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Category: Legal Spend

Insurers Refuse to Pay $18M in Defense Fees in Experian Class Actions

November 19, 2020

A recent Law 360 story by Joanne Faulkner, “Insurers Deny Liability in Experian’s $18M Legal Fees Suit,” reports that two insurers have told a London judge they are entitled to refuse to pay Experian's $18 million claim for coverage of its U.S. legal fees in a pair of class actions over errant credit reporting because the litigation stems from deliberate data erasure by staff at the company.  Zurich Insurance PLC and a subsidiary of SCOR said Experian's policy excludes "deliberate acts" such as those that allegedly form the basis of two major class action suits in the U.S., a newly public Nov. 13 defense said, after the company sued to claw back litigation fees.

The claims made against Experian — which said it has racked up millions of dollars in liabilities and legal costs defending the suits — were for statutory damages according to the U.S. Fair Credit Reporting Act.  If Experian is liable, it is the result of a "wilful (or reckless) failure on the part of an employee or employees … to comply with the FCRA," the defense said. 

Experian says in its October High Court suit that it paid a class of more than 100,000 payday loan customers $24 million to settle a lawsuit in January brought by lead plaintiff Demeta Reyes.  A $5 million deal was reached with consumers in the so-called Smith action.  The customers said they were harmed by inaccurate reporting of their credit history.  The insurers said that Experian's alleged liability in the Reyes action arises out of the deleting of loan records —  particularly those held by an entity called Delbert Services Corp.  In the Smith action, it is connected to the re-reporting of records relating to loans held by CashCall Inc.  Experian directors were involved in the decision-making in both incidents, the insurers said.

From April 2015 through April 2016, Experian held a complex multitiered insurance "tower" consisting of a primary policy from XL Specialty Insurance Co. and several layers of excess coverage, Experian says.  Zurich and SCOR unit General Security Indemnity Co. of Arizona are each liable for half of a $20 million excess policy, which kicked in once the underlying coverage was depleted, Experian says.  So far the insurers have only paid out a slice of the $20 million excess that Experian says it is entitled to, the company alleges.

Experian is also seeking a declaration from the court that the insurers will cover financial penalties that Experian may have to pay as a result of investigations into a 2015 cyberattack.  The two insurers said that coverage is provided for regulatory fines and penalties, but Experian must prove that any sanction is "lawfully insurable."

Experian says it has run up costs of more than $32 million defending two major related class suits.  Thousands of consumers successfully argued that Experian's failure to delete certain negative information in their consumer credit reports caused them harm.

Experian says it should be able to recover $18 million in legal costs from the insurers under its third-party liability and first-party insurance policies.  The suit also name-checks an action brought by Carolyn Clark alleging the company violated the FCRA, which ended up costing Experian more than $21 million. The company says it could be entitled to an indemnity of $14.3 million from the insurers to cover the costs from that case.

Article: Five Cost-Cutting Strategies for Corporate Legal Departments

October 22, 2020

A recent Law.com article by Nathan Wenzel of SimpleLegal Inc., “5 Cost-Cutting Strategies For Corporate Legal Department,” reports on legal cost measures for corporate legal departments.  This article was posted with permission.  The article reads:

Corporate legal departments have long been focused on reducing legal spending.  The emphasis on cost-cutting has only increased in 2020 as the economic uncertainties of the pandemic have caused companies to scrutinize expenses across the board.

According to a recent report from the Corporate Legal Operations Consortium, 61 cents of every dollar spent on legal costs in 2020 goes to external legal costs — a 15-cent increase from 2018.  This uptick, combined with the year's novel challenges, has many legal departments looking for new ways to control legal expenses beyond reviewing line items, which has proven to be ineffective for many companies.

While there's been a lot of chatter in the industry about the need to switch to fixed fees or alternative fee arrangements to reduce costs, these shifts have been slow to take hold.  They're also difficult to measure if we retain a focus on the billable hour.

When clients ask firms for fixed fees but also request the hours worked so they "know that the fixed fee was the right price," then we haven't really made the change to fixed fees.  It is a difficult transition and one that will take time.  We should always push toward better alignment of price and value, but we need to balance near-term realities with long-term goals.

In the near term, we need to control costs — even if that only means focusing on hourly rates.  In the long term, we need to align the work to the right types of providers at the right price, where price has very little connection to hourly rates.  No one wants to buy time.  We want outcomes, not hours.

