The Quest for Early Resolution, Lower Costs
It may seem hard to believe, but Whirlpool's quest for increased value from legal fees began in the Product Engineering department. David Grumbine, senior counsel and director of dispute resolution operations, pinpoints the moment: "We were at a senior management meeting. The vice president of IT at the time asked me, 'In litigation, is there anything you can do to make it more predictable, and is there anything you can do with information to make the company better?'"
Thus began a drive to redefine the entire legal operation at Whirlpool that has lasted almost 20 years.
Grumbine, who has been with the company since 1984, started working seriously to better control litigation and claims costs in the mid-1990s. "The convergence concept was popular at the time," he says. "We approached the questions with a clean slate: why and how?"
He began by reorganizing the outside counsel program for product liability litigation. He created the National Product Council (NPC), reducing the number of firms that handle product liability defense from over 200 to just three. "We identified three core technologies that we defend often—those with compressors, laundry products, and heat-generating products—and that result in fairly repetitive litigation," Grumbine says. He assigned the work to the three firms that succeeded in a national competition along those discrete product lines, then "challenged them to become more efficient in terms of cycle time."
He put his money where his mouth was, offering bonuses for early resolution of cases. "The longer a case is open, the more you spend," he says.
That system existed for a decade. "Then we had enough data to see what a lawsuit really cost us," Grumbine says. "Trust, and an understanding of the economics on both sides, enabled the negotiation of flat fees."
In the next phase, Whirlpool selected four additional national counsel firms to handle consumer class actions, business litigation, asbestos litigation, and litigation in Canada. Wheeler Trigg O'Donnell, LLP, is Whirlpool's national counsel for class action matters, working under a mixed flat/hourly fee arrangement for more than four years. By selecting a litigation-only firm that is based in Denver, rather than a multi-office, multi-practice-area firm that historically has defended class actions for Fortune 500 companies, Whirlpool immediately saved approximately 40 percent on class-action defense costs.
"The fixed flat fee with incentives and targets drives down costs amazingly," says Grumbine. "The firms find themselves to be more efficient; it's a true win-win. It also supplies the answer to that original question about predictability."
Whirlpool and WTO devised a fee arrangement that enables them to make a reasonable estimate, in the earliest stages of litigation, of how much each case is likely to cost to defend through the class certification hearing; since 2002, local counsel fees have been included in the flat fee arrangement. The model has matured to the point that predictions are now accurate to within about 5 percent; and in-house counsel usually can prepare case budgets with little or no input from WTO.
The financial incentives, in the form of early-resolution bonuses, are key to improved legal outcomes. Whirlpool has successfully resolved more than a dozen class actions since the national class-action program was initiated; and only two classes have been certified for trial purposes. The company has settled only one class action on a class-wide basis since 2005, and the modest award was in the six figures.
"It's crucial to have performance goals and targets," Grumbine says. "We compare against historical performance, and WTO is incented with bonuses to beat the averages or get matters dismissed."
This is underpinned by the product-line and class specialization of the outside firms. "Our lawyers know Whirlpool's products and issues better than Whirlpool people do. We could try a complex case in two weeks," Grumbine says.
The seven member firms of the National Product Council now constitute a brain trust for Whirlpool's in-house lawyers. Grumbine brings everyone together for bimonthly conference calls and an annual retreat. "We have created the best virtual law firm in the country," he says. "We have the best legal minds in America working together to benefit Whirlpool.
"This is our dream space."