the midst of complex litigation.

A. What are the best ways to prepare and communicate discovery plans?

First, a definition of a “discovery plan” is required. Formal discovery plans are required

under the Federal Rules of Civil Procedure and are developed after conferring with opposing counsel. Rule 26(f) discovery plans must be approved by the Court and are adopted through a court order to guide the parties through agreed-upon parameters during the discovery process. Prior to the Rule 26(f) conference, however, clients and counsel develop their own internal discovery plans as roadmaps to help develop legal theories and strategies. As a case evolves and legal themes shift, an internal discovery plan will assist a team in prioritizing those areas of the case that demand more or less attention; it also mitigates the risk of unnecessary discovery detours.

Irrespective of which kind of discovery plan is being developed, however, three key themes emerge concerning the preparation and communication of these plans: (1) early preparation and involvement of outside and in-house counsel is not only crucial, it is required by emerging case law; (2) continuing and persistent communications during the process is essential to avoid problems; and (3) limited or “high-level” involvement of in-house counsel is not optimal – in-house counsel must take an active role in overseeing company compliance with discovery obligations.

1. Formal Rule 26(f) Discovery Plans.

“Without an organized discovery approach in construction cases, either you will not uncover invaluable evidence, or you will be overwhelmed with a mass of meaningless documents.”[28]

In December 2006, the Federal Rules of Civil Procedure were amended to require early

discussion of issues relating to electronically-stored information (ESI), among other items. Under the Federal Rule of Civil Procedure, parties are required to meet within 120 days of filing the litigation, and at least 21 days prior to the scheduling conference specifically to discuss e-discovery issues, among the host of other traditional discovery items. The purpose of the Rule is to avoid the loss of ESI and ensure its viability and timely production by resolving concerns upfront. However, “[t]he accelerated timeline for the discovery conference leaves little time to conduct early evidence inventories, get acquainted with retention practices, or institute new preservation processes…[t]his rule puts a tremendous premium on readiness, transparency, and process controls for in-house litigators; those with good transparency and good controls have both offensive and defensive avenues and those without have neither.”[29]

Though it is not the intent of this paper to delve into e-discovery issues, suffice it to say, the gist of the federal amendments is that parties cannot over-plan or over-communicate regarding ESI and discovery. The new Federal Rules of Civil Procedure have created a number of technological challenges for law firms. For instance, construction lawyers are required to know where the client’s data is stored, how accessible it is and what burdens the litigation team will shoulder if required to produce it.

Under the disclosure requirements of the new federal rules, parties need to disclose the potential sources of relevant information, including those deemed inaccessible or those that they do not intend to produce, identified by the type and kind of information. Clearly, having a thorough understanding of the client’s document systems and types of media available or “inaccessible” will provide a tactical advantage in better being able to negotiate with opposing counsel and narrow the universe of documents that will be subject to a mutual exchange.

Regarding ESI, the American Bar Association, Litigation Section adopted and published Civil Discovery Standards that are a useful resource regarding categories of data and different platforms that “should be considered” by a party preparing for electronic discovery.[30] Other issues that may need to be addressed during the planning process include preservation orders; appointment of a neutral computer forensics expert; the need to expedite discovery in light of business document retention and destruction policies; and cost shifting.

2. Internal Discovery Plans.

“Organizations that lack a comprehensive map of potentially relevant records will be at a major disadvantage from the outset, playing catch-up just when they should be doing serious analysis of the case.”[31]

In complex litigation, each party has potentially millions of pages of documents in both

paper and electronic format that need to be located, reviewed, and produced. There are dozens or hundreds of fact and expert witnesses that require interviews, depositions, transcript review and preparation as trial witnesses. Additionally, there is a menu of written discovery options that help narrow the issues for trial and provide a better understanding of the opponent’s claims or defenses. Thought must be given to the timing, exchange, and necessity of requests for documents, interrogatories, requests for admissions, written deposition questions, third-party subpoenas, etc. Because the nature of discovery in large-scale litigation is vast, internal discovery plans help allocate responsibility to different attorneys, including local counsel or co-counsel teams. The plans help chart the different moving pieces concerning fact witness interviews, third-party subpoenas and document productions, the ongoing status of internal privilege review of client documents, the physical location of discoverable information to be produced, and the status of propounded written discovery. Two sample internal discovery plans are attached as Appendices C and D. An E-Discovery Project Management Template also is attached as Exhibit E.

