An April 17 article by Jennifer Smith on the Wall Street Journal Law Blog is getting quite a bit of attention.  It discusses a survey by the Carlton Fields law firm, concluding that companies expect to see more class action filings in 2012, but to spend less money defending them.  She writes: 

How, might you ask? The plan — as loyal Law Blog readers may have guessed — primarily involves knuckling down on outside counsel, which accounts for about 90% of the money law departments spend on class actions.

. . .

Respondents said they planned to ratchet back spending by about 17%, to an average of $645,800 per class action compared to $776,500 last year.

. . .

To achieve the projected saving, more than half of the in-house lawyers in the Carlton Fields poll said they planned to “manage outside counsel terms and expectations,”  i.e. set budget and billing guidelines and take an active role in managing cases.

Of course no look at corporate legal spending would be complete without mentioning alternative fee arrangements, a trend WSJ examined earlier this month.

Companies said they planned to significantly boost their use of AFAs for class actions. While 23.9% used them for that purpose last year, 45.8% plan to do so in 2012, they said.

So how can companies achieve this without creating too much risk by hiring the cheapest lawyers they can reasonably find and squeezing the budget as hard as possible?  If I were, hypothetically, to become an in-house lawyer charged with this task, here are some things I think I would think about: 

  • For class actions that are not “bet the company” cases, I would look outside the most expensive legal markets and consider regional and boutique firms more than global/national firms.  Unless the largest firms can truly compete on cost against firms that are typically hundreds of dollars an hour cheaper; perhaps some can.  For truly “bet the company” cases where my job would be on the line, I would probably go to the best that money can buy, but then again that decision would be made above my pay grade.
  • I’d focus on looking for class action lawyers who focus their practice on the industry my company was in, rather than generalist class action gurus.  The generalists are great at knowing their way around class actions, but there would be a significant cost to teach them, or have them teach themselves, about the industry and aspects of the law unique to that industry.  I could try to write that off in reviewing bills, but that’s hard to manage and could create friction.  By the same token, in insurance for example, which I know best, there are lots of great insurance lawyers that know insurance law well, but know very little about class actions.  That could create the same kind of problem or potentially an even worse one if I were on the in-house side.
  • Undoubtedly there will be jurisdictions where I could not find an industry-focused class action lawyer in that jurisdiction.  One option I’d consider would be pairing a strong local litigation firm that knows the court (but perhaps not class action law and/or the industry) with industry-focused class action lawyers from somewhere else, with appropriate division of responsibility to avoid duplication of effort.  I’d need to find people who work well in those relationships, though.  Sometimes egos get in the way.
  • I might forego filing motions to dismiss in a significant number of putative class actions.  The initial gut reaction is often to file a motion to dismiss in order to try to postpone class discovery and perhaps win the case outright.  That’s great if you truly have a realistic shot at winning the whole case, but frequently the outcome is merely a partial dismissal of some claims that does not narrow the scope of class discovery, and might even make it easier for the plaintiff to obtain certification because some non-certifiable claims have been eliminated.  As the in-house lawyer, I would be stuck with a significant bill for a motion to dismiss with little real benefit to show for it other than postponing some difficult discovery work that the company likely will have to pay for in any event.
  • Where motions to dismiss seem unlikely to achieve the desired benefit, I’d look carefully at a motion to strike the class allegations.  Those are gaining more traction in some courts, often cost less than a motion to dismiss if they are carefully targeted (and written by someone that has written a bunch of them before), and if granted they will end the case as a practical matter.
  • I’d consider predictive coding for class discovery, if appropriate.  For more on this, see my March 9, 2012 post.  Often electronic discovery is the largest cost in these cases and that would be an area I’d focus on in trying to reduce cost.
  • I’d probably use fixed fees for briefs, especially dispositive motions in trial courts, and for appeals.  When you look at billing data, there is a reasonable way to estimate those costs from experience and ensure the law firm is not using junior associates to fritter away useless hours doing research on Lexis or Westlaw.  But for other segments of a class action, costs are lot less predictable upfront, so budgets tend to make more sense, although AFAs can sometimes work.
  • I’d try to manage staffing carefully but without nitpicking.  Using more senior lawyers at higher rates but working more efficiently sometimes makes more sense than the typical model of junior lawyers doing most of the work that gets revised several times.
  • I’d consider urging my company to spend some money trying to anticipate class actions before they are filed and reduce exposure.  That can really pay dividends.  For more on this, see my November 21, 2011 post.

Although some readers might view these thoughts as simply a disguised attempt to try to steer people in the direction of my firm, I’ve honestly tried to put on the hat I would wear if I were in-house counsel and identify what I would focus on, and I would not always look to the firms I’ve worked at.  I certainly don’t claim to be the best at any of this, and there is plenty of competition out there even among insurance class action lawyers.  If readers have thoughts on this post or the Carlton Fields study, I’d be interested to hear them.