Note: This case study by Wendeen H. Eolis has previously appeared in the New York Law Journal. I republish this article in 4 parts during December 2009 in response to current client demand for advice on law firm retention arrangements (whe).
Ultimately, a law firm under scrutiny volunteered to reduce its fees for a litigation by 10%. It proved to be a savvy move by the key partner who had impressed his new client but for questions about the fess—given the current economy.
The firm is currently acting for the client in a major transaction. The re-negotiated retention agreement should give Mr. Wise and Mr. Foreman a good bang for the buck and the firm a healthy profit from an efficiently managed matter.
Here are some pointers that were applied to the re-negotiated retention letter:
1) Include a statement that reinforces American Bar Association rules and legal requirements of a law firm to make "reasonable" fee charges and holds the law firm's feet to the fire with respect to cost-effective management of the work.
2) Insure that the law firm sets forth the legal issues to be addressed and the scope of the matter in clear layman language that fully comports to your understanding.
3) Require advance notice and/or authorization for billing rate increases prior to commencement of work at the increased rate and a cap on the percentage increase in a given year.
4) Ask for the lowest billing rate offered to standard commercial clients and for billing in time increments of six minutes
5) Insist upon monthly bills, appropriate summaries (as advised by your accounting department), and clear information regarding personnel, and their individual rates.
6) Obtain bills that are broken out by matter with task-based billing descriptions (free of bundled tasks to the extent practicable).
Thursday, December 24, 2009
Wednesday, December 16, 2009
Negotiate Terms Before Saying, "I Do.", Part 3
Note: This case study by Wendeen H. Eolis has previously appeared in the New York Law Journal. I republish this article in 4 parts during December 2009 in response to current client demand for advice on law firm retention arrangements (whe).
Sitting in my office, I estimate that a client has paid approximately $250,000 more would have been chargeable with just a few reasonable changes in the law firm's boilerplate agreement.
Looking at the document, I spot the big trouble item: "Billing rates are periodically reviewed and adjusted." This is exactly what happened, quietly, on four separate occasions, over the fourteen months under review. The first increase occurred thirty-four days into the matter with a firm wide upward adjustment of 3 %. The last increase took effect in the most recent invoice, another firm wide increase-this time 4 %. In between the firm wide increases, the rates were separately elevated for partners and then associates and para legals.
The upward adjustments flowed as follows: (a) annual firm-wide rate revisions (January) (b) annual partner billing rate reviews (March) c) annual bumps of associates and para legals following acceleration in associate starting salaries (September). The firm invoked this and other policies to keep its business healthy-in a manner it considered "least painful for clients to bear."
After recalculating the company's bills at the original billing rates of timekeepers as specified in the retention agreement (and researching others who later joined the team), I find that the $1,245,000 in billable time would have been reduced by $240,000. I also ponder the possibility that the key partner's increased rates could reflect a compensation reward by his firm- thanks to the new business my client infused into his portfolio! When I review the billable time, I find that the firm bills in time increments of ¼ hour rather than six minute intervals I would recommend; that would produce another chunk of change. Then, I scan the addendum to the retention agreement that spells out the firm's disbursement policy. Aside from items dubbed "expenses" that look like "allocable charges," the provisions secure travel accommodations fit for a king. I proceed through the letter, dissecting and redrafting the language and noting modifications that make fractional differences that add up.
At the end of the review, Mr. Wise faults mostly himself for getting stung, telling me that he did not see himself in a strong negotiating position; a mammoth lawsuit was at his door. In fact, law firms salivate for interesting legal work that can produce $1,000,000 of business in the course of the year! He now concurs that the negotiated retention agreement is a critical document, not only for the provisions it contains, but also for the way in which it structures the relationship between client and counselor.
In discussing the negotiating process, he says that he and his general counsel might have happily agreed to provisions that I or others might be more likely to resist-such as specified conditions for a premium or a discount on fees. He has been stunned by the obvious! A contract between client and counselor (whether it be oral or written, signed or unsigned) should be addressed with knowledgeable eyes on both sides and negotiated with mutual business and fiscal considerations in mind.
The third part of this article will appear on December 23rd.
Sitting in my office, I estimate that a client has paid approximately $250,000 more would have been chargeable with just a few reasonable changes in the law firm's boilerplate agreement.
Looking at the document, I spot the big trouble item: "Billing rates are periodically reviewed and adjusted." This is exactly what happened, quietly, on four separate occasions, over the fourteen months under review. The first increase occurred thirty-four days into the matter with a firm wide upward adjustment of 3 %. The last increase took effect in the most recent invoice, another firm wide increase-this time 4 %. In between the firm wide increases, the rates were separately elevated for partners and then associates and para legals.
The upward adjustments flowed as follows: (a) annual firm-wide rate revisions (January) (b) annual partner billing rate reviews (March) c) annual bumps of associates and para legals following acceleration in associate starting salaries (September). The firm invoked this and other policies to keep its business healthy-in a manner it considered "least painful for clients to bear."