To solve for both the short-term and long-term goals, we start with data.  Analyzing and reducing your legal spending start with asking yourself the following questions:

What am I spending now, on what and with which providers?
How does my current spending compare to past spending?
How am I allocating my legal work?
What metrics am I using to measure cost control?
Are there other cost considerations I'm overlooking?

1.  Understand where you are now.

The first step of implementing a change is to understand the current state. Reducing legal spending first requires knowing where you are right now.  This means not only keeping up with the total dollar figure of your spending, but how much you're spending in each practice area and with which law firms or providers.

Don't forget to also investigate the work you currently perform in-house.  With an understanding of outside legal spend and in-house legal work, you will have the current picture of how you allocate the demand for legal services from the business to the supply of legal services you have available.  With this deeper insight, you'll start to see where you can actually have an impact on spending.

Without this data, you risk investing time into an area that looks compelling but won't create real savings.  For example, reducing money spent on compliance may seem like a good idea because the partners at your primary firm have very high billing rates.  But if only 5% of your annual spending goes toward compliance work or if the primary compliance firm effectively leverages associates and paralegals, your efforts won't translate into real savings for the business.

When you track data and analyze legal spending details from your e-billing system, you'll be better equipped to start a real conversation about reductions.  You can identify the practice areas and firms where your efforts will create real returns.

2.  Compare now to where you used to be.

Your business is not static.  It's important to understand where you are today, but it is even more important to understand how things change over time. After you determine where you're spending your money today, you need to compare those numbers to what you were doing last year or the last time you negotiated rates and pricing.

You may have a reliable history of sending work to a single attorney or team at a firm. You may have increased the amount of work sent to a particular firm or in a particular practice area.  If you used to send $2 million worth of business to a firm and now spend $5 million with that firm, that's a powerful position for starting rate and price negotiations.

Additionally, if your team uses multiple firms for similar work, you may benefit from consolidating that work with fewer preferred firms.  Larger companies may go through a formal panel selection process annually or every few years.  A preferred panel is a great tool to provide the best legal services to the business at the best price if you have the team and time to implement this type of program.  But you can still achieve the benefits of allocating work to fewer firms without a full preferred panel program.

You don't always know what the demand for legal services will be from year to year.  But if your data shows that you have a history of allocating work among several firms, ask those firms what they would be willing to do to earn a greater share of that work.

3. Understand how you're allocating work.

After you have an understanding of the dollar value of your legal spending, you need to know how you're allocating different types of work, to whom and why. How you're assigning your legal work certainly depends on finding the provider with the right expertise but should be equally dependent on its business impact and complexity.

Your high-impact, high-complexity work probably belongs with the more expensive firms.  An example of a high-impact matter could be a large litigation that threatens the balance sheet of the company.  Or it might be a patent for the core technology driving your business.  In either case, you might choose to work with the very best money can buy.

Every year the legal press makes a big deal about high billable rates for eye-catching headlines.  But for your highest-impact and highest-complexity work, those firms and lawyers are probably a bargain at twice the price.  You're buying outcomes, not hours.

Too many companies simply send the rest of their work along with their high-impact work without stopping to see if smaller matters would be better handled by a lower-cost provider.  There are a variety of suppliers beyond the Am Law 100, such as specialty firms, alternative legal service providers, nonlegal consultants and your in-house team.

Your low-impact, low-complexity work probably doesn't need to go to the premier firms.  Specialty firms, alternative legal service providers, consultants and solo practitioners may not have massive staff and unlimited support resources, but they can still provide high-quality work at a fraction of the price.

You may also have high-impact but routine work where speed and a deep understanding of business issues are important.  The most common example here is commercial contracts.

For customer contracts, any delay in reviewing costs the company revenue. An extensive back-and-forth over mundane legal minutiae could cause your company to miss a quarter's revenue target.  In-house teams will have a better understanding of business priorities and can better deliver the right kind of legal work with speed at the right price.

When you satisfy your demand with the right mix of supply, the potential for savings is much greater than through rate discounts alone.  Allocating work based on impact and complexity provides far greater cost savings than a 10% rate reduction when the right provider is already half the price.

