It’s a Juggling Act

In-house counsel need to manage interests that sometimes overlap, sometimes collide

When it comes to Litigation, especially high-stakes Litigation, you might think everyone on the same team has the same objective.

You might be wrong.

The company has a business objective. External counsel have that too, as well as a Litigation objective, public-relations advisers a reputational objective, government-relations people an outcome-related objective. Usually they overlap, but not always completely.

It is up to in-house counsel to keep an eye on all the balls in the air and co-ordinate the exercise. And it can be a daunting task.

Setting the Tone

Bell Canada Enterprises, which is headquartered in Montreal, has a large law department that includes 10 in-house litigators. Melanie Schweizer, the company’s vice president of legal, says they generally go into that first meeting with external counsel with a strategy already in mind. “The value add of our external counsel is that they will help us refine that strategy or, at times, persuade us that the proposed strategy isn’t the right one. But we would almost always outline our proposed approach during that first conversation.”

And when the two don’t see eye-to-eye?

“It doesn’t happen very often, but I can think of a couple of times where we felt that the firm just didn’t have the heart in the file, didn’t see the arguments we saw, so we needed to make a change.”

She says Bell wants to feel its outside Litigation counsel are whole-heartedly behind the legal strategy the company is using. “It’s very difficult if you feel a firm isn’t 100% behind an argument we think is strong and important to make — maybe for business or strategic” versus pure legal reasons, she says. “We have had instances where we’ve either taken that into account in selecting which firm would work on the file or we’ve gone out and talked to a few different firms.”

That doesn’t mean Bell wants outside counsel to blindly adopt its initial strategy without poking and prodding at it. “If we were just going to dictate how the file is to be run, we’d just go to a legal-process outsourcer to execute our commands.”

Not does it want external litigators who dictate what the strategy must be. “We don’t have long relationships with counsel who see a case as their own. We really emphasize the collaborative nature,” says Schweitzer, who is based in Toronto. “The value-added they bring is an independent assessment of the strategy we’re proposing. They have the perspective of the outside looking in; we have the perspective of a more in-depth understanding of the dispute and the relationship behind it.”

Still, BCE has begun to use one its in-house litigators to argue in court, putting it jointly on the record — and at the counsel table — alongside its outside firm. “We’re starting to do it more. Sometimes it just makes sense rather than sitting in the back row passing notes to our external counsel to be sitting at the counsel table, able to address the court and make submissions.”

Bell’s overall approach demonstrates the push-and-pull between a company’s in-house counsel and its external Litigation counsel. While everyone wants to win, a favourable court decision is a pyrrhic victory if legal costs decimate the firm’s profitability that year, or leads to bad press.

In short, it’s complicated.

A Matter of Trust

Unlike Bell, which has a large in-house department, Canpotex Ltd., a Canadian potash exporting and marketing firm in Saskatoon, has a total of four.

Jeff Benjamin, associate general counsel, says he hires outside Litigation counsel specifically because his department needs Litigation expertise so, for the most part, he puts a lot of credence in their strategic advice. “We’re the client, they’re the professionals, and we assume they’ll have our best interests at heart.”

But there has to be wide trust between the two teammates, he says. ”It’s critical they be on the same page on matters like an overall game plan and reporting in to us. I tell them this is how I’d like them to report, relatively how often, when a matter needs to come forward, when I feel they can connect directly with the business units, and things like that.”

Failure to communicate as expected or to make it clear what the next steps will be erode that trust, he says. “There are times we’ve had external counsel, and chosen to go in a different direction. It wasn’t necessarily that they were providing inaccurate advice or anything, it just didn’t seem like there was a gelling. Sometimes you connect, and sometimes you don’t.”

Even where there is a good connection, he says, there are also times where for whatever reasons the company “doesn’t want to throw all the resources into the litigation right now. Even when you have the trust level with outside counsel, ultimately it falls on us in-house to weigh the pros and cons. And if internally there is a desire by management to hold off, or take a different approach, the responsibility is on us to help them make the most effective decisions for our company.”

Schweizer of Bell says when her company decides to settle, if often cuts out external counsel and conducts the negotiations itself, using outside litigators only to prepare the deal once one has been reached.

“Sometimes outside counsel get bogged down in procedural disputes and wrangling, or the relationship becomes fractured. You see the correspondence going back and forth and see a lot of time is being wasted. It’s sometimes easier for us just to pick up the phone and call your counterpart and resolve it directly. It’s a lot more effective and efficient.”

