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Whirlpool Corp. faces myriad business risks and uncertainties in its $18 billion global appliance business, but its legal bills from midsize Michigan law firm Warner Norcross & Judd aren’t one of those unknown variables. That’s because Whirlpool tapped Warner Norcross as its North American business litigation firm this fall, with plans of setting up flat-fee billing for court fights and related tasks such as creating bulletproof contracts for Whirlpool. If Whirlpool needs a contract to cover a $1 million deal and it pays its law firm $20,000 to craft the contract, the company shouldn’t care whether the firm spent 10 hours or 100 hours to draft the document, said David Grumbine, a Whirlpool senior counsel in the dispute resolution group. “What does someone care how much time a lawyer puts into a case when you’re valuing the net results?” Grumbine said. “Companies can’t have it both ways.” Whirlpool’s flat-fee arrangement with Warner Norcross is the latest example in the small universe of flat-fee arrangements between law firms and corporations. Lawyers and consultants say such relationships are often tied to convergence, or the consolidation of outside law firms. Also, they can be a prime opportunity for small to midsize law firms to collect work from marquee-level clients. Value of predictability The roughly 200-lawyer Grand Rapids-based Warner Norcross, with five Michigan offices, has used flat-fee billing with a utility company facing lawsuits over stray voltage, said Jay Cragwall, a Warner Norcross litigator and client service manager for the Whirlpool account. “If we can give them predictability and learn to live with an appropriate set of incentives, they’re happy and we’re happy,” Cragwall said. Some major corporations, like networking equipment and software maker Cisco Systems Inc. and mailing equipment company Pitney Bowes Inc., have embraced flat-fee arrangements. Cisco has flat-fee relationships with Houston’s Baker Botts for patent counseling; Fenwick & West of Mountain View, Calif., for key categories of corporate work; and Morgan, Lewis & Bockius for commercial litigation. Pitney has steadily increased its flat-fee arrangements during the past decade. Its partners include New York’s Proskauer Rose for mergers and acquisitions (M&A) work and Minneapolis-based Robins, Kaplan, Miller & Ciresi for litigation. “It’s great for budgeting and it limits the amount of time we spend reviewing invoices,” said Pitney’s director of legal operations, Beverly Wolfe. In long-term, flat-fee arrangements, the outside firm can focus more on understanding the clients’ business than billing, said Keith Wexelblatt, senior counsel at athletic-shoe maker Reebok International Ltd. Reebok currently has two flat-fee relationships with two large Boston law firms, one for immigration work and the other for employment and compliance projects. “They can be transparent and act almost in an in-house capacity,” Wexelblatt said. At Fenwick, the firm collects a monthly flat fee from Cisco to handle work related to the board, corporate securities and virtually all of Cisco’s M&A deals, said Doug Cogen, co-chairman of Fenwick’s M&A group. Fenwick’s relationship with Cisco began about five years ago and quickly moved to a flat-fee structure, Cogen said. “We think firms that get ahead of that curve and figure out ways to profitably and intelligently deliver services in that process are going to be successful,” Cogen said. “For those that don’t, it will be hard to adapt later.” Gaining an edge Small and midsize firms are also using flat-fee arrangements to gain a competitive edge, and smaller firms may be hungrier, said Joel Henning, a senior consultant in the Chicago office of consulting firm Hildebrandt International. “Typically you won’t find major Wall Street firms offering to do work on that basis,” Henning said. Boston-based employment law boutique Shepherd Law Group switched to fixed-fee pricing at the end of last December, and the six-attorney firm is on track to double revenue this year, said Jay Shepherd. The model has attracted luggage company Samsonite Corp. for a noncompete case and ongoing work for Caritas Christi Health Care, which runs a six-hospital network in New England. “I never liked hourly billing in the first place,” Shepherd said. “It pitted the client’s interests in getting a job done quickly and efficiently against the law firm’s interests.” Bartlit Beck Herman Palenchar & Scott’s managing partner Sidney N. “Skip” Herman said the legal industry hasn’t progressed very far with flat-fee billing since his Chicago litigation shop broke off from Kirkland & Ellis in 1993 to pursue alternate-fee billing. Today, the 60-attorney firm collects 98% of its revenues from alternate-fee deals, he said. “There really hasn’t been that sea change,” Herman said. “It’s too hard to turn those big firms’ ships; you have to pretty much start fresh.” As in the Whirlpool situation, flat-fee billing often crops up when a company goes through convergence or reduction of its outside law firms. “The client is looking to save money and the law firm, in return for the risk, wants the assurance of a fair amount of work,” said legal consultant Peter Zeughauser of the Zeughauser Group. Slow growth Despite flat-fee billing’s name-brand fan base, there hasn’t been widespread adoption of the practice. An Association of Corporate Counsel study released this year revealed that about 95% of in-house counsel use standard hourly rates for about 75% of their work, compared with about 81% in 2003. Those who do use alternative fees favor flat fees over other options, such as retainers for certain work during a certain time frame and contingency fees, particularly for routine matters, business transactions and smaller litigation matters. Observers say it’s most applicable to commercial litigation, employment law or M&A deals and it hasn’t been more widely adopted because attorneys at firms and companies are risk-averse. Quantity of work can also be a factor. Fenwick & West has clients besides Cisco with a payment arrangement outside the billable-hour paradigm, but Cisco’s flat fee makes sense because the company is a prolific M&A dealmaker, Cogen said. “It’s not necessarily a structure that would work with every client whose work might be more episodic,” Cogen said. Flat fees are most suitable for routine work, so general counsel are more likely to put their law firm providers on a budget for complex matters such as sophisticated litigation, said consultant Peter Johnson at Boston-based Law Practice Consultants. “The goal is the same, to reduce the costs you are paying to outside counsel,” Johnson said. Shepherd Law Group’s Shepherd concedes that his firm has made “many” mistakes during its first year of using flat fees, usually setting prices too low. The remedy is revising prices upward for similar matters in the future, he said.

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