After recalculating the company's bills at the original billing rates of timekeepers as specified in the retention agreement (and researching others who later joined the team), I find that the $1,245,000 in billable time would have been reduced by $240,000. I also ponder the possibility that the key partner's increased rates could reflect a compensation reward by his firm- thanks to the new business my client infused into his portfolio! When I review the billable time, I find that the firm bills in time increments of ¼ hour rather than six minute intervals I would recommend; that would produce another chunk of change. Then, I scan the addendum to the retention agreement that spells out the firm's disbursement policy. Aside from items dubbed "expenses" that look like "allocable charges," the provisions secure travel accommodations fit for a king. I proceed through the letter, dissecting and redrafting the language and noting modifications that make fractional differences that add up.
At the end of the review, Mr. Wise faults mostly himself for getting stung, telling me that he did not see himself in a strong negotiating position; a mammoth lawsuit was at his door. In fact, law firms salivate for interesting legal work that can produce $1,000,000 of business in the course of the year! He now concurs that the negotiated retention agreement is a critical document, not only for the provisions it contains, but also for the way in which it structures the relationship between client and counselor.
In discussing the negotiating process, he says that he and his general counsel might have happily agreed to provisions that I or others might be more likely to resist-such as specified conditions for a premium or a discount on fees. He has been stunned by the obvious! A contract between client and counselor (whether it be oral or written, signed or unsigned) should be addressed with knowledgeable eyes on both sides and negotiated with mutual business and fiscal considerations in mind.
The third part of this article will appear on December 23rd.
Wednesday, December 9, 2009
Negotiate Terms Before Saying, "I Do.", Part 2
Note: This case study by Wendeen H. Eolis has previously appeared in the New York Law Journal. I republish this article in 4 parts during December 2009 in response to current client demand for advice on law firm retention arrangements (whe).
Fourteen months after the relationship began between the law firm and its new client, the litigation had blossomed and settled; Messrs Wise and Foreman were satisfied, if not overjoyed with the results, except for the firm's last invoice in the matter, which brought the legal bills well north of $1,000,000.
The cost of the representation was nearly 25% higher than I had projected for the most complicated scenario outside of trial. The bloom swiftly faded from the rose, as Mr. Wise cozied up to a stack of statements that his accounting department flung his way with a terse message, "Your lawyers have a penchant for increasing their rates, often. They apply their increases without notation."
This type of complaint has encouraged a few states, including New York (the company's home court), to pass legislation that requires law firms to tender a written letter of engagement that contains an "explanation of attorney's fees to be charged, expenses and billing practices." The applicable New York State statute is 22 NYCRR Part 1215, effective March 4, 2002. The new statute applies to most types of representation prior to beginning new legal work- with wiggle room to take care of legal emergencies, wherein the engagement letter may be delayed to the soonest practicable time. The primary virtue of this provision in the statute is to bring attention to a law firm's billing policies, before the client/law firm wedding.
The required letter of engagement must also set forth the breadth of the anticipated services and address the scope of the work that is required. In this regard, New York and other states with laws that contain similar language have a clear salutary effect for both counselor and client. When saddled with this responsibility, lawyers necessarily spend considerable time, up front, in preparing the engagement letter-laying out the issues and providing useful insights into how the firm proposes to address their legal matters. The engagement letter (signature not required) can have a significant impact upon a client's legal standing in the event of a later dispute. A mutually signed retention agreement has even more teeth.
The provisions of the current statute in New York (and elsewhere), however, leave largely to judicial interpretation precisely what details about the engagement (and billing practices) are intended by the rule. Therefore, as a practical matter, companies in New York (like my client), and other states with similar statutes are not automatically better protected than those states without such legislation.
It is up to the consumers of legal services to familiarize themselves, fully with a law firm's policies, to the extent that they affect the calculation of client costs and how the invoice is composed-- before the meter begins to tick. (A law firm that is confident about the validity of its invoices may propose to charge a fee for a burdensome review).
The retention agreement that is ideal for a law firm is not necessarily ideal for the client. These days, many big companies and others with sophisticated legal departments often present their own billing policy statements to prospective outside counsel. Admittedly, this may seem risky or offensive to some, such as was the case with my client who was "under the gun." But a well-negotiated, carefully crafted agreement addresses the business objectives of both sides and provides the delicate balance that is necessary for an enduring relationship-one that is going to transcend the matter at hand.
The third part of this article will appear on December 15.
Fourteen months after the relationship began between the law firm and its new client, the litigation had blossomed and settled; Messrs Wise and Foreman were satisfied, if not overjoyed with the results, except for the firm's last invoice in the matter, which brought the legal bills well north of $1,000,000.
The cost of the representation was nearly 25% higher than I had projected for the most complicated scenario outside of trial. The bloom swiftly faded from the rose, as Mr. Wise cozied up to a stack of statements that his accounting department flung his way with a terse message, "Your lawyers have a penchant for increasing their rates, often. They apply their increases without notation."
