Management of litigation, like management of most business processes, begins with a business plan and a budget. In this case, prior to trial, when a company seeks an appropriate law firm to represent it, it needs an acceptable litigation plan and budget. Law firms many times will try to push back on the request of a budget, claiming legal costs are hard to predict. This, of course, is not the case. Experienced lawyers, whether in the United States, Europe, or Asia, are very familiar with the legal costs in their own geographic region as well as costs and expenses associated with the particular issue, such as patent litigation or class actions. Certain costs may be hard to quantify, such as defense litigation costs (which may depend on how aggressive a plaintiff is in trial), but for the most part, law firms can provide a litigation plan and budget using approximate or ballpark figures.
Effective management of litigation and therefore outside legal spend will depend on a well-prepared litigation plan and budget. This, in turn, depends on the proper identification of potential litigation issues and a plan for potentially adversarial proceedings. Questions that should be asked when discussing the plan and budget with outside counsel include:
Is this matter an actual or potentially adversarial proceeding?
Will this matter result in potential commercial litigation?
Will this matter result in potential regulatory litigation?
Will this matter lead to governmental litigation?
Kinds of Actions
An accurate litigation plan and budget will depend on the nature of the proceeding or legal matter at hand. Such matters can be classified as follows:
Commercial litigation
• Antitrust and trade disputes
• Bankruptcy and creditor actions
• Class actions (product liability, etc.)
• Labor and employment
•
Regulatory proceedings
• Governmental inquiry/informal visit
• Investigations
• Subpoenas
• Government enforcement proceedings
• Administrative tribunals
• Internal corporate investigations
Certain costs will be associated with the nature of the dispute. For instance, commercial litigation costs will be dictated by the cost of discovery, including: depositions, interrogatories, production of documents and things, and physical examinations, etc. Costs involved with regulatory proceedings will involve governmental investigations and internal corporate investigations and perhaps parallel proceedings, criminal as well as civil litigation.
Litigation Management Tools
Litigation management depends upon the in-house legal team or risk manager actively assessing and managing litigation by using an effective litigation management process. The litigation management process should utilize management processes as well as LRM tools.
For a corporation to effectively manage litigation, management needs to understand its role as litigation manager. If it hands over the entire litigation management process to the outside firm representing it, the costs will, of course, substantially increase! The law firm must be managed! The risk manager, corporate manager, or in-house lawyer (General Counsel, etc.) must understand his or her role as a litigation manager. That includes use of management functions and LRM tools.
Management functions
• Effective coordination of legal defense efforts to avoid duplication of costs
• Coordination of use of witness and discovery
• Serve as the central site for all facts, positions, and decisions in legal issues
• Development and implementation of a defense plan
• Internal assessment of facts
• Point of contact for regulators
•
LRM tools
• Litigation budget
• Coordination of documents
• Use of employee interviews
• Insurance
• Use of defense plan
• Early case assessment
• Alternative fees
• Outside billing guidelines
Only through the regular use of legal risk management tools can a company or organization effectively control its outside legal spend, especially when dealing with litigation.
Like directors in the US and elsewhere, directors in Korean companies have fiduciary related duties to protect and safe-guard the Company and the Company’s assets. Such duties are set forth in the Korean Commercial Code and include:
• Duty of Care as a prudent manager
• Duty of Confidentiality
• Fiduciary Duty-the Duty of Loyalty
In Korea, if a director violates the duty of care as a good manager (including the duty to faithfully perform in the Company’s best interest) he or she may be held liable to the company or even to third parties and could be required to pay damages. Under Article 382-3 of the Korean Commercial Code a director’s duty of care and good faith encompasses a number of duties including the:
• Duty to review the company’s activities
• Duty to review corporate information and documents
• Duty to protect a company’s assets
• Duty to supervise and oversee employees
• Duty to review all major filings with regulatory agencies
A director may even be subject to criminally liability as well as civil liability upon the negligent failure of fulfilling the obligation of care. Directors who violate the provisions of the Korean Commercial Code or the Company’s articles of incorporation may be held jointly and severally liable to the Company. This is true especially when the director’s actions are intentional, or are committed with gross negligence. Such liability may be found when the director fails to fulfill the duty of care and loyalty by:
• The intentional neglect or negligence in performing duties
• The failure to manage affairs as “an ordinary prudent person”
• Endangering company assets through gross negligence
• Engaging in a business that conflicts or competes with the Company
• Using a business opportunity that could benefit the Company for one’s own personal account or the account of a third party
Looking at the civil and common law aspects of the duty of care (Korean courts are trending towards the business judgment rule of the US) the following is true of directors in Korea today:
1. Directors must use reasonable care in protecting the Company’s assets
2. Directors must use reasonable care in providing a safe work place and work environment
3. Directors must use reasonable care when overseeing the Company’s activities
Remember, though serving as a director on the Board of a Korean company may sound exciting it comes with risk. There are restrictions as to what a director can or cannot do and if a director violates his or her fiduciary duty or duty of care, he or she is subject to legal action and even criminal liability.