3. The Roles and Responsibilities of Outside Counsel

In times past, a trial attorney would issue a “Litigation Hold” letter directing its client to

preserve all discoverable information upon reasonable anticipation of litigation. The issuance of that letter typically constituted a lawyer’s due diligence relative to preservation of records. This is no longer the case. Recent case law dictates that merely issuing a “litigation hold” letter, without more, can subject outside counsel to discovery sanctions. Indeed, the role of outside counsel in assuring compliance with the discovery plan has never been more thorough and comprehensive. Several recent decisions have addressed outside counsel and in-house counsel obligations under the emerging federal rules, and three are highlighted below.

a. Discovery Obligations to Collect, Preserve, and Produce Documents

Outside counsel has an obligation to take an active role in discovery collection and to communicate with in-house counsel concerning that process and subsequent production. For example, in Zubulake v. UBS Warbug LLC (Zubulake V),[32] the court outlined both the parties’ and counsel’s obligations to preserve and produce electronic information in the course of litigation. Specifically, in issuing a host of monetary and other sanctions against the defendant for lost (deleted) emails, the court discussed the counsel’s failure to understand how its client’s electronic information was stored, failure to communicate the litigation hold that was issued to certain key employees, failure to directly ask another key employee to produce her electronic files, and failure to preserve relevant back-up tapes.[33] “Counsel must take affirmative steps to monitor compliance so that all sources of discoverable information are identified and searched.”[34]

Likewise, in Coleman (Parent) Holdings, Inc. v. Morgan Stanley & Co., Inc,[35] the plaintiff was entitled to adverse inference jury instructions regarding defendant’s failure to timely produce back-up tapes. In fact, the plaintiff’s counsel was permitted to discuss defendant’s discovery failures in its closing argument, and maximized that opportunity telling the jurors that the defendant “hid,” “lied,” and “destroyed” evidence. The jury awarded the plaintiff $1.4 billion. In Metropolitan Opera Assoc., Inc. v. Local 100,[36] the court reprimanded the defendant’s counsel for failing to provide adequate instructions to the client about their overall discovery obligations; failing to implement a document retention policy; and delegating document production to a layperson. The court granted severe sanctions, found liability on the part of the defendant and ordered the defendant to pay plaintiff’s attorneys’ fees. The simple take-away from these cases is straightforward – failing to plan for discovery with IT ahead of time can lead to costly results.

Additionally, these cases provide clear guidelines when dealing with e-discovery issues which are succinctly highlighted in the Zubulake V summary.[37] First, it is incumbent upon both in-house and outside counsel to determine the scope of the litigation hold – in other words, what relevant categories of data and employees will be subject to immediate preservation? Second, outside counsel must become familiar with the client’s document retention policy, IT system, and must identify all possible locations of potentially relevant information. Third, outside counsel must issue a litigation hold whenever litigation is reasonably anticipated. Fourth, outside counsel must communicate directly with key custodians of relevant data and these key players need to be periodically reminded that the preservation duty is still in place. Fifth, outside counsel must instruct all client employees to produce electronic copies of their relevant active files and ensure that all backup media is preserved and maintained in a safe place.

b. Preparation and Communication for Rule 26 Conference and Discovery Plan

To effectively prepare for the Rule 26 meeting, outside counsel must obtain firm, credible

answers from both client and adversary concerning at least the following (non-exhaustive) list of topics outlined in the 2008 Sedona Conference “Jumpstart Outline.”[38] Typically, the answers to these questions usually spur more questions but will enable outside counsel to adequately guide the client about the preservation and production obligations and understand their adversary’s system.

