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San Francisco-It wasn’t hard for Charles James to set his cost-cutting sights on litigation when he became general counsel of ChevronTexaco Corp. 10 months ago. Litigation consumes the biggest chunk of Chevron’s annual spending on outside counsel. The San Ramon, Calif.-based oil giant shells out more than $60 million a year to litigators to handle the thousands of active matters the company has at any one time. What’s not so easy is figuring out how to trim the litigation budget. Chevron’s immense size-it grossed $92 billion in 2002-makes its litigation a stew of everything from disputes over taxes, royalties and severance pay to complex environmental matters related to the company’s oil refining activities. The company is trying to re-examine the duties of all of its lawyers and business staff assigned to work on specific cases. The hope is that the company can find ways to devote more in-house time to litigation-thus slicing the bill for outside counsel. “For a company like Chevron, we have to be very good at litigation management because it’s in the nature of our business to have disputes,” James said. “This litigation management issue is not a skill that’s taught in law school.” ‘A huge challenge’ Managing litigation matters efficiently is an issue that most in-house lawyers wrestle with. Not every company has Chevron’s heavy litigation load, but juggling even a modest number of cases efficiently is difficult, in-house lawyers say. “It’s a huge challenge,” said Scott Rickman, Del Monte Foods Co. associate general counsel. “To do it effectively, you have to manage each law firm and each partner personally, and that means doing it differently for each one. It takes a lot of thought and a lot of effort to do it well.” Since taking over Chevron’s legal department in December, James has been trying to cut expenses but in a more creative fashion than with a simple layoff. He put his legal department to work on a detailed inventory of litigation practices and went so far as to open the department up for external criticism by inviting a panel of eight outside litigators to dish frank commentary on how Chevron’s 187-lawyer legal department could improve. “The people who have litigated for us or are litigating for us on a regular basis will tell us what we’re doing right or wrong,” James said. Jones Day partner Robert Mittelstaedt, who has represented Chevron since 1975 and spoke on the panel, said the company could benefit by more clearly identifying the roles of in-house and outside lawyers. “The most interesting thing was the effort to try to work out who does what and who adds value,” Mittelstaedt said. “The opportunity here is to really isolate and identify the tasks that the outside lawyer can do more efficiently.” Ernest Getto, a Latham & Watkins partner who participated in the panel, said he encouraged the in-house lawyers to explain how the matter he is handling affects other parts of the company. Looping the lawyer in on communications between business units is a key issue clients need to consider, Getto said. “When you’re dealing with a large company with far-flung operations and a substantial legal department,” Getto said, “the more standardization or best practices from them that you can get, the better off communications are.” It might not seem like helping a client to ultimately pay less is in the best interest of an outside counsel. But Mittelstaedt said that having in-house lawyers pick up more of the mundane matters allows outside counsel to focus on premium work. Detailed plan coming A committee of Chevron lawyers in charge of the overhaul will unveil a plan by the end of the year, said Mark Cervenka, the Chevron senior counsel in charge of the committee. It will include a new job description for lawyers who will work as litigation management specialists, Cervenka said. It will also detail what kind of business employees and lawyers should comprise a litigation team, how tasks should be divided and how team members should communicate. The plan will also outline what the company considers a win for various kinds of litigation. The new procedures for in-house lawyers are just the latest step in James’ efforts to remake his department. He started retooling his litigation team by consolidating the company’s procedures for dealing with outside counsel. Each of the four divisions of Chevron had its own guidelines. That meant outside lawyers had to do things differently depending on which branch of the company they were representing. James then put eight of his lawyers on a committee charged with drafting a better plan for handling litigation from start to finish. “One of the principal issues is how do you do the initial case evaluation,” James said. “I’m not suggesting [our process] is broken but we want a uniform best practice on how that’s done and how to get alignment between the business people and the lawyers who handle it.” Continuing implementation Cervenka said the project to revamp Chevron’s litigation procedures is an ambitious one-it won’t end with simply writing a plan. He said the first quarter of 2004 will be devoted to training many of the company’s lawyers internally on the new guidelines, whatever they may be. “We’re going to ensure that people in-house who managed litigation are trained and qualified,” Cervenka said. “That’s where the paradigm shift is going to come from.”

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