Managing Cost

Litigation is not for the faint or heart of light of pocketbook, and fees and costs are always a potential source of tension between litigators and their in-house clients — most of whom are lawyers but some who are business founders or CEOs.

Michelle Awad, a partner in the Halifax office of McInnes Cooper, says sophisticated general counsel “plucked from large law firms” generally have a sense of how expensive a big piece of Litigation can be. They know the other side can open unexpected paths that draw out the Litigation and make it more expensive, with myriad pre-trial motions or challenges.

In-house counsel who don’t come from a large corporate firm or management with no previous Litigation exposure can be unpleasantly surprised by the size of the bills. “That’s where you get into the tension. And it’s not so much that you’re disagreeing with your client on strategy. The clients, in their minds, budgeted a certain amount to get the case to trial. That amount has now been spent and you’re not at trial yet, so that’s a challenge.

“We try to anticipate it as best we can, and I can generally give them a pretty reliable budget on a smooth trial. But if you give them a budget at the front end that allows for every possible contingent, they think: ‘That’s crazy.’

Awad, who has acted for banks, insurers, securities dealers and General Motors of Canada in cases that make the news, says contentious Litigation brings additional challenges. “The ante is quite a bit higher, so everyone’s under more pressure in the high-profile or big-dollar cases.

“I’d say the most effective way to deal with that, and in-house counsel agree from what I’ve found, is we just have to stay in a lot closer contact. It could be that the CEO is coming to the in-house counsel to ask him or her a question, and they just need to look like they’re on top of it. Similarly, that person could come straight to me — unexpectedly, because normally the reporting is through in-house counsel — and I need similarly be on top of things. So we need to be a united team, even though one’s a client.”

She says the normal push and pull is also ratcheted up by the exhaustion that accompanies the added scrutiny of a lawsuit that makes the news.

“Obviously you’re under pressure and you get fatigued. My reaction isn’t to lash out at co-counsel, I don’t get upset with them but I sometimes get exhausted by the need to be constantly interacting … and obviously in a big-trial scene you’re always in a group setting, so I just need to retreat. Sometimes that means to go for a run to get the cobwebs out, or whatever. That’s just that part of the process.”

To Settle or not to Settle

Kent Thomson, head of the Litigation group at Davies Ward Phillips & Vineberg LLP, says highly contentious cases have their own dynamic.

The kind of cases that get a company’s blood boiling, and may put them at odds with a more conciliatory approach recommended by outside Litigation counsel, are those in which the senior officers and directors of a corporation are being accused of dishonest behaviour, misleading investors, or even conspiracy, “cases where the honesty and integrity of senior executives have been assailed publicly.”

“Even when there’s nothing to the allegations, those are the sorts of cases you as external counsel might recognize at the outset are impossible to settle,” says Thomson. “Complete vindication, unless the plaintiff is prepared to capitulate and walk away, is what the company usually wants.  Even when there’s nothing to the allegations they don’t want to be told the best way out is to make a substantial payment and walk away. Nor should they.

“What they want to be told is you are fully willing and able to take the case to trial and defend their interests.”

Thomson has acted on more than a few high-stakes court fights, the kind that made headlines or turned ugly.

Thomson says he feels especially in those kinds of cases, a significant part of his responsibility is to “Preach restraint. It’s to strongly encourage people to exercise caution, to prevent them from making mistakes in the heat of the moment by marching down paths they shouldn’t be on, making sure people take a deep breath and proceed very carefully. Basically, exercising sound professional judgment.”

There are a lot of cases that fall between the dry technical and the reputational types, Thomson says, and for those, “my view is the great majority can settle and should settle.” In fact, he may well urge settlement even when the in-house lawyer doesn’t see it that way.

What about when the tables are turned, and the company has an excellent chance of prevailing at trial but the in-house counsel wants to settle?

“If clients want to settle for whatever reason — business imperatives, reasons of avoiding adverse publicity or not being willing to invest executive time and effort to take a course to trial — my job then becomes making sure they are properly advised of the merits of the underlying case so they are properly informed and they’re making an informed decision so they get the best settlement they can.

“It would be the very rare case where I would stand between a client and a settlement.  It’s almost always the reverse. I spend a great deal of time talking clients out of Litigation, convincing them it’s not a wise or productive strategy.

Preserving Relationships

Michael Jason, assistant vice-president, legal at Richardson International Ltd., Canada’s largest agribusinesses, says outside lawyers need to realize that a client, the company, may need to preserve relationships with the counter-party after the \Litigation is over.