(1) Document Retention Policy - Does the company have a document retention (or records management) policy in place? Is such a policy in writing? If yes, is the policy enforced? By whom? How? If yes, did the policy change during [insert relevant time period]?

(2) Key Custodians of Potentially Relevant Information -Who are they? To what extent has information in the possession, custody, or control of the key custodians been preserved? Identify what efforts client has taken to date and further efforts that need to be made. Identify what efforts adversary has taken to date and if insufficient, request that further efforts be made.

(3) Timeliness - What is a reasonable time to search a party’s entire electronic database, review and organize the relevant documents? Should the normal time limits as provided by FRCP 26 be expanded when data with limited accessibility is involved?

(4) Chain of Custody Issues - Is either party going to hire an outside electronic discovery service provider? How will the service provider handle chain of custody?

(5) Network Servers - Do you use a network-based system? Do you have a system that backs-up the information managed and/or stored on the network? If not, which months do you not have back-up? Does the company have a policy of overwriting, reformatting or erasing backups of your network server on a periodic basis?

(6) Email Servers - Identify the systems (client and server-side applications) used for email and the time period for use of each such system, including any systems used at any overseas facilities. Do you maintain email servers at any or all of the Company’s divisions/business units?

(7) Hard Drives - Are employees desktop and laptop hard drives backed up in anyway? If so, under what circumstances? If so, how long are such backups retained? Do you implement technical impediments to minimize the opportunity for employees to save files, emails or other data to their desktop or laptop hard drives? To what extent has a search been done to determine the extent to which any of the key custodians in this litigation did, in fact, save files, emails or other data to their desktop or laptop hard drives? Flash drives? As a matter of policy, are employees’ desktop and laptop hard drives erased, wiped, scrubbed or reformatted before such hard drives are, for whatever reason, abandoned, transferred or decommissioned?

(8) Non-Company Computers - Does the company policy permit, prohibit or otherwise address employee use of computers not owned or controlled by the company to create, receive, store or send work-related documents or communications? If so, what is that policy?

(9) Laptops - Does the company maintain laptops for project management use? If so, are those laptops recycled, scrubbed or erased after each individual use? Is a record kept of individuals with laptop access?

In addition to fully vetting these topics with in-house counsel and opposing parties, in complex litigation, outside counsel must also give consideration to proportionality (i.e., does the scope of discoverable documents and the associated costs of searches and production balance with the discovery-related needs of the case?). Counsel must also establish and get a handle on reasonable dates for the exchange of sworn affidavits or documents; the number of experts and timing of delivery of expert reports; and the time, cost, and manner of production of documents from the parties and any third parties who may have relevant documents. Further, outside counsel should be prepared to identify the individuals proposed for oral discovery, along with the expected date and duration of those examinations, and discuss any agreement to examine a party for more than one day.

Although not part of the formal discovery plan, outside counsel must also manage outside vendors. Given that an entire consulting industry in litigation support thrives on managing the mountains of paper and electronic files subject to discovery, outside counsel will necessarily have to interview vendors, recommend to the client the pros and cons of each, and ultimately select and retain the most appropriate e-discovery vendor. (N.B. A contrary view is provided in Section 4 below discussing in-house counsel’s potential preference to select, manage and oversee the e-discovery vendor process).

As discovery progresses, outside counsel must also ensure that pleadings are sent to in-house counsel for review, not just send copies of issued discovery after the fact. This concept may seem straight-forward and not worthy of mention, but with respect to discovery requests, the perspective of in-house counsel is valuable and should be used to the advantage of the case. For instance, in-house counsel is likely to know if something is needed because of the insight into the business aspects of the issue or technical understanding of the facts to be elicited. In-house counsel typically will convey, or outside counsel should establish, a written schedule at the outset aimed at advising what and when outside counsel intends to issue written discovery.

