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EVENTS AND ROUNDTABLES

EVENTS AND ROUNDTABLES > Roundtable > Financial litigation

EVENTS AND ROUNDTABLES

ROUNDTABLE:Financial litigation

Financial litigation in the post-crisis era and the impact of new regulations on financial litigation

MR. DAVID BURGESS: Good evening, everybody. Thank you for attending our roundtable this evening. As you leave tonight, we hope you take away a copy of our new magazine, GC Magazine, which is aimed at the business and strategic element of being an in house counsel, rather than the legal aspects of things. We’re doing an increasing number of events, an increasing number of publications and studies to actually promote and reward in house counsel who we think are doing a great job and very under-rewarded and under-recognized in the legal community.

The format for this evening, if we go around and introduce ourselves and say what we’re responsible for in our particular organizations, and maybe some of the concerns we’ve got, things we’d like to discuss, and then we’ll kick off the discussion. So Karen, would you like to kick off?

MS. KAREN KONIGSBERG: Sure. My name is Karen Konigsberg. I’m in-house counsel, Executive Director and Counsel at UBS, more on the investment bank side. I handle a mix of regulatory work and litigation, probably with a bigger concentration on regulatory work.

MR. ADAM CHODKOWSKI: Adam Chodkowski, from Swiss Re. I cover a lot of the asset management and capital markets aspect globally in the group. I’m more on the transactional side. I cover corporate governance and regulatory as well. We actually have a dedicated litigation team which I’m not part of, but I work closely with, and with respect to financial and capital market transactions, and am based here in New York City.

MR. PHILIP MARX: Philip Marx, General Counsel and Head of US Compliance for RB International Finance USA, which is a subsidiary of Raiffeisen Bank International. We have several subsidiaries in the U.S., all finance related, and I am responsible for corporate governance, regulatory, and compliance issues.

MR. JOHN DRISCOLL: John Driscoll. I’m the Head of Litigation and Regulatory Affairs for Société Générale.

MS. SANDRA PARK: My name is Sandra Park and I’m in house at Natixis.

MR. NICK VAN DUSEN: Nick Van Dusen. I work in the legal department at Goldman Sachs. I primarily focus on transactional and regulatory matters, with a focus on derivatives and with respect to regulatory, Dodd-Frank and some of the implementation compliance with Dodd-Frank.

MR. SCOTT CHRISTENSEN: Scott Christensen, from Hughes Hubbard. I’m a civil litigator, but for the last decade, my focus has been on work for the FDIC. We represent the FDIC in the largest litigations and transactional matters that they have encountered in this past financial crisis.

MR. JOSE SANTOS: I’m Jose Santos. I am an attorney with the Corporate and Investment Banking department at JP Morgan. So glad to be here. I’m glad I made it.

MR. BURGESS: And I’d also like to introduce my co-chair, Chris Kiplok from Hughes Hubbard.

MR. CHRIS KIPLOK: I’m Chris Kiplok. I’m a partner at Hughes Hubbard. I’m a member of our executive committee and help lead our restructuring practice, Thank you all for joining us tonight. Given your various sets of responsibilities at your firms, we should have a lively conversation All of us have gone through unprecedented challenges the last few years, and I think frankly, Scott, it’s great that you’re here, because you can comment hopefully as well on some of our experiences getting through the crisis. David is going to sort of lead our discussion, and I hope, frankly, to say as little as possible and hear as much as I can from you all. As I gave some thought to what issues we might discuss tonight, I was thinking a lot about the litigation environment, where we were at the outset of the crisis, where there was a real pullback on the brakes, no appetite for risk. And where we’re going now with an uncertain regulatory future, how it impacts civil litigation, as well as dealing with the government. But there is a wide range of topics, and this could go in any direction, so we have a good story here.

MR. BURGESS: I think the way that we probably should kick off is to talk about litigation, but obviously what impacts that most is the regulatory environment. Just as a general opening, what are you seeing as the major hurdles within your businesses that are impacting your litigation from the regulators, be it issues with Dodd-Frank or agencies.