4. Use the right metrics.

You can't manage what you can't measure.  You get what you incentivize.  These two classic business statements tell us that we need to measure savings with the right metrics.

How are you measuring cost savings today?  Is it through average hourly rates?  Adjustments to bills based on guidelines?  If you measure discounts on rates to determine savings, you're going to focus on high hourly rate firms that discount their hour rates.  But is that really saving your company any money?

Achieving savings by reallocating work rather than by negotiating rate discounts definitely makes sense.  But with the wrong metrics it is harder for the C-suite to understand what you've accomplished.  If you measure and report savings only as the discount on standard rates, the reallocation effort appears to have achieved nothing.  In fact, if the work was moved in-house or to a provider with a lower but not discounted rate, it may appear that you have lost savings because you won't have a discount to report.

In fact, with the wrong metrics, if you were to implement a routing tool for automated nondisclosure agreement review, it might appear to be a driver of cost even if it created hard dollar savings from external counsel and soft dollar savings — i.e., efficiencies — from allowing in-house counsel to spend time on high-impact, high-complexity work.  With the right metrics, you can show the true return on these investments.

To demonstrate the full value of the savings and quality initiatives, you might need to use new metrics.  I am certainly not advocating for cherry-picking data or choosing vanity metrics.  To the contrary, the right metrics will actually make more sense to the business, the CEO and the board.

Legal expense as a percentage of revenue has been promoted in Association of Corporate Counsel benchmarking studies and Altman Weil Inc. surveys. It is well understood and trusted by chief financial officers and CEOs.

Whichever metrics are used to measure legal cost controls, just remember that you get what you incentivize.  If you're going to achieve cost savings, you need to use the right metrics to incentivize your team and showcase results.

5. Monitor compliance with your billing guidelines, consider automation of certain legal tasks and standardize workflows.

The preceding four steps are the critical actions that build on each other to significantly trim legal spending.  It's a journey.  You don't need to take all the steps all at once to achieve results.  Alongside those major considerations, there are a couple other things to keep in mind to run alongside those longer-term initiatives.

The first is billing guidelines.  Your billing guidelines let your firms know what it means to be a good legal partner to your department and a good business partner to your company.

Guidelines often devolve into rules about copy charges and not billing excessively for underqualified people — things your firms probably already do on their own to better serve their clients.  You should always be monitoring compliance with your billing guidelines and enforcing timekeeper rates, but it is important to remember that ensuring that your firms only bill for work in accordance with your guidelines isn't actual savings — it only prevents overcharging.

Another way to reduce legal costs and improve response time is to automate low-complexity, low-impact legal tasks and standardize workflows.  Automation of basic document review by artificially intelligent contract review tools can be a big time and money saver.  As an example, nondisclosure agreements are high-volume but typically low-impact documents that can be reviewed with the help of AI-enabled tools.

In addition to automation, standardized playbooks designed by the legal team to give other departments a checklist of items to review can also help improve turnaround time and reduce costs.  For example, a sourcing manager in a procurement department could be given a checklist of five or six specific business and legal terms to review before sending to the legal team.

Automation and standardization improve speed of delivery and reduce cost of delivery for the business.

The Path to Lower Legal Spending

It's time to shift the perspective on cost reduction beyond hourly rates and copy charges.  As legal departments, you need to look at where you are now, how that compares to the past, how you're allocating your work and whether you're using the right legal spending metrics to achieve real savings.  These steps with effective legal billing guidelines, automation and standardization provide the foundation to match your company's demand for legal services to the right legal service providers to trim your spending while improving delivery.

Nathan Wenzel is co-founder at SimpleLegal Inc.

Study: Speed Paying Legal Bills Matters Most to Law Firms During Pandemic

June 25, 2020

A recent Law 360 story by Aebra Coe, “Clients’ Speed Paying Bills Could Make or Break Law Firms” reports that a report out shows law firms have fared "surprisingly well" financially during the coronavirus pandemic so far, but experts say there is still a danger that some firms could run out of cash because of difficulty collecting payments from struggling clients.

Most law firms do not have deep cash reserves and rely on monthly collections from client payments to continue operating.  With the possibility those payments could dry up due to clients' lack of ability or willingness to pay, liquidity is a major concern for some law firms right now, according to Michael Blanchard, managing director of the Law Firm Advisory Team at Aon.  "A lot of firms now are starting to realize that productivity may not be the issue but that liquidity from clients paying in a timely fashion is a bigger challenge to a lot of firms," Blanchard said.