4. The Roles and Responsibilities of In-house Counsel

In the past five years, federal judges have become increasingly well-versed with ESI

and have come to expect that courtroom litigants are cognizant of both their discovery obligations and the federal rules. To that end, inside counsel have focused on the following five areas to focus corporate resources and attention:[39] improving the “legal holds” process (in-house counsel must be knowledgeable as to when the threshold occurs for anticipating litigation and must examine and improve the legal holds process in place); establishing control and transparency (in-house counsel should have ready access to a current list of all legal holds, all custodians, and all active collections); mapping data sources and the individuals responsible for them (in-house counsel must conduct an inventory of systems and sources of data as well as the storage locations for active, inactive, and archived data); upgrading the company retention program (in-house counsel should revamp the company’s retention program to address ESI and should specify lifecycles for all data); and communicating and educating (in-house counsel must meet with senior management to underscore the importance of legal holds using recent cases as examples).[40] A sample client litigation hold letter is attached as Appendix F.

Other techniques employed by in-house counsel include: (1) appointing an attorney in the legal department to act as the company’s IT Liaison; (2) employing a document management system; and (3) taking control of the vendor selection process.[41] First, to the extent some companies find that a disconnect exists between the legal team and the IT staff and key employees relative to what sources of data are to be protected, some in-house legal departments designate an in-house attorney who is responsible for proactively discussing technical considerations with the IT manager. Second, a document management system (DMS) allows an organization to accurately and efficiently implement a preservation hold on the documents of key personnel. “The company can also cost-effectively segregate its data by developing, implementing, and monitoring a retention schedule that fits its business needs.”[42] Third, some in-house legal departments feel better served by achieving economies of scale with respect to engaging discovery vendors. If the client company uses one vendor for all national litigation, it may be more cost effective rather than having multiple outside counsel select a range of vendors in different states.

Broadly stated however, in-house lawyers often find a benefit in communication and preparation of discovery plans when the company takes affirmative efforts to link outside counsel to the company’s business objectives, strategies and processes. Such efforts also provide outside counsel the means to understand the company’s organization, culture, and decision-making processes, etc.[43]

B. How should outside counsel help in preserving discoverable information?

Any discussion concerning the duty to preserve relevant data should include as a first

step, a conservative establishment of the date upon which the client reasonably anticipated litigation – only then is the duty to preserve triggered. In considering whether and when the duty to preserve is triggered, the courts will review the “totality of the circumstances” in determining whether and when the parties anticipated litigation.[44]

Once the obligation to preserve has occurred, outside counsel’s role in preserving

discoverable information includes at least all of the following: working together with in-house legal department to identify key employees involved with the case; determining the scope, sources, categories and locations of all potentially relevant, discoverable information; issuing a litigation hold; and recognizing that outside counsel’s duty is continuing to ensure the client’s compliance with those preservation obligations (e.g., through client interviews, phone calls, emails, supplemental memoranda, and meetings with key employees, IT staff, and the in-house legal team).

Should these efforts fail, consider the new Federal Rule of Civil Procedure which provides a safe harbor provision stating, “absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide ESI lost as result of routine, good faith operation of an electronic information system.” For example, the Rules recognize that ordinary computer use necessarily involves routine alteration and deletion of information for reasons unrelated to litigation.

Despite outside counsel and the client’s legal department’s efforts to ensure compliance with their duty to preserve electronic data, problematic scenarios can and do happen. For instance, it is not uncommon for documents to be routinely destroyed automatically in compliance with the company’s document retention policy. And, “while such policies promote efficiency by deleting unnecessary documents and files, these policies may directly conflict with the duty to preserve.”[45] Outside counsel and in-house counsel must truly be on hyper-alert to safeguard and protect relevant evidence.

