Outside Inhouse Lawyer Blog : New York & Seattle Corporate Dispute Lawyer & Attorney : Grace M. Healy : Outside counsel : King County, Tacoma, Bellevue

I’ve always been a bit of a news junky, but since I started this blog I have been reading much more than before – especially, about the possible effects of the financial crisis on law firms.  I have seen articles saying that:

•    law firms will suffer;
•    litigation will prosper; 
•    disaster, the increase in litigation hasn’t appeared;  (This less than two months into the most obvious symptoms of the downturn.)
•    general counsel are afraid that law firm rates will increase;
•    rates will not increase, they will decrease;
•    the hourly rate as a method of billing is dead;
•    In-house legal departments are shrinking;
•    In-house legal departments are keeping more work in-house.


I guess everyone is entitled to a point of view, but a lot of this stuff defies common sense.  Having lived through the market crash of 1987 and a law firm implosion in 1991, I can say with some confidence that none of this is new.  The only people whose opinions I really want to hear right now are those who moved out of equities into fixed income assets in January of this year.  Obviously, their recent track record on predicting the future is better than most everyone else's.

However, today, I read two pieces that made sense.  The first, a blog posting by Max Kennerly, pointed out that the assertion that law firms shouldn’t pay associate bonuses because they will offend clients, is baloney.  Amen.  Partners care about giving money to associates if they don’t have to do so, since it could go into the partners’ pockets instead.  Clients care – or should only care -- about getting value for the fees that they pay. 

That said, I do remember walking into an ostentatious marble and mahogany waiting room and thinking ruefully – I believe we paid for this.  Anyway, my rule of thumb is:  plaintiff’s lawyers – who only get paid for success – should have fancy offices, not lawyers who get paid by invoice.  If you think your legal bills are too high because associates make too much money speak up, or find someone who offers good service with lower rates.

The second posting, Cravath Partner Offers Tips on Cost Cutting  by Caroline Elefant, discusses a Business Week article, which also – in large part -- made sense. But, I don’t know if it is really advice on cost cutting, or sensible management.  The first two tips are to hire the right lawyer for the job, and to  hire an efficient lawyer.  If you haven’t been doing this, well, you probably just don’t know it – otherwise, why would you be doing so? 

However, the article goes on to recommend alternative billing arrangements, rather than billing by the hour.  It posits that in litigation, hourly billing creates the wrong incentives – sometimes losing a case could be more profitable to a firm than winning it.  Frankly, this may be true, but what ever happened to the concept that lawyers owe the highest duty of loyalty to their clients – not to themselves or their firm?  It presents a compelling argument for having a lawyer who you trust and who understands litigation review and is able discuss and monitor the work of outside counsel. 


 

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A recent opinion of Judge Pechman of the Western District of Washington in Aecon Buildings, Inc. v. Zurich North America, illustrates the importance of good in-house litigation management, complying with discovery, and supplying a detailed privilege log on time.  Defendant appears to have failed on all counts and the result is that defendant must pay into the court the amount that it was billed by its attorneys from the time its initial disclosures were filed through the date that defendant produced a relevant file – a period of more than eight months – as a discovery sanction.

The underlying case set forth a claim of bad faith refusal to defend and indemnify by a plaintiff who had been named as an additional insured on a policy.  At the time the insurance claim initially was tendered, it was rejected by an adjuster and the file was closed.  About one year later, and one month after the suit was started, a second adjuster reviewed the claim and noted that coverage had been triggered.  That adjuster was instructed not to continue work on the claim, and was not named in defendant’s initial disclosures as an individual who might have discoverable information. The second adjuster’s work came to light when her deposition was noted – she had signed declarations authenticating documents.  It seems that no one could state with certainty who ordered the second review, or why it was performed.

The court stated that defendant’s “failure to include in its responses to requests for production any documentation of [the second adjuster’s] work on the claim file, and its failure to produce, until the eleventh hour, a privilege log documenting those portions of the claim file attributable to her that it withheld on the basis of privilege, are clear violations of the discovery rules.”  That is a summary – the details run to almost eight pages.

This decision is must reading for anyone who believes that work done on a matter after a lawsuit has been started is privileged. 

 

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If you have an employment contract for a set period of time and it has a renewal provision, follow that provision.  If you don’t, employment at-will is the result in New York. A common-law presumption that parties intend to renew an employment contract for an additional year if the employee continues to work after the contract expires is, for all practical purposes, non-existent -- it directly conflicts with the favored presumption of employment at-will.

This was discussed recently, in Goldman v. White Plains Center for Nursing Care, and the Court of Appeals strongly reaffirmed the presumption of employment at-will.  Plaintiff had signed an agreement in 1990 for a two-year employment period.  The contract provided that at expiration of the contract or termination of employment, the employer would "be released of any responsibility or obligation hereunder, except for payment of salary and benefits accrued to the effective date of such expiration or termination."  The parties were to discuss renewal during the two-year term.  They did not.  After the two-year term expired, the employee received annual salary adjustments; in 2004 the employer was sold and the purchaser assumed the contract.  Three months later the employee was terminated. 

She claimed the employment contract was breached relying on a common law presumption that an employment contract is renewed for successive one-year terms after an initial set period expires. The Court of Appeals ruled that the employment was a hiring at-will because the contract was clear and unambiguous, expired on a certain date, and required written modification.

The court noted that implying one-year renewals would conflict with the established rule that an employment contract, which doesn’t have a fixed duration, is presumed to be terminable at any time by either party.  Giving an unusual – for Court of Appeals decisions -- practice tip, the court stated: “Parties to future contracts can avoid uncertainty regarding application of the common-law rule simply by specifying that continuation of the employment relationship after the expiration of the contractual period will result in either successive one-year extensions of employment or at-will employment status.”
 

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