According to the report released by Wells Fargo Private Bank Legal Specialty Group, "the legal industry has fared surprisingly well" so far financially during the coronavirus pandemic when compared to other industries, with demand for the surveyed law firms' services down just 1.4% from the start of the year through June 1 compared to the same five-month period last year.

But that modest decline in demand is skewed by a very strong start to the year, with steep declines in demand in April and May, according to Joe Mendola, senior director of sales for the bank's legal specialty group.  That could result in corresponding declines in the payments law firms receive from clients over the next three to four months since there is a lag between when firms perform work and when they are paid, he said.  Demand appears to have "bottomed out" in May, which would likely translate to the largest dip in cash in hand from payments by around August, Mendola said.

In addition to the problem of fewer bills owed in the second half of the year because of declines in demand during April and May, law firms could also face trouble collecting in a timely fashion and being paid in full as clients themselves struggle financially and seek steep discounts, which could lead to cash-flow difficulties for law firms.  "Certainly, through the first five months of 2020, the legal industry has fared better than most industries. But I think the more challenging months will be ahead of us," Mendola said.

The Wells Fargo survey found that while demand was down during the first five months of the year, the amount of money in the pipeline owed to firms, called inventory, was actually up by 7%, suggesting that collections are lagging, Mendola said.  Additionally, 54% of the firms surveyed said client requests for discounts increased in May over the previous month, and 52% said they saw more payment extension requests from clients in May.

"I think the key to 2020's final results [for law firm financials] will be how collections play out," Mendola said.  While firms have taken a hit and likely will continue to when it comes to collecting bills, the damage has not been as substantial as the industry first predicted, according to Gretta Rusanow, managing director at Citi Private Bank's Law Firm Group.

Surveys her bank conducted found that at the start of April, firms anticipated that they would see a 15% drop in demand, a 15% drop in revenue and an 11% lengthening in the collections cycle.  But the actual numbers for April and May, according to Rusanow, ended up showing an average decline in demand of 6.2%, a decline in revenue of 1.3% and a slowdown in collection times of 3.4%.

"The bottom line is: Going into this there was very much a concern that not only would activity levels drop, but it would be hard to collect from clients, and in fact what's happened is it hasn't been as bad as anticipated at the industry level," Rusanow said.  But Rusanow and Mendola both noted that there was significant dispersion in the industry during the first few months of the year, with some firms performing well and others performing poorly, all of which is wrapped up in those averages.

Actions that firms have taken during this time — likely as a result of fear of major drops in revenue and demand — have made a big impact on preserving their financial health, the experts said.  "Probably the thing resounding across the industry in the past few months has been a very much disciplined approach around billing and collections," Rusanow said.

That means firms have buckled down on attorneys getting their time tracked and bills promptly sent out to clients, and many are having conversations with clients about their ability to pay, she said.  Some firms have drawn on their lines of credit for cash flow, according to Mendola.

In addition, GLC Business Services CEO Michael Hayes said that smaller firms have been able to rely on the federal government's Paycheck Protection Program for loans that are either forgivable or are to be paid back at a very low interest rate.  "The Paycheck Protection Program has added liquidity to small firms and their clients," Hayes said.  "It pushes off the potential for danger at least until the end of year."

In addition to turning a closer eye to getting paid for the work they do and finding ways to keep money flowing in, law firms have also cut costs in anticipation of a dip in revenue, according to Aon's Blanchard.  That has meant reduced partner draws, reductions in associate and staff pay, some layoffs, some cuts in real estate expenses as attorneys and staff work from home, and less money spent in areas like travel, training and firm retreats.

"I think firms have started looking at different ways to improve their margins," Blanchard said.  Mendola said the belt-tightening has helped.  His survey found that at the end of May the industry has reported good liquidity with almost 90% of the responding firms showing three months or more coverage of monthly expenses excluding partner draws.  "I think those cost-cutting measures are paying off.  It's better to be prudent and readjust than not be ready," he said.  "Once money is out the door, you're not going to get it back."

