Keeping Legal Costs Down.

• Author: Sweeney, Paul
• Position: Litigation

The managers at the Loewen Group know just how bad a lawsuit can be. After a Mississippi jury slapped the Canadian funeral home chain with a whopping $500 million judgment in 1995, the company began an inexorable downward slide toward bankruptcy.

Once the world's second-largest funeral home firm, Loewen shrank from a robust company valued at $45 a share -- a price that tempted scores of independent funeral directors to sell out to it -- to a debt-ridden operation that was de-listed in 1999 by both the Toronto and New York stock exchanges. Today, its former chairman, Raymond Loewen, lives in exile in Hawaii, and the crippled company's management team, besieged by a class-action lawsuit from former owners of funeral homes holding worthless Loewen stock, is struggling to emerge from Chapter 11.

The company has had other difficulties, of course. Loewen weighed itself down with $3.2 billion in debt, used to finance an ambitious cemetery purchase program and to make itself less attractive to a takeover-minded Houston-based rival, Service Company International. Yet the legal dust-up always loomed large. Even after settling with plaintiffs, Loewen's Mississippi troubles consumed top corporate officers' attention for several years, led to widespread public distrust and ultimately served as the coup de grace forcing the company's collapse.

"Loewen is in an industry that tends to come under a great deal of consumer scrutiny," says Thomas Franco, president of Broadgate Consultants, a New York public relations firm and former adviser to Loewen. "By involving themselves in protracted litigation, they were unwittingly providing a platform for consumer activists and regulators to pile on."

The case has emerged as an object lesson in just how badly a seemingly minor legal dispute can tumble out of control. After settling for $175 million in stock and cash from the Loewen concern, Jeremiah O'Keefe, the former mayor of Biloxi, Miss., and owner of a family funeral home there, said he would have happily settled what was essentially a breach-of-contract suit for less than $10 million.

Companies large and small are taking to heart the advice once delivered to a friend by noted jurist Learned Hand: "I should dread a lawsuit beyond almost anything else short of sickness and death." PricewaterhouseCoopers reports that U.S.-based companies spend from 3 percent to 10 percent of their revenues in managing litigation and paying insurance premiums. When court costs, attorneys' fees, insurance premiums, payouts to claimants and "every other conceivable expense" is totted up, says Loretta Worters, director of media relations at the Insurance Information Institute, the legal tab hit $161...