This type of complaint has encouraged a few states, including New York (the company's home court), to pass legislation that requires law firms to tender a written letter of engagement that contains an "explanation of attorney's fees to be charged, expenses and billing practices." The applicable New York State statute is 22 NYCRR Part 1215, effective March 4, 2002. The new statute applies to most types of representation prior to beginning new legal work- with wiggle room to take care of legal emergencies, wherein the engagement letter may be delayed to the soonest practicable time. The primary virtue of this provision in the statute is to bring attention to a law firm's billing policies, before the client/law firm wedding.
The required letter of engagement must also set forth the breadth of the anticipated services and address the scope of the work that is required. In this regard, New York and other states with laws that contain similar language have a clear salutary effect for both counselor and client. When saddled with this responsibility, lawyers necessarily spend considerable time, up front, in preparing the engagement letter-laying out the issues and providing useful insights into how the firm proposes to address their legal matters. The engagement letter (signature not required) can have a significant impact upon a client's legal standing in the event of a later dispute. A mutually signed retention agreement has even more teeth.
The provisions of the current statute in New York (and elsewhere), however, leave largely to judicial interpretation precisely what details about the engagement (and billing practices) are intended by the rule. Therefore, as a practical matter, companies in New York (like my client), and other states with similar statutes are not automatically better protected than those states without such legislation.
It is up to the consumers of legal services to familiarize themselves, fully with a law firm's policies, to the extent that they affect the calculation of client costs and how the invoice is composed-- before the meter begins to tick. (A law firm that is confident about the validity of its invoices may propose to charge a fee for a burdensome review).
The retention agreement that is ideal for a law firm is not necessarily ideal for the client. These days, many big companies and others with sophisticated legal departments often present their own billing policy statements to prospective outside counsel. Admittedly, this may seem risky or offensive to some, such as was the case with my client who was "under the gun." But a well-negotiated, carefully crafted agreement addresses the business objectives of both sides and provides the delicate balance that is necessary for an enduring relationship-one that is going to transcend the matter at hand.
The third part of this article will appear on December 15.
Monday, December 7, 2009
Negotiate Terms Before Saying, "I Do.", Part 1
Note: This case study by Wendeen H. Eolis has previously appeared in the New York Law Journal. I republish this article in 4 parts during December 2009 in response to current client demand for advice on law firm retention arrangements (whe).
Sitting as the chief judge in a succession of law firm beauty contests, John Wise*, president of a high-profile communications business, listened intently to the pitches for his company's pressing big-ticket litigation. Jim Foreman* his newly appointed general counsel and I, their legal consultant were with him. The purpose of the meeting was to select special counsel.
With eight hours of interviews at three law firms under their belts, Messrs. Wise and Foreman were poised to pick the pageant winner and sign on the dotted line. They sealed their selection with a call to the winning contestant that evening. During the interviewing process, Mr. Foreman had been duly impressed with the key partner; he had proffered a processional of legal talent and demonstrated an abundance of legal prowess while marketing his firm's wares. Mr. Wise was sold on the firm's presentation and anxious for Mr. Foreman to get the law firm on board.
The prize-winning firm's "intake" committee blessed the engagement, the next morning. A "welcome" letter" followed within hours. Attached to the welcome letter was the law firm's standard retention agreement"”a document with an appropriate two-fold purpose (for the law firm): a) to trigger the green light for the new representation and b) to secure the firm's financial interests in a matter that was projected to approach $1,000,000 in legal costs to my client. The agreement set forth the scope of the work, and included general statements as to the firm's billing practices and called for an evergreen retainer in the amount of $50,000.
Mr. Foreman's mandate was to "embrace" their new counsel- not to dissect the wording of the agreement or nitpick over fractional issues. He signed the firm's standard engagement letter and transmitted it with his company's check for $50,000 as a rolling retainer-- in the blink of an eye; the firm's advice was on the way.
The second part of this article will appear on December 8.
Sitting as the chief judge in a succession of law firm beauty contests, John Wise*, president of a high-profile communications business, listened intently to the pitches for his company's pressing big-ticket litigation. Jim Foreman* his newly appointed general counsel and I, their legal consultant were with him. The purpose of the meeting was to select special counsel.
With eight hours of interviews at three law firms under their belts, Messrs. Wise and Foreman were poised to pick the pageant winner and sign on the dotted line. They sealed their selection with a call to the winning contestant that evening. During the interviewing process, Mr. Foreman had been duly impressed with the key partner; he had proffered a processional of legal talent and demonstrated an abundance of legal prowess while marketing his firm's wares. Mr. Wise was sold on the firm's presentation and anxious for Mr. Foreman to get the law firm on board.
The prize-winning firm's "intake" committee blessed the engagement, the next morning. A "welcome" letter" followed within hours. Attached to the welcome letter was the law firm's standard retention agreement"”a document with an appropriate two-fold purpose (for the law firm): a) to trigger the green light for the new representation and b) to secure the firm's financial interests in a matter that was projected to approach $1,000,000 in legal costs to my client. The agreement set forth the scope of the work, and included general statements as to the firm's billing practices and called for an evergreen retainer in the amount of $50,000.