The Nation’s Top Attorney Fee Experts of 2020

June 24, 2020

NALFA, a non-profit group, is building a worldwide network of attorney fee expertise. Our network includes members, faculty, and fellows with expertise on the reasonableness of attorney fees.  We help organize and recognize qualified attorney fee experts from across the U.S. and around the globe.  Our attorney fee experts also include court adjuncts such as bankruptcy fee examiners, special fee masters, and fee dispute neutrals.

Every year, we announce the nation's top attorney fee experts.  Attorney fee experts are retained by fee-seeking or fee-challenging parties in litigation to independently prove reasonable attorney fees and expenses in court or arbitration.  The following NALFA profile quotes are based on bio, CV, case summaries and case materials submitted to and verified by us.  Here are the nation's top attorney fee experts of 2020:

"The Nation's Top Attorney Fee Expert"
John D. O'Connor
O'Connor & Associates
San Francisco, CA
 
"Over 30 Years of Legal Fee Audit Expertise"
Andre E. Jardini
KPC Legal Audit Services, Inc.
Glendale, CA

"The Nation's Top Bankruptcy Fee Examiner"
Robert M. Fishman
Cozen O'Connor
Chicago, IL

"Widely Respected as an Attorney Fee Expert"
Elise S. Frejka
Frejka PLLC
New York, NY
 
"Experienced on Analyzing Fees, Billing Entries for Fee Awards"
Robert L. Kaufman
Woodruff Spradlin & Smart
Costa Mesa, CA

"Highly Skilled on a Range of Fee and Billing Issues"
Daniel M. White
White Amundson APC
San Diego, CA
 
"Extensive Expertise on Attorney Fee Matters in Common Fund Litigation"
Craig W. Smith
Robbins Arroyo LLP
San Diego, CA
 
"Highly Experienced in Dealing with Fee Issues Arising in Complex Litigation"
Marc M. Seltzer
Susman Godfrey LLP
Los Angeles, CA

"Total Mastery in Resolving Complex Attorney Fee Disputes"
Peter K. Rosen
JAMS
Los Angeles, CA
 
"Understands Fees, Funding, and Billing Issues in Cross Border Matters"
Glenn Newberry
Eversheds Sutherland
London, UK
 
"Solid Expertise with Fee and Billing Matters in Complex Litigation"
Bruce C. Fox
Obermayer Rebmann LLP
Pittsburgh, PA
 
"Excellent on Attorney Fee Issues in Florida"
Debra L. Feit
Stratford Law Group LLC
Fort Lauderdale, FL
 
"Nation's Top Scholar on Attorney Fees in Class Actions"
Brian T. Fitzpatrick
Vanderbilt Law School
Nashville, TN
 
"Great Leader in Analyzing Legal Bills for Insurers"
Richard Zujac
Liberty Mutual Insurance
Philadelphia, PA

Article: Five Tips for Drafting Effective Legal Billing Guidelines

June 11, 2020

A recent Law 360 article by Chris Seezen, “5 Tips for Drafting Effective Legal Billing Guidelines” reports on tips for drafting effective legal billing guidelines.  This article was posted with permission.  The article reads:

Relationships with outside counsel have taken on increased scrutiny as companies become more focused on the administrative processes of their legal departments and the work they do.  As a result, legal departments are looking more closely at the law firms they hire, what they pay those firms and the outcomes of the cases they've handled.

To properly manage outside counsel, it's imperative to implement and maintain effective legal billing guidelines.  These rules serve as a working guide to determine expectations and processes, allowing a legal department to decide with their law firms what they will and won't pay for, to set processes for staffing cases and requesting rate increases, and to lay out how matters will be handled.  This can include whether a company has a specific budget on a given matter and when it should be submitted, how budget revisions should be handled, or what to do when a matter goes over budget.  It's all about setting the table with the necessary information before the work begins.

Drafting legal billing guidelines requires a legal department to actively assess its case management practices, evaluate its law firm relationships and monitor ongoing guideline compliance — all of which are beneficial to keep track of. While some vendors or partners might not need much beyond a simple contract — such as an IT team, for example — when working with a more complex and costly service such as a law firm, having legal billing guidelines in place is a wise step for the investment and relationship.

To draft effective and enforceable legal billing guidelines, legal departments should consider the following:

Include all pertinent information in an easy-to-read format.