Picking a law firm or the “right” law firm has been the topic of a number of articles and books. This is especially true in Korea. In Chapter 30 of his book, Doing Business in Korea, Tom Coyner describes the trials and tribulations of picking the right law firm in Korea. He opines that some domestic and international lawyers are commercially incompetent, as some Korean attorneys fail to appreciate the commercial context in which they offer counsel. In his Korean Law Blog, Sean Hayes has also written about the importance of selecting a commercially competent lawyer when looking for counsel in Korea as well.
Failure of appreciating or understanding the commercial environment in which one operates is not unique to Korean lawyers. I’ve witnessed firsthand lawyers in other jurisdictions, including the US, act as if they were giving legal advice inside a vacuum. However, I firmly believe that Korean law schools which, until recently, failed to emphasize the commercial/international nature of legal practice in Korea, are partly to blame. Until recently, the Korean legal market was less competitive than in other jurisdictions in Asia, such as Hong Kong and Singapore, which are known for producing internationally focused lawyers schooled in common law. However, as more and more Korean lawyers study and work abroad, the international/commercial abilities of younger Korean lawyers are increasing.
Be that as it may, picking the right law firm in Korea is like picking a law firm in other jurisdictions. It is up to the corporate manager or in-house counsel to meet with outside lawyers and determine if they are a good fit. One should ask plenty of questions, get referrals, and look at trade journals and publications to get an idea of which firms are known for their commercial and international expertise. For those interviewing prospective law firms or lawyers ask yourself the following questions:
- Do you get the feeling that the law firms you meet understand your business and industry?
- What law firms have represented companies with similar issues?
- Look at the website of the law firms you consider. What does the website say? Does it specialize in the areas you are concerned about?
- What does the local business community think about the firm or firms you look at?
- After meeting with a law firm are you impressed with its capabilities? Do you believe you trust the partners you met with?
A firm that grasps your business and industry is more likely to appreciate your business/legal issues and offer constructive advice. And of course, you should be comfortable with the lead attorney you met. So, it’s up to you to decide whether the firm is a good fit or not. Remember that selecting the right law firm for your legal issue or issues is the most important step in resolving the legal matters at hand
I am always asked by my younger colleagues how General Counsel or GCs pick law firms when deciding which law firms to use. Most GCs actually pick lawyers, not just law firms, when retaining outside counsel, but it is important that the law firm is also a firm the GC likes and respects. If the GC likes and respects the firm, the odds are that the law firm is the firm the General Counsel most likely will pick to handle a major problem or case.
Most GCs have over the years developed processes to select and use outside counsel on a consistent basis with a focus on quality, reasonable fees, and, of course, success. Such success is normally the result of a long-term relationship in which outside counsel becomes a member of the company’s “team,” learns the business, and can, therefore, provide timely legal and business advice. A General Counsel knows that it is vital to have a go to law firm that can handle major legal issues in an effective and efficient manner. So the General Counsel is always looking for the lawyer and the firm that can deliver for the company- i.e. add value. There are many firms vying for the GC’s business, but only a few that can really deliver for the GC.
In essence, more and more General Counsel are only looking for law firms that can add value and either help the in house law department add value or add value to the company’s bottom line. In today’s ultra- competitive legal marketplace, only the law firms that can add value are thriving. So how can a law firm position itself to add value and become the law firm of choice? Law firms know that when dealing with a company it is essential to meet the General Counsel (if the company has one) and develop a working relationship. But that is not enough. The days of becoming the go to law firm solely based on relationships are over. Having a good working relationship is of course also necessary. But it’s all about value add.