Mr. Foreman's mandate was to "embrace" their new counsel- not to dissect the wording of the agreement or nitpick over fractional issues. He signed the firm's standard engagement letter and transmitted it with his company's check for $50,000 as a rolling retainer-- in the blink of an eye; the firm's advice was on the way.
The second part of this article will appear on December 8.
Monday, September 14, 2009
Legal Fee Bills: A New Ball Game. Part 2
In today’s economic climate, law firms are as pressed as their clients to stay ahead of their own financial obligations, but there is no more perilous time to have a confrontation between client and law firm than when money is tight all around.
During a private conference with CEO Isabel Little, it became clear that the dunning notice Mr. Able had sent to the Company had brought to the surface all the questions that Ms. Little and her team had not previously considered.
In an initial discussion with Mr. Abel he immediately provided the law firm's invoices. They were fully annotated in task-based billing statements. I set them aside, more interested at that point in getting a global picture of the relationship between client and counsel.
Mr. Abel was surprised to learn that the dunning notice and new retainer request had set off the current brouhaha, believing that it was the "reality check" teleconference he initiated with Ms. Little days before my first meeting with her that triggered it. Attorney Abel explained that he had recently "talked turkey" with CEO Little and General Counsel Waytz without mention -- on either side -- of his firm's dunning/retainer correspondence. He summarized his comments as follows: He passed along the judge's mandate to respective counsel --"Make good faith efforts in settlement talks." He explained the implications of the judge's pressing instructions, reiterating to the client his earliest caution from their first meeting: "Outcomes are never cast in stone until the case is closed."
He became more pointed, saying that PGI's claims for property damages and fraud were not likely to come out close to what they might want to hear. He was even more specific with regard to claims for punitive damages and requests for legal fees, saying "they were never a slam-dunk" for collecting them, and added that those claims would have to be tossed out the window in settlement talks.
Individual Perspectives
The separate talks with PGI executives and partners of Abel & Dunne were enlightening as to their individual perspectives. Ms. Little was looking at responsibility for legal fees she had expected to recover. PGI's hopes for a windfall had been reduced to prospects for recovery of a pittance. The lessons Ms. Little expected to teach the landlord in landing punitive damages were turning into lessons her lawyers were teaching her about the litigation process -- at a heavy price.
For the law firm's part, its lawyers were working diligently on trial preparation while facing questions about efficiency, and challenges about integrity. And Mr. Abel, who relied upon referral of legal matters from colleagues, worried that Ms. Little and Mr. Waytz might "bad mouth" the firm despite his faithful best efforts.
In preparation for the joint meeting, I eyeballed the bills. There were no immediately visible red flags. I was increasingly convinced that a detailed computer-based examination would lead me nowhere -- except back to the nagging issue of "reasonableness" of the fees.
Moments into the joint meeting, Ms. Little blasted the law firm, suggesting that it had "eaten too well" on her dime, regardless of her "unwitting" demands. Mr. Abel promptly laid down the gauntlet; predicting that on motion the judge would excuse him from the case, despite the ongoing settlement talks and the proximity of a trial date.
It was my job to turn the mutual attention of PGI and Abel & Dunne to the critical business at hand -- improving their relationship for the benefit of the litigation and for the purpose of resolving the fee issues. By reviewing the bills through discussion about the relationship rather than using a point-by-point legal fee audit, it was easier to probe the issue of "reasonableness" of the fees.
There was no disagreement as to the client's prior approval of each segment of work, but at this juncture, it looked as if the billings would far outweigh the benefits of the litigation.
ABA Rules
It was time to make further inquiries in search of answers as to whether or not each piece of work was "reasonable" and "necessary" as determined under U.S.C. 330 and as set forth in the American Bar Association Rules of Professional Conduct. Rule 1.5 in the ABA Rules sets forth eight exclusive factors to be included in the determination of reasonableness of a lawyer's fee. They are:
• Time and labor required, novelty and difficulty of the matter and the requisite skill to perform, properly, the service;
• Preclusion of other work by the lawyer;
• Fees customarily charged in the locality for similar services;
• Total fees involved and actual results obtained on the matter;
• Time limitations imposed on the lawyer by the client or other circumstances;
• The circumstances of the existing relationship with the client;
• The experience, reputation and ability of the lawyer;
• And, whether the fee is fixed or contingent.
Second Meeting
During a second joint meeting, with an understanding of the dynamics between the parties in my head and the ABA Rules in my hand, I asked counsel to reconsider the "reasonableness" of their bills. Mr. Abel was amenable, suggesting that in the interim we refocus on moving the settlement discussions forward, pursuant to the trial judges wishes, leaving the fees for later discussion-possibly in the context of settlement results.
The case was settled several weeks later, after the judge convened another pre-trial conference and took center stage in the fray. Ultimately, the client got $100,000 in property damages. The landlord was obligated to lower the rent by 20 percent for the remaining term of the lease, an aggregate savings of approximately $400,000. He was also required to make repairs -- estimated at $125,000 -- in a timely manner, following execution of the settlement order. The judge appointed a special master to oversee the matter, as necessary, going forward, relieving Abel & Dunne from the case and sharply reducing legal costs in the event of any further disputes between PGI and its landlord under the terms of the lease.