Including a process for law firms to get authorization for new timekeepers or rate increases, or determining a specific person in the department these requests should be sent to are examples of the kind of information that should be ironed out before a new law firm relationship begins.  Depending on the size of the firm, invoicing may be handled primarily by a billing department that doesn't have direct involvement in the matter, so providing all necessary details will improve compliance.

Additionally, most companies prefer to be billed monthly, but some may only want to be billed once services reach a certain amount and may request for the firm to hold the bill until the next pay cycle.  This is another matter that should be determined before work rolls out.  Although the latter option is a convenient way to cut down on administrative costs, monthly bills are still recommended as they keep information flow consistent and recent legal tasks top of mind.

Similar to other business documents, billing guidelines should be organized and presented in an easy-to-review format.  This may include using bullet points and lists instead of long sentences or paragraphs.  Additionally, similar items should be positioned together or organized in categories to keep the guidelines as straightforward as possible, such as travel bills/logistics, noncompensable administrative processes, etc.

Providing a brief overview that highlights the takeaways or expectations in bite-sized format, in addition to a more in-depth document, will also help to present the guidelines in a digestible way that supports compliance.

Identify the purpose of the guidelines.

Many legal departments use these guidelines to better control outside counsel costs.  In this case, they should outline all areas considered noncompensable (such as office overhead, scheduling or review of local rules) or that will have a cap.  The guidelines may also include protocol on matter management practices such as status update requirements or case staffing limitations.  Including this information, as well as requirements for any possible exceptions, will inform outside counsel how to approach similar matters upfront.

Draft a living document and reevaluate the guidelines as needed.

Although important to determine at the outset of the relationship, billing guidelines for outside counsel should not be set in stone.  While what's initially decided and drafted may seem appropriate, needs may change once set into practice and as time goes on.  Some requirements may prove too burdensome on outside counsel while other areas may be too lenient.  Additionally, there will always be that one matter that's the exception to the rule and the guidelines should cover those outlier cases.  Implementing an annual review of the billing guidelines will allow general counsel to revise and incorporate new procedures that best fit the company's needs.

Failing to review the guidelines regularly can cause legal departments to miss accommodations such as new travel time billing (for a case in a city with heavy traffic, for example) or important regulatory changes that may surface.  Therefore, even though a good rule of thumb is to review and update the general guidelines annually, the above situations and others like them should be updated in real time.  It's important to maintain a process that supports the company's evolving requirements.

Additionally, many billing guidelines include hiring protocol to cover what kind of attorney a company wants working on their claims, who will be carrying out tasks that vary in complexity, and what the rate will be for each.  When reviewing bills more closely to ensure they adhere to preexisting guidelines, companies are more likely to catch discrepancies in these agreements (such as an attorney billing time for work that a paralegal should be doing) and can call attention to the matter, lower their rate, or revise the guidelines to reflect the request.

Anticipate and prepare for resistance.

No one likes someone looking over their shoulder or second-guessing their work.  Outside counsel provides a valuable service to legal departments and should be properly compensated for it.  However, some law firms may be resistant to the implementation of billing guidelines, viewing them as intrusive or in place only to cut their bills.  Billing guidelines are becoming standard practice for legal departments, and almost every law firm has a client with billing requirements.  Informing outside counsel of the guideline implementation, as well as the purposes behind it, will help to alleviate any misunderstanding or animosity.

Stand by the guidelines.

The most important piece to consider when implementing billing guidelines is enforcement.  Many legal departments have them in place, but don't have the internal resources to ensure outside counsel is complying.  Failing to enforce the guidelines not only makes the time and effort to draft them a waste, but it can also undermine a company's position with its outside counsel.  In a newer relationship, enforcing the guidelines sets an important precedence.

To ensure all expectations are fairly treated in the event of a billing discrepancy, companies can ask to adjust the current bill down or request a current or future discount.  Referring to the guidelines will serve as leverage for this request.  For law firms that continue to violate agreements, companies have every right to discontinue their work with them.

The purpose of this method is to more clearly show rates that are being paid for the work that's being done.  Fostering a fair and transparent process is the ultimate goal.

Drafting, implementing and enforcing legal billing guidelines for outside counsel allows legal departments to be stewards of their company resources while maintaining control over case management.  For cost savings, streamlined administrative processes and deeper insight into their billing procedures, companies must invest the adequate time and effort into their initial and evolving guidelines — the foundation of a productive relationship with outside counsel.