Improving Litigation Risk Evaluation With Leading Edge Technology

Wednesday, March 1, 2006 - 00:00

The Editor interviews Blane Erwin, Vice President of Strategic Initiatives, Bridgeway Software.

Editor: As corporate counsel have matured in their use of core technologies for managing their workloads and calendars, where do you see new opportunities for increased efficiencies?

Erwin:For the past two years, I have focused on the area of legal processes. This has involved looking at the processes that spawn from the cases or matters that in-house counsel manage every day. This ranges from selecting outside counsel to tracking diversity information to managing their financial budgets, and so forth.

Focusing on legal processes is a key part of improving the performance of legal departments as a whole so that they are more efficient and productive. Process efficiencies come under the umbrella of the profession's ongoing discussion about best practices. Any law department can tell you about the way that they do things. That means that they have a preferred method or process for doing their work. We are in the cross roads where the preferred method or process for doing their work and technology come together.

Editor: What was the genesis for developing a risk evaluation tool for commodity litigation?

Erwin: Bridgeway seeks input from subject matter experts in many of the process areas involved in the day-to-day work of legal departments so that we can establish a method for capturing their processes and expertise into a technology. When we put the word out that we were developing a strategy and business model for handling legal department processes, we were approached by Craig Miller, an experienced litigation attorney who had worked in the complex litigation area. He had an idea that many of the customized, highly consultative techniques that he used in complex litigation could be automated and streamlined to be applied to that next tier of litigation, which we have called commodity litigation. These are the repetitive cases that are in the $5,000 to $100,000 dollar range.

Almost every company has commodity litigation. Some companies are more prone to commodity litigation than others. Every consumer products company, retailer, bank, and service provider is likely to have commodity litigation. The challenge is that, taken one at a time, those cases are not big enough to justify much legal department attention or investment in automation. In the aggregate, 60 cases settled at $50,000 each cost a company $3 million. For many companies that is a material exposure, which needs to be reported to the shareholders. The exposure must be managed and reserves set aside. The first challenge is getting your arms around the overall financial risk for the company. The next challenge is to evaluate the risk so that the right decisions can be made.

The frustration in the commodity litigation arena has been that there has not been a lot of consistency or accuracy in how the risk of each lawsuit is evaluated. Legal departments need to be able to quickly identify those cases that need special attention and make smart risk management decisions. They are not afraid of risk, but they require the information needed to make the right decisions.

Editor:How are the risks associated with commodity litigation evaluated without using an automated tool?

Erwin: There have been two predominant approaches to this challenge before the advent of an automated tool. One is to take some of the techniques that have been used for complex litigation. These include such high-end tools as decision-tree analysis. Another option is to hire a litigator who has handled a great variety of commodity cases whose experiences provide an expertise for managing the risk. The problem with both approaches is that they are very expensive and hard to justify for any individual commodity case.

The other option has been the black box approach. Each lawyer overseeing the case applies his or her experience to make an assessment of the case. This results in inconsistency. Because of the difficulties encountered when trying to aggregate and analyze the inconsistent assessments, litigation managers find it as an unsatisfying approach to managing their company's portfolio of commodity litigation.

Editor: What are the primary components of a risk evaluation tool?

Erwin: An automated tool captures legal departments' best practices, processes and techniques used for complex litigation and applies them to commodity litigation. Bridgeway's Predix software combines the primary pieces of a litigation tool at the high end with the experience of TMG Templates to create a way of establishing a simple process for in-house lawyers to work with outside counsel and apply sophisticated risk analysis techniques.

The Predix software is simple in terms of the information needed to be loaded into the tool. The user plugs in the claims, any hot button issues, the track record of the other side against the company in similar cases, and the defenses that the company is thinking of raising.

It allows legal departments to organize their thinking in a way that it can be accessed easily. This gives users the opportunity to project probabilities, which can be modified, tweaked and aggregated based on any of a variety of scenarios.

The legal department can look at the odds of having to litigate and the probability that the case will be dismissed. The tool helps speed decision making because it provides a visual depiction of a decision tree without the user having to know anything about the tree's underlying sophisticated structure.

The legal department only has to make a judgment on likelihood of a result based on a simple common sense method that overlays the probability analysis of the rest of the case data, giving the user a full risk profile.

Editor: What are the elements of a full risk profile?

Erwin: In the past, litigators were primarily limited to the worst and best case scenarios. A full risk profile includes in-between scenarios that were not available before. Based on the combination of all the scenarios that flow through the risk analysis, the user can produce a full risk profile that will provide the dollar figure for the best case scenario and the probability of success. At the next level, it will show the probability of having to pay more, and work its way all the way up to a worst case scenario where it provides costs and settlement value. The tool creates a weighted average of all of those probabilities taken together. It provides greater insight, which is one of the benefits of the full risk profile.

Editor: How does a risk evaluation tool help corporate counsel to give advice on compliance issues?

Erwin:Historically, public companies have been required to report commodity litigation that would have a material impact on their operations. In the post-Sarbanes-Oxley climate, there is an expectation that companies will have an auditable, documented trail that reflects their thinking process, method and discipline.

One of the benefits of a risk evaluation tool is providing an auditable trail. It allows a company to keep a history of how risks have been assessed over time. For example, if the company has failed to get a motion to dismiss, another risk assessment can be performed based on the new probabilities. The history of past decision making can be maintained while reports of the new risk probabilities are generated for the management team and board.

From a compliance perspective, a company is now able to meet the requirements for documentation and transparency with a process that can be audited in a way that was not possible in the past.

Editor: How can a risk evaluation tool help law departments improve their relationships with outside counsel?

Erwin: An online risk evaluation tool permits access by in-house counsel and anyone they designate to have access to the system. It gives a vehicle for inputting and analyzing information known by everyone on the internal and external legal team.

In addition to generating status reports on each case, the system can generate routine reports in which it summarizes all cases based on such fields as time frames, law firm, and subject matter. The reports can be used to identify the aggregated risk being handled by each law firm.They also can be used to compare the results achieved by different law firms handling common subject matter, such as premises liability cases. Analysis of the reports can be used to establish consistency and quality control across cases. That is a big "win" in managing relationships with outside counsel.

Editor: What should corporate counsel look for in a risk evaluation tool?

Erwin: The system must be available 24/7 and have secure Internet access that navigates simply. Anticipating the overloaded pace that legal staff face every day, the system must enable the legal team to quickly get into the system, find the information they need and store it where it can be easily accessed when it is again needed. Our Predix system includes popup practice pointers that help users quickly access what they need.

Editor: What are the benefits of integrating a risk evaluation tool with a matter management system?

Erwin: Integration eliminates duplicate information. The entire legal team can reuse work that has already been done. One of the classic observations by consultants researching the legal profession was the failure to reuse work previously performed. For most law departments their matter management system is the anchor where information is first delivered and where the process begins. It makes the most sense to reuse the matter management system's centralized database so that users can have an early idea of whether an issue will evolve into a case. Once the earlier assessment is captured, the temperature of each case can be taken and fed back into the matter management system. That is where the exposure and reserved information can be most effectively managed. Readers can learn more about Predix and the full suite of Bridgeway solutions at www.bridge-way.com.

Please e-mail the interviewee at blane.erwin@bridge-way.com with questions about this interview.