MS. KONIGSBERG: I can't speak for my institution as a whole, but a tremendous amount of my time is still taken up by work arising out of the financial crisis. I previously had handled, which was publicly disclosed, an SEC sub-prime investigation regarding valuation and disclosures. After an investigation that lasted more than five years, the SEC ultimately decided not to proceed. But there is still crisis-era litigation, winding its way through the system, including private antitrust litigation regarding the CDS market. The DOJ announced the other day that they are now looking at Moody’s, which seems very dated. Whether they’ve got a tolling agreement in place I don’t know, but there seems to be no limit to the appetite to continue to look at that era whether for plaintiff litigation or regulatory matters.

MR. KIPLOK: Or even, frankly, the tail of things that started a long time ago.

MS. KONIGSBERG: Yes, absolutely.

MR. KIPLOK: And keeping most people busy on the litigation side is litigations that commenced years ago, bankruptcies that commenced years ago, with automatic extensions and stays at the time to file. I think that is a great way to kick off, because the new year seems to feel like the old year over and over again.

MR. CHODKOWSKI: I mean, my perspective, we’re much more a buy side firm, but we do have some sell side activity, and we had more in the past, but that’s pretty well run off by now. But what worries me now is sort of looking forward and a lot of the uncertainties, particularly in Title Seven. We’ve also had contradictory messages from the regulator about what it is in this deal or it should or it shouldn’t be in that deal despite what the published information says.

MR. KIPLOK: Well, I think Adam hit it on the head, because in our dealings with the regulators, oftentimes on our side of the table, working with you all, we’re left asking: What do they mean and what are they after? And, you know, that level of unpredictability isn’t good for anybody.

MR. MARX: I do agree Dodd-Frank is of course a big issue for all of us and to monitor its progress, and from my perspective, I’m always interested to see what level the extraterritorial effects reach, and to help the European affiliates to deal with that aspect. This is also causing a lot of uncertainty.

MR. KIPLOK: Yeah. And, you know, the cross border interactions of the regulators is interesting too, because you see—I see a lot of identifying of issues and a lot of agreement that there are mismatches in even U.S. and UK regulations. You think it would work, very easily, but there is not a lot of progress resolving it, and it’s really, on that front, I think it’s a great point, really no different than we were pre-crisis.

MR. MARX: The discrepancy is because U.S. and European, and all the regulators having different approaches and there is no alignment to be seen right now.

MR. BURGESS: You’re getting that because the regulators are more involved in it now, and are being bolder in their approaches across international borders?

MR. DRISCOLL: Regulators are even more sophisticated now than they were before on an international plane. I mean, they themselves have stated that they’re more comfortable operating internationally than they were five years ago, or even two years ago. So it’s not so much bolder, as I think it is a growing comfort level they have with managing international investigations.

MR. BURGESS: Have you seen them working together more, or are they still being quite separate?

MR. DRISCOLL: I think it’s tough to lift the veil and see how cooperative they are. I think they’re all independent and they’re going to be independent. But they profess to want to work together and they appear to make efforts in that regard.

I think it’s tough to lift the veil and see how cooperative they are. I think they’re all independent and they’re going to be independent. But they profess to want to work together and they appear to make efforts in that regard.

MR. Driscoll

MR. KIPLOK: I think the first thing you said, John, to me is absolutely spot on. They are talking to each other. They are picking up the phone more.

MR. VAN DUSEN: At the same time, I think it may be true that they’re talking to each other more, but there is also still a need for better coordination. If you look at derivatives regulation, you have Title Seven in the U.S. and you have Europe coming out with their rules, but there is still a need for better coordination amongst the rule makings, across the different regulatory regimes and across the different markets. So it’s something that makes markets more uncertain. It leads to fractionalization and so forth. So yes, I think the regulators do talk to each other, but they don’t always see eye to eye with respect to what should be done.

MR. BURGESS: And you think that will continue to happen - that sort of singular vision? This is what we want, not this is what makes sense.

MR. VAN DUSEN: It’s hard to predict the future, right? I think it’s in part personality driven at times. I think that sometimes there are regulators that don’t necessarily see eye to eye, personally, and maybe that’s a stumbling block to coordination. But it’s also obviously a different political environment, depending on where you are. The regulators are always going to be responding to that.