Abel & Dunne were done, except for resolving the open balance on their total fees. The fees had risen to $420,000 by the closing of the engagement. [There were no charges made during the period of our fee negotiations] Mr. Abel volunteered a concession of $70,000 [a reduction of nearly 17 percent] on its "fully earned" $420,000 in fees, leaving PGI free and clear, having paid $350,000 prior to the dunning notice and request for additional retainer payment.
The deal was sealed with an agreement in which PGI acknowledged the reduction as an "accommodation" in consideration of the company's financial crunch. We closed the case.
Names in this article have been changed to protect the privacy of the parties.
During a private conference with CEO Isabel Little, it became clear that the dunning notice Mr. Able had sent to the Company had brought to the surface all the questions that Ms. Little and her team had not previously considered.
In an initial discussion with Mr. Abel he immediately provided the law firm's invoices. They were fully annotated in task-based billing statements. I set them aside, more interested at that point in getting a global picture of the relationship between client and counsel.
Mr. Abel was surprised to learn that the dunning notice and new retainer request had set off the current brouhaha, believing that it was the "reality check" teleconference he initiated with Ms. Little days before my first meeting with her that triggered it. Attorney Abel explained that he had recently "talked turkey" with CEO Little and General Counsel Waytz without mention -- on either side -- of his firm's dunning/retainer correspondence. He summarized his comments as follows: He passed along the judge's mandate to respective counsel --"Make good faith efforts in settlement talks." He explained the implications of the judge's pressing instructions, reiterating to the client his earliest caution from their first meeting: "Outcomes are never cast in stone until the case is closed."
He became more pointed, saying that PGI's claims for property damages and fraud were not likely to come out close to what they might want to hear. He was even more specific with regard to claims for punitive damages and requests for legal fees, saying "they were never a slam-dunk" for collecting them, and added that those claims would have to be tossed out the window in settlement talks.
Individual Perspectives
The separate talks with PGI executives and partners of Abel & Dunne were enlightening as to their individual perspectives. Ms. Little was looking at responsibility for legal fees she had expected to recover. PGI's hopes for a windfall had been reduced to prospects for recovery of a pittance. The lessons Ms. Little expected to teach the landlord in landing punitive damages were turning into lessons her lawyers were teaching her about the litigation process -- at a heavy price.
For the law firm's part, its lawyers were working diligently on trial preparation while facing questions about efficiency, and challenges about integrity. And Mr. Abel, who relied upon referral of legal matters from colleagues, worried that Ms. Little and Mr. Waytz might "bad mouth" the firm despite his faithful best efforts.
In preparation for the joint meeting, I eyeballed the bills. There were no immediately visible red flags. I was increasingly convinced that a detailed computer-based examination would lead me nowhere -- except back to the nagging issue of "reasonableness" of the fees.
Moments into the joint meeting, Ms. Little blasted the law firm, suggesting that it had "eaten too well" on her dime, regardless of her "unwitting" demands. Mr. Abel promptly laid down the gauntlet; predicting that on motion the judge would excuse him from the case, despite the ongoing settlement talks and the proximity of a trial date.
It was my job to turn the mutual attention of PGI and Abel & Dunne to the critical business at hand -- improving their relationship for the benefit of the litigation and for the purpose of resolving the fee issues. By reviewing the bills through discussion about the relationship rather than using a point-by-point legal fee audit, it was easier to probe the issue of "reasonableness" of the fees.
There was no disagreement as to the client's prior approval of each segment of work, but at this juncture, it looked as if the billings would far outweigh the benefits of the litigation.
ABA Rules
It was time to make further inquiries in search of answers as to whether or not each piece of work was "reasonable" and "necessary" as determined under U.S.C. 330 and as set forth in the American Bar Association Rules of Professional Conduct. Rule 1.5 in the ABA Rules sets forth eight exclusive factors to be included in the determination of reasonableness of a lawyer's fee. They are:
• Time and labor required, novelty and difficulty of the matter and the requisite skill to perform, properly, the service;
• Preclusion of other work by the lawyer;
• Fees customarily charged in the locality for similar services;
• Total fees involved and actual results obtained on the matter;
• Time limitations imposed on the lawyer by the client or other circumstances;
• The circumstances of the existing relationship with the client;
• The experience, reputation and ability of the lawyer;
• And, whether the fee is fixed or contingent.
Second Meeting
During a second joint meeting, with an understanding of the dynamics between the parties in my head and the ABA Rules in my hand, I asked counsel to reconsider the "reasonableness" of their bills. Mr. Abel was amenable, suggesting that in the interim we refocus on moving the settlement discussions forward, pursuant to the trial judges wishes, leaving the fees for later discussion-possibly in the context of settlement results.
