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Nobody to Blame but Yourself
Corporate Counsel
October 15, 2009
Roderick Dorman
Decades ago when I entered the practice of law, it was a profession.
It still is a profession, but it is so much more business-like today. Law partnerships, with lockstep compensation arrangements assuring each partner was paid according to seniority, gave way to the commercial meritocracy of the late 1990s and the new millennium. Once upon a time, law partners seldom left established large firms. The American Lawyer's published reports of law firms' profits per partner encouraged senior partner mobility in pursuit of ever-higher personal wealth.
The pursuit of law partner wealth, particularly by providing litigation services, has taken place at the expense of the client. In that world, the billable hour is the coin of the realm. The only way hourly fee-driven law firms increase partnership profits once overhead expenses are tamed is to charge higher and higher rates and to bill more and more hours (a business model a rational purchaser would consider unsustainable). Lawyers can always justify doing more work on a legal project, and frequently do.
Consider this horror story. I recently had a conversation with a chief intellectual property counsel for a major, publicly held company who was complaining to me that his lawyers in a prestigious firm were prosecuting a patent infringement lawsuit against another major corporation involving three patents and it was costing his company between $600,000 and $800,000 a month in hourly legal fees. A mind-bending 22 lawyers were working on the case. I asked him why he put up with that? He explained that his lawyers had told him that this expenditure was absolutely required to win the case, and he felt he had no choice but to keep paying those bills.
The client—not the lawyers—was most responsible for this economic calamity. This prestigious law firm was hired, not because it was optimally structured to provide cost-effective, successful litigation services for this particular matter, but because it was a name-brand firm which provided "cover" to the in-house counsel if the case was unsuccessful. (As the old saying goes, no one gets criticized for hiring IBM.) The sad corollary, however, is that a firm hired because it is beyond reproach remains beyond reproach even when it overbills.
The second, significant client failure here was the complete abdication of responsibility for determining what work was actually needed to cost-effectively litigate the case and win it. Only when the client digs in, differentiates the important from the unimportant with the assistance of outside counsel, and takes responsibility for the litigation "investment discussions" made in the conduct of the case, can hourly lawyers be properly managed. It is economic insanity to uncritically allow hourly fee litigators to determine how many lawyers work on a case, how much discovery is pursued and what matters will be the subject of expensive motion practice.
Clients need to be their own advocates, and it takes perseverance. As a potentially terminal cancer patient, I listened to multiple medical opinions before I determined the correct procedure and the right doctor to perform it. Had I delegated the decision to my internist alone, I would have had an esophogectomy and gastric pull-up performed by the leading surgeon at one of the nation's premier cancer hospitals. I learned from my own investigation that this surgeon still employed a procedure he learned in Santiago (Chile), one that had not been the standard of care for 25 years. This is the type of due diligence that clients should perform when choosing among law firms to advise them.
It remains a mystery to me that clients don't do more to effectively control their hourly fee litigation expenditures. Successfully negotiating reduced hourly rates does not eliminate the lawyer's incentive to bill more hours. A not-to-exceed fee cap is needed for each case. Hourly fee lawyers, presented with such a proposal, understandably recoil, persuasively arguing that such an arrangement is unworkable where the lawyers representing the adversary corporation, with equally deep pockets, are under no such limitation. The discussion of a fee cap usually ends there. It shouldn't.
In over 30 years of practicing law, not once to my knowledge has a client solved this problem through self-help measures in a manner that has been available to them all along. There is no practical reason or legal prohibition to prevent a general counsel, whose large corporate client is sued by another, from picking up the phone and calling his or her counterpart and agreeing to an economic regime within which the controversy can be economically litigated. Nothing prevents those adversaries from entering into a contract that each will enter into an hourly fee agreement with counsel of their choice, and the aggregate fees paid by each to selected counsel for the duration of the litigation will not exceed a certain agreed-upon amount. Clients can control hourly legal fee charges. And if they don't it's largely their own fault.
Mr. Dorman is a partner in the Los Angeles litigation firm of Hennigan, Bennett & Dorman and was formerly in-house counsel for a major oil company and a senior partner at a major international law firm.
