For months, we talked to counsel about our prospects in the case. He was sanguine:
“There’s nothing to worry about here. The plaintiff put a huge number in its prayer for relief, but you can’t possibly lose that much. Plaintiff’s liability case is thin, and the damages are inflated. You’ll probably win. If you lose, you’d lose no more than $1 million on an average day. On the worst day known to man, you can’t even theoretically lose more than $5 million. I wouldn’t offer more than a couple hundred grand to settle.”
A few months before trial, we ask counsel to put some skin in the game: “It’ll be expensive to try this case, and you feel good about our prospects. We’d like you to propose an alternative fee agreement that aligns your interests with ours. We’d like to pay you less than your ordinary hourly rates in the months leading up to trial, but we’ll give you a success fee if we win. Please think about it, and let us know if you have any ideas.”
A couple of weeks pass, as counsel discusses the case with his firm’s “senior management.” When the alternative fee proposal arrives, the goalposts have miraculously moved! In the course of just two uneventful weeks, our prospects for success have changed entirely!
“We’ll charge you 25 percent less than our standard rates for the remaining time we spend on this case through pretrial and trial. If we suffer a defeat at trial, you will not adjust that rate, and you will thus receive a 25 percent discount on our fees. If we have a neutral result at trial, you will increase the amount you pay us by 25 percent, to bring us up to our standard rates. If we win at trial, however, we will share in your success, and you will increase the amount you pay us by an additional 25 percent as a success premium.
“We obviously must define success for purposes of this proposal. The plaintiff seeks $100 million in its prayer for relief. As we’ve advised you in the past, we believe the plaintiff is unlikely to recover that entire amount, but the plaintiff might be successful in part. We will define success to mean that the plaintiff recovers less than $30 million at trial. You will thus pay us the success premium if the plaintiff recovers less than $30 million. We will define a neutral result as one in which the plaintiff recovers between $30 million and $80 million at trial. And we will define defeat as a result in which the plaintiff recovers $80 million or more at trial.
“Thank you for giving us the opportunity to present this proposal.”
I know, I know: I look stupid.
But it’s worse than that. This doesn’t simply ask your client to enter a preposterous business deal, although that would be bad enough. This proposal also suggests that you don’t really believe the advice you’ve been giving for the past year. If it’s only the client’s money at risk, then the client should be a gambling man. But if we put even a small amount of counsel’s money on the table, then quite literally all bets are off. Outside counsel won’t run any risk at all; he’d simply do you the favor of accepting more than his usual fee even if he suffers an earth-shattering loss at trial.
If I had seen (or heard about) this only once during my tenure in-house, I’m not sure I would have put fingers to keyboard to write this column. But I’ve seen it repeatedly, and on both sides of the coin. We don’t typically do plaintiff’s cases on contingency. But we’ve had a couple of big cases in which we were running up massive fees. In one of those matters, outside counsel had confidently been predicting success, telling us that we shouldn’t accept a penny less than $20 million in settlement. We asked counsel to put some skin in the game, accepting a reduced fee in the months leading up to and through trial in return for a success fee. What did we hear?
The same as on the defense side: “Herrmann, you look stupid.”
“You will continue to pay us 90 percent of our usual hourly rates for time we spend through the end of trial. If, however, we achieve success in this case — which we define as recovering $5 million or more in settlement or judgment — then you will pay us 25 percent of the amount of the settlement or judgment.”
If we were willing to give away a 25 percent contingency, we probably could have done this case on pure contingency from the start, incurring no fees at all along the way at all. Now, fully informed by discovery and confident that we can’t lose, there’s hardly any “contingency” left in the case; it’s basically a laydown. And you’re ready to give me a 10 percent discount in return for a 25 percent contingent fee???
Why send me this proposal? Why not just insult me when we’re on the phone? And insult my kids. And my grandma. And her cat.
Despite big firms’ protestations to the contrary, I know that most elite firms don’t have much experience with alternative fees. And I understand that lawyers at big firms are among the most conservative creatures known to man. But even inexperienced conservatives should know better than to offer preposterous business terms that undercut the lawyers’ own credibility.
Is it wrong to expect more of your counsel?
Mark Herrmann is the Chief Counsel – Litigation and Global Chief Compliance Officer at Aon, the world’s leading provider of risk management services, insurance and reinsurance brokerage, and human capital and management consulting. He is the author of The Curmudgeon’s Guide to Practicing Law and Inside Straight: Advice About Lawyering, In-House And Out, That Only The Internet Could Provide (affiliate links). You can reach him by email at firstname.lastname@example.org.