C. What are the best ways to manage client/outside counsel teams?

According to the ACC, effective management of outside counsel means “constant evaluation and re-evaluation of a law firm’s performance.”[46] As an informal measure, in-house legal departments can conduct regular reviews of bills/work product to ensure that outside counsel is meeting client expectations. Additionally, as a more formal measure, large construction companies will employ and utilize litigation databases or web-based programs which require outside counsel to prepare monthly, weekly or daily reports summarizing activity on a case. Such programs can also monitor firm invoices tracked against estimated litigation budgets, discussed earlier in this paper. Other management tools for in-house counsel include memorializing an agreed upon protocol for the working relationship at the outset; addressing any problem with outside counsel immediately; acting as the gatekeeper of corporation information with respect to outside counsel (e.g., limiting outside counsel’s direct involvement and contact with key employees); conducting performance evaluations; participating in settlement negotiations and playing a role in shaping discovery and motions practice to reduce costs.[47]

D. What communications/reports are expected from outside counsel during trial preparation and trial?

Typically, it is best to have a discussion up front about the mode in which communication will be relayed to a client during trial preparation and trial. Some clients prefer weekly teleconferences, weekly email status updates, and as discussed above, large clients often engage litigation management systems to track all outside counsel activity on a web-based system. The potential for conflict between attorney and client is heightened during a trial that the client does not attend. In this case, it is imperative for the trial attorney to advise the client how often and how detailed they can expect to receive trial updates.

VI. Managing Claims Prosecution

A. How can joint defense/common interest agreements adequately protect attorney-client privileged information and relationships?

The scenario in which these types of agreements are typically utilized varies. On large projects, construction disputes arise at any tier and litigation may follow involving simultaneous claims by an owner against both its design team for negligent design and against its contractor or CM firm for alleged construction defects. There may also be dozens of subcontractor claims against the general contractor and/or multiple suits by the contractor against different trades. In this kind of multi-party, multi-suit litigation, litigants who share a common opponent “often have a common interest in successfully defending or litigating against that opponent.”[48] When certain documents, facts, legal positions or strategies can serve the collective interests of multiple litigants, a common interest privilege may be established.[49]

In essence, the common interest privilege allows the free exchange of information between members of this strategic alliance without fear of waiving the attorney-client privilege. Four factors must be met to legally create the privilege: (1) the protected communications must occur because of actual or anticipated litigation; (2) the communication must be for the purpose of furthering a common interest; (3) the communication must be confidential; and (4) there is no waiver of the privilege.[50] This privilege may be waived, however, if proper attention is not paid to who is protected. “Generally, only those communications made in the course of ongoing common defense or strategy, and intended to further the defense are protected.”[51] Therefore, it is incumbent upon the drafter of such an agreement to set forth those four factors, especially the agreement to preserve the confidentiality of communications, and to be cognizant that information disclosed during a meeting to a non-party (i.e., a subcontractor’s supplier who is present for a meeting) will be subject to waiver.

Courts frequently use the terms “common interest privilege” and “joint defense privilege” interchangeably. Neither term constitutes a separate privilege that would permit a party to assert that the information was protected from disclosure, nor do they create an independent ground for protection of documents. Rather, common interest or joint defense agreements may establish a privilege that is merely an extension of the attorney-client privilege and the work product doctrines. As such, parties to a common interest or joint defense agreement must proceed with caution in sharing information.

B. When should mock trials or jury focus groups be used?

Due to the costs of participating in a mock trial or jury focus group, these trial preparation techniques are typically used on very large matters where the amount in dispute warrants a proverbial “test run” of the legal theories, opening and closing statements, and presentation of the evidence in your case. Focus groups act as a sample jury who can and do respond to the evidence, themes, witnesses and exhibits of the case, which can be extraordinarily useful to the trial attorney in ferreting out hidden weaknesses in the case. Focus groups are often used earlier in the life of a case than one might expect. This is because the utility of such a method is to identify flaws in the case when there is still time to correct the flaw.[52] Additionally, the outcome of a focus group can affect the potential settlement range the client may be willing to consider. Early use of focus groups is also beneficial to the extent it requires the lawyer to learn the intricacies and ins-and-outs of the case at an earlier stage.

