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Elisa Garcia realizes that no amount of two-for-one coupons or meat lovers’ specials will ever turn her law department at Domino’s Pizza Inc. into a money-making operation. Instead, the best that she can hope to do as general counsel is to control costs. So, in an effort to gain some of that control, she requires the litigation firms that the pizza company hires to set budgets for the costs of cases at the outset. Garcia’s move is part of a trend among corporate counsel who continually cite cutting costs as their greatest concern and who see detailed budgets from outside counsel as a way to trim their expenses. But looking into the future is difficult, say some outside counsel, who assert that devising a realistic budget that can also accommodate the unexpected is a tricky — if not confining — endeavor. “There are certain tensions,” said Richard de Bodo, an intellectual property litigator with Irell & Manella in Los Angeles. Alternative fee arrangements, shorter lists of outside counsel to rely on and computerized billing are all ways that in-house counsel have tried to control costs. But one of the most effective means of keeping tabs on expenses, at least for some cases, is requiring outside litigators to submit a budget, Garcia said. Ultimately, it helps her answer to her bosses. “I needed a way to prepare my CEO and my board about what something was going to cost,” she said. USEFUL IN CLASS ACTIONS Garcia has been requiring budgets on certain litigation matters for about five years, but the practice has gained popularity among corporate counsel in the last two years, she said. Outside counsel budgets became particularly useful for her in defending class actions brought against the company. In recent years, Domino’s has faced class actions involving alleged age discrimination and trespass. Garcia said that she does not request budgets from firms competing for the company’s work, but rather from firms she already uses. In-house counsel most frequently impose budgets in litigation matters. A survey released last year by the Association of Corporate Counsel, which noted a general increase in the use of outside counsel budgets, reported that in-house counsel required them 67.4 percent of the time in litigation cases, compared with 46 percent of the time in transaction matters. Typical budgets submitted by outside counsel break cases into stages. In class actions, for example, Garcia wanted to see estimated expenses for the case up to the preclass-certification stage, which included some discovery, motions to dismiss, mediation and arguing against the certification motion. She also wanted estimates for appealing the motion, if the company lost, with caps imposed on the appeals matter. For cases that proceed to trial, a whole new phase comes into play. A big benefit in using budgets is the ability to determine whether settlement is the best option, Garcia said. “It helps me figure out when it is a good time to have that discussion.” De Bodo said his firm has seen an increase in requests for budgets. He also said that they work best if in-house counsel and outside counsel collaborate on developing them. Devising a budget takes a certain amount of speculation, he explained, but they are part of doing business with today’s corporate counsel. “Ultimately, we are service providers, and the client has to be happy with the service,” he said. Budgets may help to memorialize the basic tension between the law firm’s role of generating a revenue stream for itself and outside counsel’s goal of keeping costs down. Requiring outside counsel to project a budget can be a tangible way to keep both teams cognizant of those interests while at the same time trying to win the case. “It’s not even so much the amount [of money] the law firm comes back with, as it is an exposure of its thinking,” said Rees Morrison, a law department consultant with Hildebrandt International. Morrison said that the demand for budgets, rather than marking a major power shift between in-house and outside counsel, instead represents a “skirmish in the long-running war between the two.” Law firm partners, he said, generally do not like concentrating on the “sordid details of the economics,” and some view budgets as implying distrust. “It creates friction,” he said. Corporations like litigation budgets because they not only help control costs, Morrison said, but they also serve as benchmarks that enable general counsel to evaluate the firms they hire and determine their cost effectiveness. In addition, they enable companies to see how well their own attorneys are controlling costs. Tina Tchen, a litigation partner in the Chicago office of New York-based Skadden, Arps, Slate, Meagher & Flom, said that budgeting a case can be a difficult task for attorneys without experience doing it. She added that different clients require different information. In general, operating under a budget is “a good way to run a case,” she said, especially in routine kinds of litigation, such as licensing disputes, employment matters and some insurance cases. It is rare for a company to require budgets in huge cases with dire consequences for the company, Tchen said. Saving the company in those cases is more important than saving any litigation costs. But in cases where corporate counsel requires a budget, she cautioned that outside counsel may too eagerly try to budget for the myriad directions a case may go, which ends up presenting the client with a list of options void of any real counseling. “On the one hand, you don’t want to lay out so many what-ifs that you’ve given the client no advice and no direction at all,” she said. “But I’m also of the view one should never be so foolish to say, ‘Yes, this is what is going to happen.’ “ AN ‘UNBELIEVABLE’ COST What sets a budget askew most often is document discovery, Tchen said. Complying with requests for electronic data is a huge cost, and a requirement that compounds itself as documents attached to e-mails, data processed with obsolete software and communications generated years ago are implicated. “You never know until you go in. It’s unbelievable,” she said. Devising a budget can take days or weeks, depending on the client and the case. Tchen said that some clients look for budgets that span the life of the case and identify major milestones, such as motions to dismiss and summary judgment motions. Other clients ask outside counsel to project expenses over a period of time, such as one year. Corporate counsel increasingly are asking for more details in the budgets that they request, and want them down into “smaller and smaller tasks,” she said. For all the work that law firms may put into them, budgets are only useful if someone actually analyzes them, said Morrison, the consultant. One of the complaints that he hears from law firms is that in-house counsel do not adequately review the budgets they submit. “If law firms take the time and effort to do a budget, then inside counsel ought to honor it by thoughtfully going over it,” he said.

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