The case was settled several weeks later, after the judge convened another pre-trial conference and took center stage in the fray. Ultimately, the client got $100,000 in property damages. The landlord was obligated to lower the rent by 20 percent for the remaining term of the lease, an aggregate savings of approximately $400,000. He was also required to make repairs -- estimated at $125,000 -- in a timely manner, following execution of the settlement order. The judge appointed a special master to oversee the matter, as necessary, going forward, relieving Abel & Dunne from the case and sharply reducing legal costs in the event of any further disputes between PGI and its landlord under the terms of the lease.
Abel & Dunne were done, except for resolving the open balance on their total fees. The fees had risen to $420,000 by the closing of the engagement. [There were no charges made during the period of our fee negotiations] Mr. Abel volunteered a concession of $70,000 [a reduction of nearly 17 percent] on its "fully earned" $420,000 in fees, leaving PGI free and clear, having paid $350,000 prior to the dunning notice and request for additional retainer payment.
The deal was sealed with an agreement in which PGI acknowledged the reduction as an "accommodation" in consideration of the company's financial crunch. We closed the case.
Names in this article have been changed to protect the privacy of the parties.
Monday, August 24, 2009
Legal Fee Bills: A New Ball Game. Part 1
Note: This case study by Wendeen H. Eolis has previously appeared in the New York Law Journal. The issues remain highly relevant in the current demands of clients for accountability by outside law firms.
The relationship between a client and outside counsel begins for better or worse in the courting process, but the rubber meets the road upon signing of an agreement. Even a retention agreement frequently passes muster with little review.
And later the proverbial you know what hits the fan! EOLIS clients report, increasingly, disgruntlement with their outdated retainer agreements with law firms accustomed to proffering boiler plate documents on the presumption that the client will conclude there is no negotiation in the cards. Not so atypically, clients cry uncle and then call me to review their legal fees.
The case study below is real except for name changes to protect the confidentiality of the assignment.
-----------------------------------------------------------------------------------------------------------------
The CEO and executive vice president/general counsel of Precious Goods Inc. arrived at my office with two documents from the company's outside lawyers: a dunning notice for $50,000 and an accompanying letter requesting an additional $50,000 retainer payment for continuing work on the company's protracted lawsuit with its landlord. The Company already had paid the firm of Abel & Dunne $350,000 in legal fees over the past two years.
Until the last quarter, General Counsel Fred Waytz had routinely approved payment of the law firm's bills within 30 days, no questions asked. He was ever mindful that the hotshot litigation boutique had been recommended to CEO Isabel Little by one of her well-placed lawyer friends. But with slumping revenues and accelerated litigation costs during the previous quarter, he allowed the company to fall 60 days behind in payment of the law firm's invoices.
The dunning notice alone was enough to prompt Mr. Waytz to review the costs of the litigation. The additional retainer led him to head to the CEO's office for comment. As soon as Ms. Little saw the correspondence she put the brakes on any further check writing to Abel & Dunne, asking Mr. Waytz to find a consultant to help them make sense of their legal bills instead. Ms. Little was seeing red!
Litigation Details
A few particulars about the litigation are in order here.
The controversy between PGI and the landlord began when the company discovered that the usable space was 40 percent less than what was quoted in the lease. Then there was the landlord's delay in completing renovations as specified in a rider to the lease. Next, there were the water damages that transformed Ms. Little's plush office into quarters more befitting Chicken Little -- complete with falling skies. PGI stopped paying its rent to the landlord and started looking for counsel to sue.
The law firm of Abel & Dunne was engaged to bring an action against the landlord. Initially, Abel & Dunne proposed a lawsuit for rescission but quickly dropped that idea since PGI was adamant about retaining the space. Instead, they contemplated claims of gross negligence and lost business opportunity as well as property damages and fraud.
PGI told the law firm to go full throttle and was pleased to learn that Abel & Dunne would be asking the court for punitive damages and reimbursement of legal fees.
Ms. Little described the financial arrangements as stated in their retention agreement: a $50,000 retainer at the outset with a provision for future advances to the firm "as appropriate," and payment of invoices within 30 days. PGI forked over to Abel & Dunne a $50,000 retainer to meet the challenge of bringing the landlord to his knees and to insure a windfall for its troubles. Ms. Little would later concede that her attorneys had warned of a long tedious process and had cautioned, "Outcomes are never cast in stone until the case is closed."
Within days of signing the agreement, the lawsuit was served. Counsel began pounding the defendant during discovery. Some key motions had gone their way; others did not, but the aggressive tactics of fighting on every point carried a price tag to match. Ms. Little was indifferent to costs; she had visions of recouped legal fees dancing in her head. Recently, however, the trial judge had grown impatient with both sides. He was pressing respective counsel to move settlement discussions forward, while they were getting ready for trial. Mr. Waytz, the general counsel, became increasingly pessimistic about the prospects for relief and doubted that legal fees would ever be in the mix.
