In a vast majority of cases, the current standard of paying for lawyers based exclusively on the effort they devote to their work simply does not make sense. For general counsel, the recent economic crisis has put more pressure than perhaps ever before on them to reduce costs in what many non-lawyers already consider the “cost center” of a company’s law department.
General counsel have an opportunity in this crisis to work better – a lot better – with outside lawyers. The time is now for in-house attorneys to cultivate more sensible billing arrangements with outside lawyers (specifically, to run away from the billable hour in many cases), to use outside counsel better suited for their company’s litigation matters (lawyers who have spent their careers defending and slowing down actions should not be prosecuting plaintiff matters), and even to turn their law departments from so-called “cost centers” into profit centers (a valuable claim should be viewed as a corporate asset to be maximized).
The means are simple: in the right cases, especially those where general counsel believe that they are forced to sue, company lawyers should choose attorneys with low out of pocket fees who have billing arrangements which align the interests of the company with those of the lawyer. The end result is better company-outside counsel relationships, time better spent by lawyers, and simply better outcomes.
THAT CURSED BILLABLE HOUR
Unwavering reliance upon the billable hour provides the wrong incentives and is horrible for general counsel-outside counsel relationships. The arrangement encourages effort over value: put in more time and make more money, regardless of results – a predicament which may potentially overwhelm a good lawyer’s inclination to show restraint and result in an incentive to bill more. Moreover, the billable hour forces in-house lawyers to be auditors rather than the lawyers they want to be. General counsel must waste their time reviewing reams of billing sheets, with general counsel asking for cuts in the hours here or there, or arguments with outside lawyers over whether an issue in a brief really merited 18.2 hours of research.
ALIGNING FINANCIAL INTERESTS USING NEW FEE ARRANGEMENTS
Our trials and investigations law firm – which represents plaintiffs and defendants in federal and state court in both trial and appellate matters as well as in investigations and arbitrations – is relatively new. Thus, we’re not encumbered by doing things the way they have always been done. Rather than relying on the billable hour for the entirety of a case, our firm generally works out other, value-centered billing arrangements.
But even old line firms can no longer hide behind the excuse that they must use the billable hour because they always have. In fact, general counsel at some of the biggest corporations – including those at DuPont and Pfizer – has shifted away from the billable hour and toward alternative fee arrangements.
Reliance on “the way things have always been done” has to stop, and frankly only will once lawyers’ financial interests are tied to clients’ interests. One simple (if different) solution is a mix of a sensible – and fairly low – monthly fee, which itself gets credited against a conditional or success fee.
The success fee should be directly linked to the value obtained by the client. In a litigation where a client must sue, this can be some percentage of the recovery, if any, and can depend not only on the size of the recovery but also on when the recovery is achieved. Other benchmarks might be used: win a motion to dismiss, get a success premium, for instance. As David Boies, the chairman of Boies, Schiller & Flexner, LLP, noted, such alternative fee arrangements are beneficial to firms as well since they result in “increased efficiency, more success in the practice of law, and client satisfaction.”
RISK SHARING FEE ARRANGEMENTS ARE PERFECT FOR PLAINTIFF MATTERS
A general counsel faced with partner hourly rates approaching four digits will undoubtedly find it hard to justify initiating any action, no matter how meritorious it may be or how much money the company may be due. Alternatively, hiring lawyers who are relatively cheap out of pocket and are rewarded for value allows general counsel to avoid the fear of initiating a lawsuit due to costliness. Moreover, these lawyers are used to representing plaintiffs. Big Top Ten Law Firms generally defend cases and – besides being extremely expensive out of pocket – may not be terribly good at prosecuting a plaintiff’s case after a career of concentrating on how to tear a case apart. Plaintiff’s lawyers, on the other hand, are used to asking the essential question in litigation, “How do I win?” and may prove more flexible and amenable to non-hourly billing arrangements.
Our small firm increasingly represents bigger companies in plaintiff’s matters because they simply do not want to pay Top Ten Law Firm rates when initiating a matter. Hiring the big name in a case which has press exposure or requires the vast resources of the big firm may make sense. But it also makes sense to go beyond the usual suspects – that is, to more plaintiff focused, trial oriented firms willing to share the risk – when general counsel must decide whether to sue.
The recent economic crisis is an opportunity for smart companies with smart general counsel to pay for lawyers wisely – and win more.
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John G. Balestriere is an attorney at Balestriere Fariello, a trials and investigations law firm which represents business clients in business and risk sharing litigation. He can be reached at john.balestriere@balestrierefariello.com and at +1-212-374-5401.