Traditionally there has been no love lost between
trial lawyers and corporate America. However, big business has
discovered something about its arch enemies that has put them in
a new light: trial lawyers know how to win. What’s more they
know how to win on a budget.
Often forced to hire attorneys to mount a defense
to a lawsuit, businesses that need to initiate litigation have
traditionally turned to the same firms. These “defense" firms
typically operate on the billable-hour model. For one hour of attorney-time,
businesses pay $200, $300, $400 or more per hour regardless of
the results of the case. But businesses across the nation are deciding
that this method of paying lawyers encourages primarily the expenditure
of time rather than a focus on results.
A July 11th article entitled “Business Turns
to Plaintiffs’ Lawyers” in the National Law Journal
discussed this trend. The article noted that hiring lawyers on
a contingent-fee basis is "very attractive for companies that
are trying to control their litigation costs.” This arrangement
allows businesses to know their lawyers are "not just here
to bill, they’re here to work." The article cited to
a number of verdicts in business-against-business lawsuits in which
a trial lawyer led the charge, including billionaire Ronald O.
Pearlman's $1.4 billion win against Morgan Stanley and a $103 million
win in a patent infringement case involving a vegetable slicer.
Trial lawyers typically take cases on a contingent-fee
basis, which means they do not get paid unless they win. This approach
to the practice of law has the desirable effect of aligning the
immediate economic interests of the lawyer with those of the client.
Both want to maximize recovery.
The arrangement and its advantages can best be
illustrated by way of an example:
Both ABC, Inc. and XYZ, Inc. were victims of a
breach of contract by one of their vendors, causing the companies
to lose customers resulting in $100,000 in economic loss to each
company. ABC, Inc. turns to the same defense firm that has represented
it for years and spends $75,000 in attorneys’ fees pursuing
the possibility of recovery. If ABC, Inc. is awarded $170,000 in
damages (including interest and punitive damages), it will have
recouped most of the $100,000 it lost. However, if ABC, Inc. loses
at trial, it will have incurred a total loss of $175,000, including
its attorneys’ fees.
XYZ, Inc. hires a trial lawyer and agrees to pay
40% of any money recovered, but to pay nothing if there is no recovery.
In the event of a $170,000 verdict, XYZ, Inc. pays $68,000 in attorneys’ fees
and collects $102,000, roughly the same result as that experienced
by ABC, Inc. However, if XYZ, Inc. loses at trial it avoids the
payment of attorneys’ fees altogether.
The fundamental distinction between the billable-hour
and the contingent-fee arrangements is who bears the risk of loss,
the client or the lawyer. For smaller companies the costs and risks
involved in litigation will often close doors to the courthouse.
However, for businesses willing to be innovative in their approach
to litigation, this can change.
Trial lawyers not only accept this risk, they
embrace it. Trial lawyers appreciate and most have experienced
the economic consequences of losing a contingent-fee case. At the
same time, however, this approach to providing legal representation
will reward those lawyers who practice their craft with the highest
skill, efficiency, and desire to win on behalf of their clients.
Businesses that hire trial lawyers may reap substantial benefits
both in terms of effectiveness and efficiency.