Review of Bills
Following Abel & Dunne's request for replenishment of its retainer, Mr. Waytz reviewed the bills against the estimates for various segments of the litigation. The fees had hurtled way past the predictions on virtually every item. He reported his growing concerns about the costs of the case and the prospects of success. His report sent PGI executives into a tailspin; weighing the merits of throwing the law firm out of the case and/or throwing in the towel.
Ms. Little took over the reins of reviewing the company's position as to the case and the costs. She reached out to John Abel, the lawyer in charge of the matter. She questioned the firm's strategies and bills. The firm's lawyers insisted that PGI "encouraged them to use highly aggressive tactics," which translated into expansive and expensive discovery and motion practice. Ms. Little complained that Mr. Abel rose to his firm's defense each time she tried to get a word in edgewise, citing the costliness of responding to the company's demands for "esoteric research and criticizing PGI's frivolous inquiries about ministerial matters and other minutia associated with the case." She said she was so bothered she forgot to ask for an updated assessment on the value of the case.
First Meeting
Ms. Little turned back the clock to her first meeting with Mr. Abel and his colleagues. "The lawyers sold their services by reeling off a prestigious list of clients with commercial real estate litigation matters," she said. "During their dog-and-pony show, Mr. Abel and his colleagues boasted about the big awards they had obtained and they included specific references to punitive damages and legal fees."
PGI retained Abel & Dunne with grandiose expectations of successful claims that would fund an extravagant restoration of the premises. With the outcome of the litigation increasingly uncertain and her confidence in counsel crumbling, Ms. Little was now crying foul.
The client's lack of sophistication in litigation matters was becoming crystal clear. But I was still perplexed by the fact that the firm's two years of bills equaled double the yearly rent for a lawsuit that originated over the provisions of a lease. As the story unfolded, and I sought to unravel the differences between client and counsel, the question of "reasonableness" of the fees jumped to the top of my radar screen.
Note: part 2 of this article will appear next week centering on the results of Eolis’ examination of the relationship
The relationship between a client and outside counsel begins for better or worse in the courting process, but the rubber meets the road upon signing of an agreement. Even a retention agreement frequently passes muster with little review.
And later the proverbial you know what hits the fan! EOLIS clients report, increasingly, disgruntlement with their outdated retainer agreements with law firms accustomed to proffering boiler plate documents on the presumption that the client will conclude there is no negotiation in the cards. Not so atypically, clients cry uncle and then call me to review their legal fees.
The case study below is real except for name changes to protect the confidentiality of the assignment.
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The CEO and executive vice president/general counsel of Precious Goods Inc. arrived at my office with two documents from the company's outside lawyers: a dunning notice for $50,000 and an accompanying letter requesting an additional $50,000 retainer payment for continuing work on the company's protracted lawsuit with its landlord. The Company already had paid the firm of Abel & Dunne $350,000 in legal fees over the past two years.
Until the last quarter, General Counsel Fred Waytz had routinely approved payment of the law firm's bills within 30 days, no questions asked. He was ever mindful that the hotshot litigation boutique had been recommended to CEO Isabel Little by one of her well-placed lawyer friends. But with slumping revenues and accelerated litigation costs during the previous quarter, he allowed the company to fall 60 days behind in payment of the law firm's invoices.
The dunning notice alone was enough to prompt Mr. Waytz to review the costs of the litigation. The additional retainer led him to head to the CEO's office for comment. As soon as Ms. Little saw the correspondence she put the brakes on any further check writing to Abel & Dunne, asking Mr. Waytz to find a consultant to help them make sense of their legal bills instead. Ms. Little was seeing red!
Litigation Details
A few particulars about the litigation are in order here.
The controversy between PGI and the landlord began when the company discovered that the usable space was 40 percent less than what was quoted in the lease. Then there was the landlord's delay in completing renovations as specified in a rider to the lease. Next, there were the water damages that transformed Ms. Little's plush office into quarters more befitting Chicken Little -- complete with falling skies. PGI stopped paying its rent to the landlord and started looking for counsel to sue.
The law firm of Abel & Dunne was engaged to bring an action against the landlord. Initially, Abel & Dunne proposed a lawsuit for rescission but quickly dropped that idea since PGI was adamant about retaining the space. Instead, they contemplated claims of gross negligence and lost business opportunity as well as property damages and fraud.
PGI told the law firm to go full throttle and was pleased to learn that Abel & Dunne would be asking the court for punitive damages and reimbursement of legal fees.
Ms. Little described the financial arrangements as stated in their retention agreement: a $50,000 retainer at the outset with a provision for future advances to the firm "as appropriate," and payment of invoices within 30 days. PGI forked over to Abel & Dunne a $50,000 retainer to meet the challenge of bringing the landlord to his knees and to insure a windfall for its troubles. Ms. Little would later concede that her attorneys had warned of a long tedious process and had cautioned, "Outcomes are never cast in stone until the case is closed."