MR. BURGESS: Have you seen changes since November, as a result of the midterm elections here in the U.S.?

MR. VAN DUSEN: I think it’s too early to say.

MR. KIPLOK: I agree with that.

MR. CHODKOWSKI: I agree, the fragmentation, again, we are mostly on the buy side. I mean, we need to know a year ahead of time if we need to set up a separate subsidiary and get different licenses or we need to get it at this time. We can’t just in two months do everything.

MR. KIPLOK: I can tell you there is no appreciation for that. Everything has to happen yesterday, everything is easy.

MR. CHODKOWSKI: Right. And again, not on the sell side, but just to have access to markets to manage risk and be able to continue doing what we’re doing. And I wonder, I never thought about it from the enforcing aspect, and again, I’m a transactional guy. But I don’t even know the full mechanism that we use. I wonder how it will work in terms of actually cooperating with enforcement, if you provide mutual recognition between EU and U.S., for example. Are they worried that they’re not going to be able to necessarily work together the way they should, to be able to go after somebody in other countries. You kind of give up the right to that. I’m curious to hear people’s view on that.

MR. KIPLOK: Well, I can tell you my experience in Lehman and MF Global was it laid a predicate for conversations to happen. And then the playbook very quickly went out the window, and what we had was a lot of pre-crisis advice that was research well done, well thought out. Then regulators got together in well intentioned ways to try to solve problems and came up with results that didn’t, or weren’t spelled out, but did allow for practical solutions. So the advice I always give to people is be wary. This is exactly what the documents say or the new regulations say, but if the evil day comes, that’s when you need to be nimble and tell your businesspeople to be nimble.

MR. BURGESS: I don’t know if anybody is prepared to put their neck on the line slightly. Where do you think the next attack might come from, we’ve already mentioned oil. Where do you think the next attack might come from? As we said, it’s always hard to predict, but is anybody preparing for the next attack?

MR. SANTOS: Being in litigation, there is no real sense of preparing.

MR. SANTOS: I’m brought in when the guns are already out.

MR. BURGESS: But are you imagining where the next one will come?

MR. SANTOS: I think your comment on oil, I’m beginning to hear it in a few circuits. So I think there might be something in that.

MR. KIPLOK: I’m with you on that one. But I think Karen’s point is right. There are still a lot of people looking for the regulatory side and from the plaintiff’s side. You know, sub-prime etc, you name it. And those issues are going to keep a lot of people busy, which is maddening, frankly.

MR. BURGESS: You’ve seen more from the plaintiff side, Karen? Is there still a pipeline coming through?

MS. KONIGSBERG: I would say it’s slowing somewhat. I mean, as Chris had indicated, there are some cases that have been in the pipeline for a long time that are getting more active. So in that sense, you’re seeing more. In terms of new cases filed on the plaintiff’s side, I don’t see as much of that, just because they can try to be creative in terms of statute of limitations, but at some point, they do run into a wall. You know, some of those cases are starting to work their way through the system in a way helpful for defendants, and other ones not. But other ones are getting to the phase where it’s just very active litigation at this point.

MR. CHRISTENSEN: Do you see an increased market in trying to settle the RMBS cases? For example, the Bank of America settlement is still out there, but has a certain sense of approval. There have been settlements by Citi and JP Morgan Chase that are in the process of approval, and all of those cases might create a market for how other cases should settle. Could that break a log jam of current domestic litigation?

MS. KONIGSBERG: It’s possible. I think it’s a natural thing for litigators to see what’s happened and what other entities have done in other cases and see what impact it may have on their own case. But I still think on some level every case is unique, so it’s going to depend on what your facts look like and what forum you are in. Ultimately, your view of the strength of your case plays a bigger role - in terms of whether you settle, what you settle for, etc.

MR. SANTOS: Are you posing that on the plaintiff civil side or are you focused on regulatory?

MS. KONIGSBERG: The civil side, although I think it applies to regulatory matters as well.