IT IS ALL ABOUT VALUE ADD
Here are 12 steps layers and law firms should take to become the firm that adds value-
1. Know the business! Understand the major issues facing the business? Take time to understand how the company works! One size does not fit all.
2. Develop a relationship with the GC! Go out and meet him or her. Call him or her on the phone. Communicate! Did I say communicate?
3. Meet the Assistant General Counsel as well and/or other senior lawyers on the team.
4. Be responsive- At All Times!
5. 24/7- is the new response time. Remember weekends are not off limits anymore.
6. Don’t create “busy work”. The GC knows what is important.
7. Work with the GC to fit in with the GC’s outside staffing guidelines
• Work with the GC to meet all billing guidelines
• Be flexible in billing arrangements
• Don’t overcharge or overspend
8. Responsiveness is important! Communicate any and all significant case developments!
9. GC’s love litigation plans and well drafted budgets. Provide them and don’t complain.
• It requires a well drafted pitch proposal to RFPs.
• What are the major issues in the litigation or matter?
• Be willing to follow the GC’s requested billing format (and stick to it).
10. Go the extra mile!! Do whatever it takes!
• Provide free services if requested
• Be willing to travel free of charge or be willing to drop everything for the client
• Always deliver
11. Learn how the organization works!!
• What are its A/R, billing, credit, accounting and procurement processes?
• What are the main business issues involving its manufacturing or services?
12. Don’t take the GC or company for granted – ever!
If a law firm can internalize these 12 steps it is well on its way to become the company’s firm of choice. The GO TO LAW FIRM! Remember, General Counsel for the most part are reasonable but at the end of the day they are looking for the firms that can stand up and deliver- or add value. If the firm is not willing to go the extra mile, it can’t expect the GC to think of it as the “Go to Law Firm”. Oddly enough, not that many law firms are really willing to do so. They may pay lip service to “adding value” but at the end of the day may not deliver as promised. This provides an opening for those firms that are willing to internalize the 12 steps I mentioned above and become the firm of choice.
In 2018, Korea amended its product liability law to allow among other things, punitive damages. These changes should be on the radar of every multinational manufacturer and supplier, selling or distributing products in Korea. A short summary of the changes is as follows:
1. Introduction of punitive damages
The current product liability law limits the claim for the damages to actual damages incurred and does not include punitive damages. The new amendment will provide for punitive damages (up to three times the actual damages or treble damages) if (i) the manufacturer knew about the defect of the product and failed to take necessary measures and (ii) the defect resulted in significant harm to a consumer’s life or body. The claimant has the burden of proving the fact that the manufacturer knew about the defect of the product and failed to take necessary measures.
2. Lessening of the claimant’s burden of proof
The amendment provides that if the claimant proves that (i) the claimant incurred damages while the product is used in the ordinary course of use, (ii) the damage was caused by a cause which is under de facto control of the manufacturer, and (iii) the damage does not customarily occur without the relevant defect of the product, it shall be presumed that the product was defective (existence of defect) and the damages are caused by the defect in the product (the causality between the defect and damages).
3. Shifting of the claimant’s burden of proof in case where the manufacturer is unknown
Under the current product liability law, in order for a claimant to seek compensation from the distributor in case where the manufacturer is unknown, the claimant had to prove that the distributor knew or could have known the manufacturer. Under the amended law, , if the manufacturer is unknown to the claimant, the claimant may seek compensation from the distributor regardless of whether the distributor knew or could have known the manufacturer.
Conclusion
With introduction of the punitive damages, manufacturers doing business in Korea should review their internal procedures regarding the handling of product defects. Distributors also should review processes on handling information on the manufacturers and distributors who supply the products. Companies are also advised to establish internal procedures for taking appropriate measures in case of consumer complaints in order to minimize product liability risks such as (i) immediate suspension of sales or recalls, or (ii) adding additional or appropriate warnings in the label for the product.