Within days of signing the agreement, the lawsuit was served. Counsel began pounding the defendant during discovery. Some key motions had gone their way; others did not, but the aggressive tactics of fighting on every point carried a price tag to match. Ms. Little was indifferent to costs; she had visions of recouped legal fees dancing in her head. Recently, however, the trial judge had grown impatient with both sides. He was pressing respective counsel to move settlement discussions forward, while they were getting ready for trial. Mr. Waytz, the general counsel, became increasingly pessimistic about the prospects for relief and doubted that legal fees would ever be in the mix.
Review of Bills
Following Abel & Dunne's request for replenishment of its retainer, Mr. Waytz reviewed the bills against the estimates for various segments of the litigation. The fees had hurtled way past the predictions on virtually every item. He reported his growing concerns about the costs of the case and the prospects of success. His report sent PGI executives into a tailspin; weighing the merits of throwing the law firm out of the case and/or throwing in the towel.
Ms. Little took over the reins of reviewing the company's position as to the case and the costs. She reached out to John Abel, the lawyer in charge of the matter. She questioned the firm's strategies and bills. The firm's lawyers insisted that PGI "encouraged them to use highly aggressive tactics," which translated into expansive and expensive discovery and motion practice. Ms. Little complained that Mr. Abel rose to his firm's defense each time she tried to get a word in edgewise, citing the costliness of responding to the company's demands for "esoteric research and criticizing PGI's frivolous inquiries about ministerial matters and other minutia associated with the case." She said she was so bothered she forgot to ask for an updated assessment on the value of the case.
First Meeting
Ms. Little turned back the clock to her first meeting with Mr. Abel and his colleagues. "The lawyers sold their services by reeling off a prestigious list of clients with commercial real estate litigation matters," she said. "During their dog-and-pony show, Mr. Abel and his colleagues boasted about the big awards they had obtained and they included specific references to punitive damages and legal fees."
PGI retained Abel & Dunne with grandiose expectations of successful claims that would fund an extravagant restoration of the premises. With the outcome of the litigation increasingly uncertain and her confidence in counsel crumbling, Ms. Little was now crying foul.
The client's lack of sophistication in litigation matters was becoming crystal clear. But I was still perplexed by the fact that the firm's two years of bills equaled double the yearly rent for a lawsuit that originated over the provisions of a lease. As the story unfolded, and I sought to unravel the differences between client and counsel, the question of "reasonableness" of the fees jumped to the top of my radar screen.
Note: part 2 of this article will appear next week centering on the results of Eolis’ examination of the relationship
Monday, July 13, 2009
Unprecedented Law Firm Opportunity for Seniors
During the second quarter of 2009, EOLIS doubled its deals for partner acquisitions over the same period in 2008, with seniors leading the way.
Increasingly, savvy firms are throwing age-based compulsory retirement for partners to the wind—recognizing that the legal community has an extensive stable of senior citizens who demonstrate high energy, a continuing flair for pulling in major client revenues, and a portfolio of clients that can be nurtured and ultimately transitioned into the fabric of the firm.
David Bernstein is a leading example. A lifer at Rogers and Wells, he was swept up into R&W’s merger with Clifford Chance, where he remained until the age of 71.
A client and longtime friend, Bernstein contacted Wendeen to consider the possibility of a new adventure, citing his love of legal practice and his continued vigor. (Bernstein’s hours and client base rivals busy colleagues twenty years his junior.
In May, assisted by her affiliated partner Alan Miles and Associates, Wendeen completed a deal between Bernstein and K&L Gates. And knowing that K&L Gates’ New York managing partner cares only about quality, EOLIS and Miles went for a double header serving up another eminent grise, Roger Crane, formerly of Nixon Peabody.
Could it be a trend that opportunistic law firms will aggressively pitch seniors (partners in their sixties and even their seventies) who demonstrate energy and wisdom and a continuing track record for revenue production? Wendeen will be writing more extensively on this issue following completion of a trend study of 20 Law firms around the country.
Posted by Will Mead
Increasingly, savvy firms are throwing age-based compulsory retirement for partners to the wind—recognizing that the legal community has an extensive stable of senior citizens who demonstrate high energy, a continuing flair for pulling in major client revenues, and a portfolio of clients that can be nurtured and ultimately transitioned into the fabric of the firm.
David Bernstein is a leading example. A lifer at Rogers and Wells, he was swept up into R&W’s merger with Clifford Chance, where he remained until the age of 71.
A client and longtime friend, Bernstein contacted Wendeen to consider the possibility of a new adventure, citing his love of legal practice and his continued vigor. (Bernstein’s hours and client base rivals busy colleagues twenty years his junior.
In May, assisted by her affiliated partner Alan Miles and Associates, Wendeen completed a deal between Bernstein and K&L Gates. And knowing that K&L Gates’ New York managing partner cares only about quality, EOLIS and Miles went for a double header serving up another eminent grise, Roger Crane, formerly of Nixon Peabody.
Could it be a trend that opportunistic law firms will aggressively pitch seniors (partners in their sixties and even their seventies) who demonstrate energy and wisdom and a continuing track record for revenue production? Wendeen will be writing more extensively on this issue following completion of a trend study of 20 Law firms around the country.
Posted by Will Mead
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