MR. CHRISTENSEN: Yes, because we have seen an increased interest in settlement based on what’s happening in other large cases. When we see the dollar amounts that are alleged in some of these cases, it gets very hard to think about how one might resolve them. But I ask whether there is an increasing market for trying to resolve those cases?

MS. KONIGSBERG: I think when, and again, this is speaking generally, but I think a settlement in a given case certainly can break a log jam in that case, to the extent it’s a multi-defendant case. But when you are talking about settlements of different types of cases, I think there the translation gets weaker, because it depends on each situation.

So I think sooner rather than later that sort of 'lessons learned' kind of thinking is going to actually be a little bit more compelling for firms to follow, leading to, I guess, more fruitful efforts to settle early on. It’s just inevitable.

MR. Santos

MR. SANTOS: Following that sort of train of thought, it just seems like we’re paying so much more attention now to every single penny, because these budgets are just now astronomical, even on a single class action matter. There’s the money you’re paying, and then obviously year end and quarterly, you’re adding all these things up, and it’s just crazy numbers. So I think sooner rather than later that sort of lessons learned kind of thinking is going to actually be a little bit more compelling for firms to follow, leading to, I guess, more fruitful efforts to settle early on. It’s just inevitable. It can continue in the various little sectors doing what they’re doing. I don’t know how even the bigger firms can continue to increase these budgets year after year without respectfully addressing shareholder interests. And I don’t need to tell you what they say at every meeting.

MR. BURGESS: One of the things that we’re interested in is the internal pressures everyone is facing, from your own internal clients. Do you find you’re under pressure to try and reduce the amount of money that’s going out, even though sometimes there’s not a lot you can do, and you’re trying to just sometimes fight fire? Are you seeing an increase in frustration, that this is just costing more and more money?

MR. SANTOS: Not just at JP Morgan. In the other firms I’ve been, I think that would be accurate. We’re certainly courting and dancing with every outside counsel. I think no matter how small a matter you’re handling, we really want to make sure that every single cent that’s being charged and billed is the minimalist amount that we can actually pay across the board. So I don’t know that I would say it’s frustrating, because it’s a sort of gradual process, back from Bear and then the other firms up to here, and my colleagues in the other firms were hearing the same things as we defend matters sometimes together. Very same thing.

MR. CHRISTENSEN: I think it exists everywhere. Probably Chris could comment more in terms of what he sees.

MR. KIPLOK: I agree. It’s a universal pressure because of the environment we’re in, so you react to it. But I think to David’s question, how do you all react to it with your constituents is managing it internally is hard too, because you still need to achieve results.

MR. BURGESS: What do you think law firms could do more to help you out, apart from just doing it for free!? Is there anything extra that they could do that you think would enable some cases to be settled early, or is there anything they could do to be more strategic.

MR. SANTOS: I mean, the one thing that pops up in relation to that is again, generally, I think I find myself many times wishing that the budgets that are sent to me were a little bit more accurate. And I understand, as with any estimate, it’s exactly that, it’s an estimate. But when you come down to a litigation, and by the time I’m done or we’re done, because it’s obviously a two way thing, by the time we’re done briefing the entire thing, I personally just hate being surprised budget-wise.

MR. BURGESS: Is that because you haven’t been project managed effectively? Would you be as concerned if you got the nod early that the bill might be as high as that?

MR. SANTOS: I don’t think it would matter either way. I think generally what bugs me is, at the initial stage of the matter, you discuss it thoroughly, you thoroughly investigate it, judge, venue, everything that you can under the sun, under pretty tight time constraints. And you wind up at the end of that initial, those initial meetings, with something that you say certainly from our standpoint ought to be carried through relatively smoothly. And it doesn’t happen often, but it happens often enough that it bugs me when it does, because even though sort of the purpose of that is not to be accurate. It’s certainly the aim to walk you through the stages and give you an idea of the firm’s billing practices under those circumstances. So when it bugs you is when there is reason to divert from that, with good reason. Obviously, things happen, especially in litigation, because you can’t factor for everything. But when they do, I get the sense that the numbers, where we wind up to cover those developments, they tend to always be always on the higher side, as opposed to the conservative numbers that we were talking about a few months back.