Focus groups can be conducted in three different ways. Counsel can retain a concept focus group that is informal, less time consuming and allows the attorney to “bounce ideas off” of potential-type jurors. In this format, the jurors are given a statement of the case (usually by a facilitator) in a non-persuasive, neutral fashion. The neutral aspect is key because it allows counsel to learn the jurors’ perceptions. The facilitator may ask the group at the conclusion of the statement, “what else would you like/want to know?” which provides a window into what facts the participants think are important.[53]

Structured focus groups, as opposed to concept focus groups, are less “free-flowing” and more like mini-trials. A summary trial is conducted by providing the focus group with a short summary of each side’s evidence and opening and closing statements. The group then renders a verdict.

The most thorough format of the focus group is the mini-mock trial where the attorney can conduct voir dire, play video deposition clips and test exhibits. These events usually last a day or 2 and involve presentation of formal evidence and legal argument. Mini-mock trials provide counsel the setting to test the “impact” of the opening statement and certain witnesses. Unlike concept focus groups, the mini-mock trial is reserved for near the end of trial preparation, because the mini-mock trial is essentially a dress rehearsal for how things will play out at trial.

There is a plethora of literature on how to conduct mock trials and focus groups, but there is not an abundance of research studying the utility of focus groups. It may be that it is hard to measure whether the benefits gained from a focus group actually were significant factors in the trial itself. Instead, the utility of the groups is typically gauged through each trial attorney’s own practical experience.

C. What are the best ways to manage multiple, related lawsuit situations?

Consider the following scenario; a general contractor (GC) sues the owner of a power plant (Owner) in state court for damages caused by Owner’s breaches and for providing a negligent design. At the same time, the Owner files a lawsuit in federal court against the GC alleging breach of contract and liquidated damages. In addition, the project architect (Architect) initiates arbitration proceedings against the Owner for non-payment and the Owner counterclaims in the arbitration for negligent design. Mechanic’s lien suits from subcontractors begin to trickle in, and under the GC’s duty to defend, the GC enters an appearance in the state court subcontractor lien actions and begins asserting counterclaims for defective workmanship and other subcontractor breaches.

In multiple lawsuit scenarios, there is much to be gained tactically from an opponent taking inconsistent positions in one suit that benefit or support the allegations being asserted by your client. However, just as there are strategic benefits, an attorney must also evaluate and consider its own risk of taking inconsistent positions. In this sense, outside counsel must carefully balance the timing and pursuit or defense of multiple suits. Outside and in-house counsel must think in a broader context and think 6 months, or maybe 2 years, down the road and consider all potential outcomes of the different pending litigation. Additionally, in an effort to monitor the various lawsuits, outside counsel and in-house counsel can designate a single point of contact to communicate with the lawyers representing other parties.

In the scenario discussed above, the GC’s outside counsel will want to proactively monitor and obtain discovery from the Owner and the A/E (through third-party subpoena) of the parties’ respective positions concerning the claims in the arbitration. However, in a defensive posture on the subcontractor suits, the GC’s counsel will likely seek to stay the lien actions pending a resolution of the dispute between the Owner and GC. Alternatively, the GC’s counsel may determine that consolidation of all state lien actions on the same project is more cost-effective for the GC. In the same vein, the A/E’s counsel will monitor and use any documents, statements, or other evidence furnished by the Owner to defend against the GC’s claim of negligent design, in pursuit of its claim for payment in the arbitration. The Owner will consider whether to stay the arbitration pending the outcome of the two suits with the GC, or whether to resolve the GC suit including a transfer of the Owner’s contract rights against the A/E, allowing the GC to pursue the architect.

The key issues to remember in managing multiple, related lawsuits are: (1) vigilant monitoring and discovery of other actions in which an adversary may take inconsistent positions is critical; (2) it is crucial to think beyond the case in front of you and consider how an adverse judgment or award to any party in any one related lawsuit may affect your client’s case; and (3) timing is vitally important in these situations and can yield strategic advantages (i.e., being the plaintiff instead of the defendant, staying an action to let another conclude, etc.).