When appliance manufacturing giant Whirlpool decided to cut its legal costs related to class actions, it turned to one firm in particular in launching an effort that quickly resulted in savings.
David Grumbine, senior counsel and director of dispute resolution operations for Whirlpool, had earlier cut the number of law firms handling product liability defence for the company in the United States. He reduced the number of firms to three from more than 200 and moved them towards a value-based approach to fees.
That system had thrived for more than a decade in the United States and resulted in significant savings for the manufacturer before Grumbine began to turn the company’s attention to litigation in the late 1990s. But rather than selecting a blue-chip corporate firm that catered to Fortune 500 companies, Grumbine decided to do something different.
He selected a litigation-only firm based in Denver that was willing to work under a mixed flat- and hourly fee arrangement specifically tailored for Whirlpool.
That partnership with Wheeler Trigg O’Donnell LLP saved the company more than 40 per cent on class action defence costs in Canada in the first year alone.
By creating a fee arrangement that enabled the firm to make a reasonable estimate in the early stages of litigation about the cost of each case in a class certification hearing, it and the company were able to develop a mixed flat-fee arrangement that’s now accurate within roughly five per cent of predicted costs. The result has led in-house counsel to prepare case budgets with little or no input from the firm while early-resolution bonuses provide added incentives.
The result, said Grumbine, has contributed to the transformation of U.S. law firms from task-based service providers to efficient and responsive partners.
“Fixed fees have made their time as valuable as their clients’ time,” said Grumbine during a telephone webcast on value billing held by the Association of Corporate Counsel on July 12. “In-house counsel were looking for ways to provide better services at lower costs, and fixed fees enabled them to do that while moving beyond traditional expectations. It gives companies certainty.”
It's an approach Whirlpool expects to bring to Canada once it has amassed more information.
"Canada will fall in line once we have the data," he says.
As for the law firms that decide to move to flat fees from hourly fees for large corporations like Whirlpool, Mike Williams, a partner at Wheeler Trigg O’Donnell and leader of Whirlpool’s client team, said the transition has been positive.
“Consumers see litigation as a high level of investment with highly unpredictable results,” said Williams during the webcast.
“For years, we believed one size fits all and now we know that isn’t the case. It has taught us a very valuable lesson. Fixed fees are encouraging to clients and it brings us that much closer to the business so that we become almost like in-house counsel.”
More than two decades later, the changes Whirlpool began implementing in the 1990s have taken hold. Several large corporations like Pfizer and Target have also jumped on board with alternative fee structures over the last several years in an attempt to drive down costs.
At U.S.-based pharmaceutical company Pfizer, 19 law firms have worked on a flat-fee basis since 2009.
Ellen Rosenthal, chief counsel of Pfizer Legal Alliance, said the results have been positive so far.
“Ours was a very radical change,” said Rosenthal.
“At first, some people didn’t know what to think, but it didn’t take long for them to start to see the value at the end of the year. We’ve made substantial cost savings and we like having a small number of lawyers who can give us that personal approach.”
At Pfizer, there’s no financial incentive for firms to compete with one another for work. The company rewards them with opportunities to take on higher-profile projects that give them in-depth knowledge and ultimately make them more successful and efficient in court, Rosenthal noted. The approach also allows law firms to build solid reputations with a company over a longer period of time and bring in a steady revenue stream, she added.
Other alternative fee arrangements in the United States have included capped fees and blended rates.
But according to several of the panellists on the webcast, the trend towards alternative fee structures isn’t just taking root in the United States.
In Canada, Target is leading the way with its fixed-fee system. The retailer will expand into the Canadian market in 2013 by opening locations throughout the country and has partnered with three Canadian law firms so far. They are Sherrard Kuzz LLP in Toronto, Norton Rose Canada LLP, and Roper Greyell in British Columbia.
Despite Target’s move, many Canadian law firms are sticking to the hourly method of billing. According to a report by the Canadian Bar Association on the topic, that’s likely due to the fact that Canadian consumers simply aren’t demanding flat fees or alternative billing structures. Still, if more companies like Target enter the Canadian market and demand change, a slow shift may start to emerge, the report noted.
Dennis Lynch, chief litigation counsel at Tyco International, said that as more companies start to put their toes in the water and look for alternative business arrangements, more lawyers will follow.
“This can be done pretty much across the board,” said Lynch during the webcast.
“It’s also something that’s not particular, generally, to any area of law.”
Editor's note: This story has been altered to correct an error in its original version.