MR. BURGESS: In your experience, when you’ve got those surprises, and it was significantly more than expecting, what have been some of the reasons for that, in terms of billing? What do you see and ask, why is this part so high?

MR. SANTOS: And that’s a harder question to answer. Because it’s obviously factual case by case. So, they will run the gamut from unanticipated size of an entity, and I’ll talk about one with no connection to my firm, whether that actually happened. But it was a commodities case, where a certain firm took it primarily from a colleague, not us. We were tangentially involved, but it was certainly not our penny primarily. And this in house counsel ran into one of those developments, and in his case, he shared with me that the firm noted that they were under the best due diligence practices. They simply just were not aware that the entity they were defending had about a little over two dozen subcontracting and contracting entities that they had to really, really study quickly. In their case, I think it was heavily export dependent. And so that wound up costing them about $500,000 or $600,000 extra. And he just thought that his business people just wanted to kill him – figuratively! and, you know, no matter how much you explain it—obviously, So anyway, I’m thinking were that to happen to me, I’d do the math on those entities, and I don’t know how large they were. You know, for every entity, it could be a mom and pop, they could have 30 people under them. I have no idea how sizeable it really was. But I’m thinking to myself, you know, I add that up to 12 potential witnesses, one, maybe two from each. Does that add up to fall within the range of $500,000 or $600,000, and it doesn’t. And so that’s where I would expect the firm to realize that, and we all understand it’s the business side of our relationship. We respect that. But think ahead, especially if I’m letting you know that the business side is completely torn up by the fact that they now have to increase their reserves and get additional approvals for them.

MR. BURGESS: Do you think some of the firms have taken advantage of these high profile cases to ensure their billing costs remain high?

MR. SANTOS: A few of them.

MR. DRISCOLL: I’m not certain it’s a deliberate strategy to take advantage of a high-profile case. I just think there are different firms, and it’s tough to talk about a firm as a monolithic entity, as different partners within different firms handle matters differently. But the partners that we like to work with are the partners who don’t believe in a huge leverage pyramid and will roll up their sleeves and do the work. And we get concerned when we see bloated bills, when we see associates doing work we weren’t told about in advance, and when we see large numbers of hours on bills with generalized descriptions, and the like. We lay out at the beginning what we expect of our firms, and ask for preapproval for substantial segments of work. Frankly, it’s the least enjoyable part of the job for the partners at the law firms and for us. I have to monitor my outside lawyers to do my job. And you try to find the firms and the partners who you can trust and work with. But it’s a huge challenge, and frankly, I think, the whole model is shifting, and 20 years ago when I started at a law firm, associates reviewing documents for 10 hours a day, day after day, billing $500 an hour, that was just done. Nobody does that anymore. That kind of work is all going to India and other cheaper markets. And, I don’t know what the next 10 years are going to hold and, for instance, whether we’re going to get to more pervasive alternative billing arrangements for litigation.

MR. KIPLOK: Well, on our side, David said the two words that are moving to a matter of firm management, which is very different over the last five years and 10 years, and that is project management. We’re now moving the amount of data, I think our firm and many others can now have on a daily-weekly basis. We have a couple clients on our bigger matters. We had a phone call Friday night. This is where we are this week. 10 years ago, that was unheard of. I mean, actually unheard of. You couldn’t do it. So we’re moving a lot to that, and that is sort of a double edged sword, because that is the business of law as opposed to the practice of law. You guys want us solving the problems for you, but more of my time is now going towards things such as, I’ve got to be sure I know where I am, where my people are, talking internally, to then be able to talk rationally and reasonably with you all. And I think it’s helping, but you’re right, it’s the least favorite part of everybody’s day. We like our day jobs. I like my day job. But all we know it is because of what’s changing on your side.

