Frank D’Amore ()
The relentless pursuit of revenue in this era of decreased legal spending has created an environment in which it is anathema to turn away work. The battles to land new clients and matters are fierce and the consequences of losing are far more damaging than ever. Nevertheless, there are times when the smart play is to decline, no matter how alluring the likely fees are.
Ten such situations will be discussed; the first five are below.
1. Your firm lacks the necessary expertise.
Almost anyone who has practiced in a law firm has encountered this situation: an email is sent around the firm inquiring whether someone has experience in some (usually) particularized area of law. The backdrop is that a client needs such expertise and will retain the firm if it has a lawyer who can do the work. It turns out that there is an attenuated, at best, link to someone with that expertise or, in some cases, no lawyer on board who has on-point experience.
What do firms do in such situations? Some adhere to the credo that they have bright and talented lawyers who can do virtually anything. So, unless it is a clear-cut disconnect (such as a client needing someone to prosecute a patent and the firm has no member of the U.S. Patent and Trademark Office), some proclaim, “Just get the work in the door and we’ll figure it out.”
This can lead to disastrous results, as malpractice carriers have surely advised lawyers since policies were first issued. Stretching too far, and not producing high-quality work, can ensure that a new client never returns, and, even worse, can lead to long-time clients switching firms.
If a firm does not have adequate expertise, it should so advise the client, and whenever possible, provide a recommendation of a specific firm and lawyer who can capably handle the matter. I know, from my days as a general counsel, that my respect for firms that handled requests in that manner increased exponentially. I normally would look for reasons to send future work to the firms that passed, as their actions did not put our company in a bad position.
2. Accepting the work triggers rate issues.
Law firms understandably often offer attractive rates to land new clients or even significant new matters that are being shopped to multiple firms. In-house counsel appreciate this and, if the work can be completed at an acceptable profit level, all is good. Or is it?
Some clients are able to extract “most favored nation” (MFN) rate protection. If such a provision is in effect as to certain types of work, offering a discounted rate to land new work can be disastrous if it triggers an MFN clause reduction. This could lead to a situation in which, in exchange for getting a modest new fee, a firm ultimately gives up many multiples of that fee when a client wielding its MFN extracts the same discount.
Additionally, firms have to be careful in creating precedent that opens the door to a flurry of discounts that otherwise would not normally be requested or granted. While firms can be creative in structuring fees to make a representation work financially, there is a line that cannot, or at least should not, be crossed if they hope to maintain profit levels, or, in a worst case, break even in a matter. When firms get too close to that line, or even cross it, the path has now been paved for other partners to request the same treatment for their clients. The financial and psychological consequences (such as resentment if partners are denied the same type of break that others received) have to be carefully considered.
3. The representation creates positional conflicts.
Firms have multiple layers of safeguards in place to prevent head-on conflicts, so it is assumed that new work will routinely be rejected when these types of issues arise. Firms also are normally savvy about accepting a modicum of work from companies that are well known for sprinkling that work among firms to conflict them out of representing competitors.
The trickier scenario is when no actual conflict results from accepting new work, but it presents a positional conflict that exists today or could develop down the line.
In some situations, clients make these decisions for firms. For example, in the pharmaceutical arena, there often is a bright-line—even though no technical conflict would arise—if a firm tries to represent branded and generic manufacturers. While the lines are often blurred these days, as some companies produce both types of drugs, major clients can dictate that a firm only be on one side of the fence.
In other situations, especially when a new practice is developing, or a firm is entering an area for the first time, strategic decisions need to be made as to where a firm may want to be for the long haul. For example, is it better to represent franchisors or franchisees? In just one corner of the energy arena, is a firm better off representing producers or homeowners who want to sell the rights to mine or otherwise extract energy from their property?
These are tough decisions, which are only complicated when fees are dangled in front of firms that need these dollars today. Walking away from the work, in the hope that the firm will ultimately be better off on the other side—in the future—is a calculated risk, but is often the right move.
4. The client has unrealistic expectations.
Lawyers and their firms are typically quite confident of their abilities, which stems from past successes. As such, when a prospective client appears that predicates a representation on achieving a result that requires extraordinary skill or goes well beyond the norm, lawyers instinctively want to take it on, as doing so feeds into that inner confidence. Try to quell the roar of the inner lion here, as it just could turn on you in the end.
Unrealistic, if not unattainable, expectations may fall into three categories: results, timing and cost. By way of illustration, consider this scenario that touches on all three points.
A prospective client offers your firm the opportunity to represent it in a major piece of commercial litigation, in which a sizable retainer will be provided up front. There are three main claims, but you realize that only two are strong, but are not slam dunks. Nevertheless, the client expects full recovery on those two claims and at least 50 percent of the projected damages on the third and weakest claim.
The normal time to trial in the court where the claim will be filed is 18 months. The client looks for your assurance that you can push it to verdict at least three months quicker than that, which is a stretch, but is possible if almost everything breaks the right way, including drawing the speediest judge on the bench when the roulette wheel stops spinning.
Finally, the client requests a fee cap that should allow your firm to maintain its typical margin if the case proceeds in a normal fashion. However, if discovery is more intensive or the case is hotly contested, the odds are quite good that your firm’s time, especially if it hopes to attain the lofty result, will erode the margin and likely could lead to the firm eventually not breaking even.
Do you roll the dice and take the case, especially if the client insists on a lock-down agreement with no opener of any sort that would allow the cap to be lifted? These types of situations do arise and not just in the context of litigation. Variables such as the need for revenue and the firm’s risk tolerance are often the deciding factors, but experience has shown that these are dangerous cases in which the prudent response, as the title to the article provides, may be to just say no.
5. Your instincts sound alarms about the client.
When a prospective client arrives on the scene, it augurs a new relationship that, like any other, develops over time. Nevertheless, much like dating, the early stages of the nascent relationship should be enjoyable, as the promise of what lies ahead can be uplifting. Clients and lawyers are typically on their best behavior in the early going, as they want to impress the other and start things off on the best foot.
Consequently, if issues arise during initial meetings, beware. Sometimes this may entail nothing more than a gut instinct that something about the matter or client is off, or, even worse, is troubling. Or, perhaps, the client does not produce information as timely as promised or his or her story begins to change, albeit slightly, every single time it is reviewed.
When developments like this occur, especially before the engagement is finalized, it very well may be time to pass. Despite lawyers’ tendencies not to be ruled by instinct or emotion, and, alternatively to focus on cold, hard facts, human nature is at the center of all engagements, whether they are with individuals or corporations. When things go wrong, or seem amiss early, the reality is that the odds are quite good that it will only get worse later. As such, do your best not to be blinded by the allure of the new representation if alarms are ringing loudly inside you.
Frank Michael D’Amore is the founder of Attorney Career Catalysts, http://www.attycareers.com, a Pennsylvania-based legal recruiting and consulting firm that focuses on law firm mergers and partner placements. He is a former partner in an Am Law 200 firm, general counsel in privately held and publicly traded companies, and vice president of business development. He can be reached at email@example.com.