Richardson, based in Winnipeg, has one former litigator in its three-person in-house department, and he generally sits down with his two colleagues to develop a preferred strategy before they meet with outside Litigation counsel for the first time.

Richardson does business around the world and litigates in many jurisdictions, he says. And unlike Benjamin at Canpotex and some others, Richardson often wants its own counsel to determine and execute strategy.

“We view ourselves as having a certain amount of expertise so we’re looking for advice, but when it comes to the business decisions — how we’re going to preserve the relationship, or how we’re going to deal with our insurer or the other insurers — we usually want to be driving that.”

So coming in guns blazing “would usually not be our approach.” The dispute may involve a customer, “and we’re not interested in getting a reputation with them or other customers of being very hard, litigious types folks. Our company’s not like that. We like to be prepared to stand on principle rather than using a scorched-earth or guns-blazing type of strategy.”

When it comes to contentious Litigation, or the type that is likely to make news, Jason says Richardson will try to move it from the court to a private arbitration to avoid publicity.

That changes the dynamics in a couple of other ways, he says.

“The business folks are going to have much stronger feelings about the direction they want the legal proceeding to be taking. Quite often the issue is more about the ability to conduct business on an ongoing basis rather than the dollars at stake in the Litigation. So they may not want to take a certain approach. And I’m taking instructions as well, which I’m passing on to external counsel. I try to make that visible to them so they don’t feel like they’re hitting some wall and their advice is not being heard.”

Jason says he feels the biggest flash-point between in-house and outside counsel on Litigation is over fees — but probably not in the way many people think. He says the company may want to push ahead and litigate a case that might not would be worth the legal fees given the dollar amount at stake. The company does it because it wants a decision on a principle that will lay the foundation going forward.

“We may be willing to litigate a $30,000 dispute where the legal fees would far exceed that. So we’ll often have outside counsel trying very hard to make sure we understand that it’s really not worth it to pursue the Litigation. But if we’ve got the direction that we want pursue for business reasons, that’s what we need to do — while managing to convey to them it’s not necessarily a blank cheque.

“We don’t want them to stop paying attention to how much the fees are racking up on the file. It becomes a bit of a tension, managing what is appropriate fee in that context.”

Business Case vs Litigation

Most of the potential spark points between litigators and in-house counsel can be resolved by understanding not just the legal case but also the subtext, says Andrew Faith, a partner at Polley Faith LLP in Toronto.

“Where you get push-and-pull is where we push back based on our opinion, and the client has to readjust its objectives. So what we try and do now is make sure we fully understand the business objectives from a public-relations point of view, a business point of view, and even a government-relations point of view if that applies before we start.”

Faith says if often happens that the Litigation tactic he believes would be most effective is not the tactic the company wants to use for business or other reasons. He says he sees his role in those cases as outlining the risks of various legal strategies. 

“It’s funny, I just had a discussion with a client where we gave them a green, yellow and red approach — green being very little risk, red being you can’t do this because the risk is too high, and yellow being a moderate level of risk that may be worth it given the potential outcome.”

He says he has never refused an in-house file because he disagreed with the strategy the client wanted to take, or felt it stood no chances of success. If it gets to that point, he says, he tries to make those kinds of conversations “educational rather than antagonistic.”

“It may very well be that the business objective is to settle for a very low sum of money, even though from a litigation objective that seems like a terrible idea. But the business objectives have to be respected.”

The one thing he won’t do, he says, is follow instructions he believes would undermine his own credibility.  “No one case is more important than your professional reputation. We’re not going to be useful to anyone unless we maintain our professional reputation before the courts and other lawyers.”

He also insists he be the one to decide on “the more granular decisions, how to cross examine a witness, whether to call a witness, how to run a trial, those are decisions that should generally be left to [outside] counsel. And that’s where I wouldn’t allow business decisions to impede with litigation strategy.”

Faith says one of the challenges as the external litigator is the person the company appoints as the liaison with him may not be the person whose budget is going to be affected by the outcome. “There can be broken telephone in the organization, so you want to try to make sure you’re dealing with the right person.”

At the end of the day, he admits cases in which the business case trumps a strong Litigation case can cause great private frustration.

“You bite your tongue and say nothing. That’s the problem, we’re soldiers. We go out there prepared for the fight. We want to have the fight, to engage, to have the trial.  To be told the client is settling can be really hard from a personal point of view.

“You go home, and imagine what it might have been like had you been able to have the trial. I’ve had that, where I continually think about the arguments I could have made for the cross examinations, even after the case settles because you prepared and then the leash got pulled back. So it is hard.”

Hard, and complicated.