How To Control Legal Costs
If you think that legal costs in this country are out of control, you're right. Each year, U.S. businesses spend nearly $20 billion on legal fees, and the amount an average business spends has nearly tripled during the past decade.
I'd be the last one to defend these charges, but, frankly, the high bills you get may not all be the fault of the legal system. If you're like many business clients, I'll wager that you're leaving too many decisions to the lawyers, business decisions that you should make yourself.
Approach a legal problem as you'd approach any other business problem: decide how much of your limited resources you're willing to allocate to accomplish certain goals. If you're served with a complaint, for instance, ask yourself what is at stake. Is the issue so important to your company that you don't want to pay the plaintiff anything? Are you willing to commit whatever resources are necessary to win? Is the downside a fine so huge it could bankrupt your company, so you have little choice but to fight back? Situations like these are unusual. Most legal matters -- despite their formal, sometimes ominous, trappings -- are garden variety. The smart thing often is to settle quickly and get on with running your company. Sometimes, of course, you'll need to consult with a lawyer, but you should make it clear from the outset that your goal is to reach a sound business solution.
I've seen complex business transactions drag on for months, with lawyers circulating draft after draft of contract documents simply because executives didn't sit down ahead of time and agree on key points that could serve as a blueprint for the lawyers' work. And too many executives reinvent the wheel every time they sit down to hash out a deal. If you tend to repeat particular kinds of transactions, develop standard documentation that you can use as a starting point.
Often businesses turn over to their lawyers time-consuming tasks that could more efficiently and accurately be done by their own staffs. Say, for instance, that your state environmental agency threatens you with a fine because it claims the waste your factory discharges exceeds permitted limits. While your lawyer may be useful in determining the sort of information you'll need for your defense, your own technical people, not a high-paid lawyer, are probably the best ones to gather and interpret the necessary facts. Take a cue from the insurance industry, which for years has used claims adjusters -- not lawyers -- to investigate facts.
In the long run, controlling legal costs may mean moving away from paying lawyers by the hour. When Container Corporation of America, a $1.85-billion Chicago corporation, had to buy and sell more than 40 parcels of timberland, for example, it put the legal work out for bids from competing law firms. Since law firms are most likely to commit to a price when the uncertainties of complex litigation aren't involved, you might try getting comparative prices in such areas as worker's compensation claims, simple real estate transactions, and slip-and-fall and fender-bender cases. Law firms that frequently handle these kinds of cases should be able to tell you how long the work will take and how much the job will cost.
Until competitive pressure forces a change, though, most law firms will continue to charge by the hour. While there are ways to monitor lawyers' hourly fees (see box, "Keeping Tabs on Your Lawyer," page 116), few tactics are as effective as limiting the number of hours they spend on your company's legal problems. And it's not only the lawyers you must worry about. If your dispute goes into litigation, the bills really pile up. An average civil trial in a federal court costs the court -- and ultimately, you -- about $2,700 a day. A court reporter may charge $200 to transcribe a one-hour deposition. Expert witnesses are likely to charge $300 or more for a written report, and if they testify, they'll charge up to $1,000 a day.
Sometimes, of course, you can't avoid litigation, either because of your own business interests or because your opponent refuses to settle a matter any other way. Once litigation gets started, however, it often becomes a sort of game in which everyone gets caught up in the momentum of the courtroom proceedings. For this reason, it's even more important than usual for you to keep your business objectives firmly in mind. It may be in your company's best interest, for example, to settle early rather than to drag the matter out, and it's up to you to take charge of the course of litigation and make that decision. Your lawyer should be ready to settle at any time if that is the cost-effective way to meet your objectives.
Often, you'll be much better off looking for an alternative to litigation. This is another area in which you can take your cue from some of the larger companies. The Travelers Cos., for example, has a reputation for being an unusually aggressive and successful legal cost cutter. Richard Marrs, senior vice-president at Travelers, estimates that his company settles about 250 claims a month through some kind of alternative dispute resolution. His conservative estimate of savings: about $1,000 per case. Several such alternatives are worth exploring:
* Arbitration is probably the alternative you're most familiar with. Either before or after a dispute arises, you and your opponent agree to submit your dispute to some neutral outsider, usually a person (or several people) with substantial expertise in the business matter at hand. You decide in advance whether the arbitrator's decision will be binding, and you and your opponent -- not law or custom -- decide the issues that the arbitrator will consider.
Arbitration tends to be informal and, for certain kinds of cases, quite efficient. In Pennsylvania's federal trial court, for example, arbitration has cut the typical waiting time to resolve a claim from 14 months to just 5, even though the court's caseload has tripled. John Ledwith, a Philadelphia lawyer, estimates that businesses that arbitrate rather than litigate can save at least 50% on legal fees.
Arbitration works best on smaller cases -- up to about $100,000 -- in which only money is at issue. A large complex case with many disputed facts can take as long and be as expensive as a lawsuit. Arbitration tends to produce compromises, so if you'd be unhappy with a compromise, arbitration may not be right for you.
* Mediation is like arbitration in that opposing sides ask a neutral outsider to help solve their problem, but by agreement, the mediator has no power to make a decision. The mediator's only role is to facilitate negotiation and recommend solutions. Mediation tends to be most useful when opponents had an amicable relationship before the current dispute and want to preserve it.
* Summary jury trial is for people who insist that a jury decide their claim. Here, typically, you do everything necessary to prepare for trial, then instead of having a full trial, you seat a panel of six people formally summoned for jury duty. Each lawyer gets a limited time -- sometimes only an hour -- to present his or her case, then the jury renders a nonbinding verdict. This "verdict" should tell you and your opponent what you can expect in an actual trial and serve as the basis for realistic settlement negotiations. Because you do all the preparation needed for trial, the savings from a summary jury trial usually aren't as great as with other alternatives.
* Mini-trials mix elements of the summary jury trial and arbitration, but like mediation, rely on the business executives involved to reach a settlement. In the typical mini-trial, opponents agree on some kind of limited access to each other's facts. When this is complete, lawyers for each side make short presentations of their cases. Then the representatives of each side meet to discuss and settle the matter.
You can adapt any of these methods to your own situation. You may agree to mediation that lasts two weeks, followed by binding arbitration if you can't reach a decision. Many private organizations are available to help people solve their business disputes without going to court. The American Arbitration Association, for instance, for a $100 registration fee, will advise you which type of alternative dispute resolution would be best for you.
The key to success in any form of alternative dispute resolution is likely to be a real desire to settle your differences. When this feeling is mutual, disputes can be resolved with disarming simplicity. One such experience, described in The National Law Journal, involved Federal Judge Robert R. Merhige Jr. of Virginia. He had on his docket a multimillion-dollar case, and the trial was expected to last six to eight weeks. Before the trial, Merhige invited the two opponents to his house. He reminded them how expensive the trial would be and that they were fighting over a business decision that they could make better than any jury. Merhige left the room and closed the door. About 45 minutes later, the two executives came out and told him that settling the case would be impossible.
"For you to tell me that it's impossible really frightens me," said Judge Merhige, "because I didn't think anything was impossible for American businessmen. I didn't think people got to be executive vice-presidents by having 'impossible' in their vocabularies." The two men looked at each other and went back into the room. Fifteen minutes later they'd reached a settlement.
CORRECTION-DATE: July, 1987
In "How to Control Legal Costs" (The Law, April) we incorrectly stated that "The New York State Bar Journal once recommended that lawyers charge their clients 50? a page for photocopies, when the cost was probably less than a dime." The suggestion was made by J. N. DeMeo in an article published in the Journal, but the view expressed was Mr. DeMeo's, not that of the New York State Bar Journal.