Using A Small Firm Can Produce Big Benefits

Tuesday, January 1, 2008 - 01:00

Editor: Gordon, what types of litigation challenges has Guardian been dealing with recently and what types of litigation do you see in the future?

Wylie: We face and will continue to face what everyone probably does - industry-based litigation. Years ago, in the life insurance industry, we were hardly ever sued. That began to change about 15 years ago. We have gone through challenges on virtually everything we do, from the products we sell to the people we work with.

Editor: Jim, please tell us about Lincolnshire and the litigation challenges it faces?

McLaughlin: We are a private equity fund. Our investors include pension funds, university endowments and financial institutions. We tend to buy middle-market and smaller end of middle-market companies. We are very broad in terms of the scope of the types of businesses that we buy. So we are in a lot of different businesses and they have diverse litigation experiences.

These companies tend to be small. They don't have a General Counsel internally. If they have a significant litigation arise, they will contact us for assistance because we always own a majority stake in the operation. If it is a matter that really could affect our investment, we will get fully involved.

The business environment has changed, which will affect the type of litigation we may face in the future. For example, because it is a sellers' market for businesses, contractual indemnities given in acquisition transactions and their length and coverage have shrunk dramatically. In prior years, you would be indemnified, many times with no cap, and it would be a very broad indemnity on all representations and warranties. In today's market, that is no longer the case. You typically have a very low cap on what your recovery can be. There are deductibles and the time period is short.

Silverstein: This is a good example of how the business environment and business decisions on the front end can limit or define litigation on the back end.

Editor: Gordon, what enters into the decision to hire outside counsel rather than handling a matter internally?

Wylie: All litigation is centrally received. The vast majority of that is going to be assigned to outside counsel. There is too great a workload to handle internally.

Editor: When you hire outside counsel, are there circumstances where you prefer to use smaller firms?

Wylie: As the law budget has grown larger and litigation consumes more management time, we are now subject to more internal scrutiny. I am spending a greater portion of my time looking for ways to contain litigation costs. In the past, hiring a large law firm was viewed as a kind of insurance against criticism in the event that we lost. If anything went wrong, at least you had good talent involved and you gave it your best shot. That issue, however, has to be balanced against my responsibility for controlling costs. We are all familiar with the large salaries big firms are paying new associates. I ask myself, who is going to be paying for this? From my standpoint, I have to sharpen my pencil and look for ways to control costs. One way is to look more closely at smaller firms with proven track records. I have learned that small firms also have quality lawyers and the cost savings can be substantial.

McLaughlin: There are cases where we feel we have to have a big firm. There can be a variety of reasons for that - geographic reach, name identification, etc. But we frequently hire the lawyer, not the law firm.

We turned to Glen because we were so highly impressed with him having seen him in action representing an affiliate of ours in a case in which we had been involved.

We are really hiring Glen. If he were at a big firm, we would probably hire him at the big firm. Cost is always an issue, and litigation for us has often been frightfully expensive. And I think small firms can sometimes do a better job of managing cost and responsiveness to the client - we have found that to be true in working with Glen.

Editor: What services can Leader & Berkon provide that you would expect to be available only in a much larger firm?

Silverstein: One example would be technology. Leader & Berkon has been one of the DuPont Primary Law Firms since the inception of their partnering program (the DuPont Model) in 1992. A big part of the DuPont Model has been a focus on technology as a way of reducing costs. We have had access to technology and other best practices that are cutting edge - and we apply these to benefit all our clients.

Wylie: I agree that the proper use of technology can be a big advantage. I think boutiques that can make available the technology which you might expect to find in much larger firms are going to have a substantial advantage.

Editor: Do you want your outside lawyers to take time to learn about your business?

McLaughlin: The better lawyers understand the client's business and objectives, the better their advice will be. Good legal advice has got to reflect the practical business realities.

Wylie: During the course of any litigation, good outside counsel will take time to understand what you are doing and not be afraid to inquire.

Silverstein: The lawyer and client make up a team, and the more we can operate as a team with information flowing both ways, the better we all are.

Editor: Do you want lawyers handling your cases to be able to try them?

Wylie: I don't like firms who are big on saying, "we've got a good case" and then when we get to the courthouse steps say "I think we should consider settling." If we go that far, I absolutely want a lawyer who is going to try the case and who is familiar with the case. If the case should be settled, I should know that well before we get to the courthouse.

Editor: What role does an early case assessment play in settlement?

Silverstein: This is another area where our experience as a DuPont Primary Law Firm helps. We take a hard look at a case from the beginning and give clients like Lincolnshire or Guardian as accurate an assessment as we can as early as possible. We want to avoid being overly optimistic initially and then suddenly figure things out at the trial stage. We want to figure things out up front. That doesn't always mean, though, that you want to settle. Sometimes, you come up with a strategy to win outright.

McLaughlin: You clearly need an effective assessment of your case on the merits - where it is strong, where it is weak. If you don't, you will be in a lot of trouble. Part of what counsel provides is that assessment. With that, you can determine how you want to proceed and whether you want to take it to trial or arbitration. We recently took a case to arbitration with Glen that initially looked like a very difficult case for us. As time progressed, our assessment changed, partially through the work that Leader & Berkon did in unearthing some very critical information. We ultimately decided that we had a much stronger case and we took it to arbitration through to decision, and we won that case.

Editor: Do you feel there is a place for arbitration or mediation in resolving your disputes?

McLaughlin: We tend to favor courts over arbitration. Part of the reason for that is that we are in a financial business. We invest money and in return we get a package of legal rights embodied in a document. We tend to look to New York courts to enforce those rights because we feel that courts are more likely to enforce an agreement as written. Having said that, there is clearly a place for arbitration.

Wylie: We face some situations where we don't really have a choice in many cases. We own subsidiary broker-dealers, typically the only choice will be arbitration proceedings. Glen recently got a rare complete victory in one of these for us. In many cases, however, I think we would be much better off in court than in arbitration. I'm a great believer in mediation if for no other reason than to get to know everybody and hear what the parties have to say. It has been my experience that although mediation is not part of the general practice in the Northeast, it can be utilized very successfully in other parts of the country.

Editor: How do you feel about the merger trend in law firms?

McLaughlin: From the standpoint of a client, I don't know that it really adds that much benefit. Occasionally, they can be helpful by letting us use a firm we like in additional jurisdictions or to access new types of expertise. But generally I'm a bit of a skeptic on the law firm merger trend.

Wylie: As a result of mergers a lot of big firms have become very similar; there is little difference among them. Mostly all that a merger accomplishes is just to make their services more expensive. I think we are likely to have a couple of big firms for times when we really need a big firm but begin to shift more of the business towards the boutique type of firm. That way I think you get the best bang for the buck and perhaps a better overall quality of service.

Editor: As a DuPont Primary Law Firm, I gather Leader & Berkon can provide the benefits of geographic reach and broad subject matter coverage by working with other members of the DuPont Network.

Silverstein: The DuPont Network is a network of excellent firms throughout the world. We have learned to collaborate with them and through the Network can offer coverage that is comparable to that provided by the largest law firms.

Please email the interviewees at jmclaughlin@lincolnshiremgmt.com, gsilverstein@leaderberkon.com and gordon_wylie@glic.com with questions about this interview.