MS. KONIGSBERG: I think what John said is absolutely right, both in terms of the least favorite part of the job, but also, I feel like I had very good experiences with the outside counsel who I have personally worked, and as John indicated, you find people who you think will be responsive, both in terms of cost and billing and staffing, and in terms of trying to quickly get to the heart of a matter and scope it out and understand what the risks are and what the right strategy is. I don’t feel in the matters I’ve handled personally that a firm has tried to take advantage or tack on big bills. I do think firms need to be increasingly sensitive to “do I really need to bring this extra person to this meeting or have them on this call”. I’m very cognizant of that. Every time I’m on a call, I’m very cognizant of does this junior associate really need to be on the call? Is it more efficient because they’re going to be doing X, Y, Z, or is it just they’re giving them experience or whatever, which shouldn’t be on my dime. So I think that the more that firms can be sensitive to that, the better off they’ll be.

And then, David, you had mentioned the surprise element. You know, there are always going to be times where something happens in litigation, and you need to adjust. But the sooner that a firm can explain what that adjustment is going to mean in financial terms, the sooner that we can talk to the business and make educated decisions about what we want to do strategically. But in my experience, it’s much harder when it comes very late in the day and the business hasn’t been communicated to. There have been times, sometimes by firms, sometimes by experts or other types of vendors, where we have gone back and said an increased cost is not acceptable, because it wasn’t managed properly.

MR. KIPLOK: And we see it, frankly, more on the intake side. Scott and I had lunch today with one of our retired partners. We do a lot more of “maybe we’re not the firm, actually, for a matter of that size”. And, you know, we have a couple of former partners that were in small places who were excellent lawyers, and I found myself saying no, I’m going to give this to them, it’s better for you. You’ve got to do that on the outset, because I don’t want to be talking to you and say, “this million-dollar matter, we just ran out of $250,000”. That’s a problem. But that’s changed, because it used to be a million-dollar litigation was something you’d want to hire one of the big firms to do. But that’s just the changing nature of the business, and it’s an issue, frankly.

MR. CHRISTENSEN: Are there alternative fee arrangements that have worked or that seem especially attractive, whether or not people have had a chance to try them out?

MR. DRISCOLL: It’s difficult to get too creative, because ultimately, you’re dealing with your clients who have a day job making money and doing deals, and it’s tough to sell them another deal in the form of a litigation. I think that it may work a bit more in the sort of cases that are commoditized. But in the investment banking world, your cases are bigger and more unique. For smaller matters, we’ve done caps and collars, but it’s a challenge. I think if firms truly want to do alternative fee arrangements, and firms profess to want to do them, they have to help design alternative fee arrangements that require less substantial effort to negotiate each time. It’s kind of like the pre-ISDA OTC derivative market. It’s like we need an ISDA template for alternative fee arrangements with a master agreement form and confirmation template. And now those templates just aren’t there.

It’s difficult to get too creative, because ultimately, you’re dealing with your clients who have a day job making money and doing deals, and it’s tough to sell them another deal in the form of a litigation.

MR. Driscoll

MR. KIPLOK: That’s interesting.

MR. MARX: I would agree. It’s different whether you do transactional work or litigation work. Some business lends itself more towards caps and collars or similar agreements. I’m curious does anybody have experiences with legal billing software, such as Serengeti? We don’t use it, but I heard that that it is a useful tool in terms of managing your bills and in terms of implementing billing guidelines. Do any of you use that?

MR. CHODKOWSKI: We try as a group to rationalize and do things as one firm. And, something I’ve been trying is volume discounts, which I think works well on the transactional side. Somehow partners on the litigation side leave that firm and then our internal litigation people use other firms that never quite meshes between the transaction and litigation.

MR. KIPLOK: I can’t think of a major client of ours that doesn’t have fee guidelines.

MR. BURGESS: Looking at your internal budgets and resources, are you seeing them pretty static, or continuing to be under pressure? Are you also seeing any rises in fees from law firms?

MR. SANTOS: I don’t see any inkling of any better deals. There is no sign in the horizon, at least from where I stand, that that’s going to change any time soon. Because no matter how much we obviously negotiate rates, literally every day of the year, they seem to only go one way, up. So I don’t think you’ll see that, at least we don’t think you’ll see any loosening of that at all.

MR. BURGESS: Yeah. Have you seen much evidence of the firms coming down? Because obviously if bills keep going up and internal pressure is budgets being pushed down, at some point there is a breaking point, where either you can’t exist or things are going to get lost and it’s going to be more dangerous to your business.