Law firms and other service oriented organizations are just beginning to realize that risk management concepts apply to them as well as manufacturing based organizations. Lately, consultants are advising law firms to implement project control methods, look at legal processes from a six sigma point of view and even apply the basics of marketing 101 or sales 101 to increase business from potential clients. As the legal industry continues to shift from the old “charge per hour” model, law firms are beginning to realize that not only do marketing concepts apply to the “business and management of law” but risk management concepts apply as well including loss control.
Risk management should be viewed as an essential part of everyday management, including legal management. Managing a company’s risks is not only important but vital. Until recently, lawyers have been trained to think reactively- i.e. to react to a threat or perceived legal risks. But given the recent changes in the global business environment, as well as changes in how law firms manage themselves, attorneys and support staff must now learn to proactively manage risks. Such proactive management encompasses a large area of not only pure legal risks but also business risks that could lead to legal threats and issues. In essence, lawyers must now learn to proactively manage risks by minimizing risk, mitigating risks, transferring risks and eliminating risks. All are in a sense a proactive response to a risk rather than a purely reactive response. This of course includes minimizing costs and using processes or tools to minimize costs and risk.
Loss control is a tool that a law firm or other service related organization can utilize or should use to minimize or reduce risk. If properly used, loss control can reduce losses and decrease exposure associated with such losses. Loss control can of course be simply defined as “efforts that reduce expected losses”. But of course it is more than that as it encompasses management of efforts that reduce expected losses – or in other words processes that can prevent, reduce, or mitigate losses. Loss control processes, in other words, if properly used, can mitigate and reduce risk. Normally, loss control processes can be very effective in reducing costs and expenses faced by any organization, especially a manufacturing company that manufactures products. But it can also be applied to service organizations such as law firms or accounting firms.
The traditional definition or concept of loss control relates to loss prevention or loss reduction that is associated with products or monies related or associated with products. Loss control processes are normally divided into two main categories—loss prevention and loss reduction and are defined as follows:
Loss prevention: activities that reduce expected losses of inventory or monies associated with inventory by proactively reducing the frequency of losses
Loss reduction: activities that reduce expected losses of inventory or monies associated with inventory by decreasing the size of the loss, which is a reactive and not a proactive process
Applying these concepts to a law firm or service related organization we can see how six sigma and other concepts such as project management can be utilized as a loss control process. After all the main goal of six sigma as well as and project management would be to improve efficiencies and minimize waste or the costs associated with waste. Law firms tend to over analyze and over process matters. How much cost can be saved if documents are no longer over processed or over analyzed? How much time can be saved for more productive matters? From a loss control standpoint, what processes can a law firm or law department implement that reduces cost and monies associated with cost? What efficiencies will be gained once project management processes are implemented?
Six Sigma and Loss Control
Six Sigma has been championed by companies such as GE, Motorola, Samsung, IBM and others. Originally promoted as a process to improve profitability it is really about reducing expenses, waste, and loss as well as adding value and efficiency. Consider using six sigma when reviewing processes that involve:
(i) Client expenses
(ii) Office expenses such as mail
(iii) Review of documents
(iv) Use of software
Project Management
Project management has become another Legal Risk Management tool or process that has become more popular amongst law firms lately. Firms are realizing that once they get away with the old “charge per hour” paradigm and start focusing on alternative fee arrangements there is really a need to manage the matter on a project by project basis to contain and reduce costs.
Parts of a Project Management Process
(i) Initiation of the matter- this includes the scope of the matter, the desires of the client and the goals of the client and law firm.
(ii) Planning of the project- just like an architect plans the design and building of a house or a building, the planning portion of legal project management covers the key decisions in achieving the desired outcome.
(iii) Implementation- this is when the firm of the staff conducts the work to implement the plan.
(iv) Monitoring of the project- is the budget being followed? Are the expenditures reasonable for the work being performed?
The concepts of loss control (and really risk management) can be applied to the legal industry as well as other service industries. Just because the original concepts were applied to the manufacturing industry doesn’t mean these concepts can’t be applied to service related organizations as well. Remember, for law firms it’s all about effectively and efficiently representing clients in a manner that not only achieves the goals and objectives of the client but does so at minimal cost and expenses. The more efficient a law firm becomes at handling matters at minimal cost, the more value the firm adds to the client’s business. The will usually equate to a higher client retention rate.
