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.