MR. SANTOS: Interestingly enough, even though I’m divorced from that process, thank God, I’ve certainly heard, again, not just with us, but across the street where if you can’t lead, if you don’t come to a negotiating agreement, there are many of your competitors that will. So I think it’s just a matter of them getting comfortable with a practitioner you have really good experience and trust in.

MR. BURGESS: Have you had to compromise in terms of who you can use because of those cost structures. Has that been an issue for anyone?

MR. DRISCOLL: I think you can find good firms and good people who work with tight budgetary strictures. We look for firms who are playing the longer game. The partner who is complaining at his or her realization rate on a particular matter is not likely someone we will work with long. If you’re taking a hit on this case, you’re investing in the relationship, and that’s something that we want to see. It’s a hugely competitive world out there, and there are a lot of really good lawyers.

MR. SANTOS: That’s a pretty uniform line of thinking. I’m actually hearing that more and more about getting into bed with us for the long run. Not just take this and complaining to me a year and a half later that you didn’t meet some of your internal goals, because we frankly have to deal with that daily. And it’s not about that anymore, and I think we’re beginning to see a lot more newfound respect for those practitioners out there in big and small firms who actually we believe are internalizing that and are meeting us more than halfway in the hopes that in the very long run, they’ll be fine. So I agree with that.

MR. SANTOS: I wanted to get a sense form others on something else. Maybe two years ago, three years ago, AFA was literally everything our clients were asking us to study and become experts in, and now we see a downward trend in that. Are you seeing the same thing? So, Alternative fee arrangements - are you doing them as much as you did three years ago?

MR. BURGESS: It was a very hot topic a few years ago, and everyone was trying to find the solution. But is it because nobody has really found the solution, that it’s drifted away? The stats that we have is at most 20% of work was on some form of AFA, but 80% was still pretty much the billable hour. And we haven’t really seen a tremendous change in that.

MR. KIPLOK: And I will say the Association of Corporate Counsel just came out with their annual survey. Alternative fees are still among that survey. I think they surveyed 10,000 in-house counsel. They got 1,200 responses, and alternative fee arrangements for one of the predominant areas at least of interest?

MR. BURGESS: But presumably it’s partly about control of the cost. I think what we’ve been saying tonight is that you can control them to a degree, but then there is quite a big leeway where you simply can’t know.

MR. VAN DUSEN: Well, it’s also about the certainty. It’s not simply to control the cost. It’s often about certainty. You don’t want to have that conversation with people when you are $500,000 over budget.

MR. DRISCOLL: I think if it truly becomes a profit center, when you’re talking about alternative fee arrangements, the interests may never be aligned, because basically your goal would be to game each other to maximize margin. And in that context, the concern is it’s difficult to design a win-win.

MR. BURGESS: Something WE heard a couple of years ago was firms trying to work out what the potential litigation risk might be, presenting that to the client and then saying if we can reduce that potential risk, can we take a slice of it. Has anyone actually seen that in practice? Because it seems to be a very hard thing to try and even quantify.

MR. DRISCOLL: And you can do that, again, with commoditized cases. Our matters tend not to be like that. I think you could do it if you are going to get 500 to 750 similar cases a year, because the statistics and probabilities will show you over time how these cases resolve themselves. You could probably be very creative. But the more unique your docket is the more difficult it is to do it in a way that I think aligns things the right way.

MR. KIPLOK: And after all, this is litigation. You’re still trying to win something.

MR. BURGESS: That seems like a good place to end the discussion. Thank you all for joining in the roundtable.

 

4 February 2015

Location: New York

Chair

  • David Burgess, The Legal 500

Co-chair

  • Chris Kiplok, Hughes Hubbard

Guests

  • Adam Chodkowski, Swiss Re
  • Scott Christensen, Hughes Hubbard
  • John Driscoll, Société Générale
  • Karen Konigsberg, UBS
  • Philip Marx, RB International Finance USA
  • Sandra Park, Natixis
  • Jose Santos, JP Morgan
  • Nick Van Dusen, Goldman Sachs