The Problem

Imagine the following scene: Two superbly trained heavyweight fighters enter the ring. The bell sounds and they face off circling each other. So far everything seems normal. They are just feeling each other out. A minute goes by. The crowd starts to grow restless and a few boos are heard. Reluctantly the fighters throw a few token limp-wristed jabs. The people in the $500 front row seats swear they see these bruisers actually wink at each other. They dance some more and throw punchettes. The round ends. This faux battle goes on, despite the boos, for fifteen rounds. The judges score cards show a draw because neither fighter has landed a real punch. A subsequent State Boxing Commission investigation reveals that the reason the fight went the way it did was that the boxers had each negotiated a fight contract where they would be paid based upon the amount of time they spent in the ring and that winning was not an incentive because winning would not result in a bigger payday.

Now imagine that this method of rewarding “fighters” catches on. And astoundingly, the fight fans continue to shell out big money to watch these warriors dance for fifteen rounds, because this is the only way boxers will perform.

What’s wrong with this picture? Everything. No sane fight fan is going to pay to see these guys wink and dance. But lest you think that the scene I just described is ridiculous, imagine that two businesses are at war. The stakes are enormous and perhaps economic viability is at stake. The CEOs decide to settle their differences in a price fight. Only they hire the same type of fighters as in our scenario who demand to be paid based on time spent in the ring.

Too often that is exactly the decision business makes when they engage in major litigation. Operating under the lawyer-inspired principle that the more business spends on lawyers the better off business will be, they hire the silk stocking, original art on the walls, hundred dollar a square foot, $100,000 first year Harvard associate, Armani suit gang. Astoundingly, it rarely occurs to anybody that they are paying for the art, the square footage, the inexperienced Harvard associate, the suits, and yes, even the silk stocking. It takes a lot of billed hours to take care of those frills.

Hourly billing can become a more blatant advice scam than the telephone psychics. When the practice is abused, it is institutionalized, self-perpetuating thievery. A major piece of litigation can involve billing starting at $400 an hour for senior litigators, billing for litigation support, junior partners, legal research, legal research assistants, paralegals, data entry workers, law clerks, paper, copies, and it all simply must be done because woe unto him who is penny wise and pound foolish.

The law is a business and it exists to make a profit. Employees of the firm above the secretarial level exist for one reason – to make the firm money. The more money an associate or junior partner makes for the firm, the more likely he or she is to be promoted. And it doesn’t take long to figure out that you can bill for thinking about a case. After all, who is going to check to see if you were thinking about something productive or thinking about whether you billed more than the associate in the next office. It doesn’t take the new associate long to figure out how to play the game. Every law student has seen and noted the scene in John Grisham’s The Firm, in which the senior partner tells his new first year associate to bill when he is in the bathroom. Unless a firm gets incredibly greedy (Presidential advisor Webster Hubbell made this mistake and paid for it with a mail fraud conviction) and double or triple bills in a way that leaves a trail, the firm will probably never be caught or even seriously questioned.

Is it really that bad? Are my brothers and sisters at the bar all members of the Webster Hubbell school of creative billing? Of course not. However, the system that is in place is inherently flawed and simply too susceptible to abuse. It is too easy for the senior partners to give the order to bill or be busted, a variation of the rule in academia, “publish or perish”, and then turn a blind eye and not concern themselves with exactly how those hours increased by 20%. What do my blue blood brothers and sisters say in response? It is always an extremely well articulated variation of the notion that you can trust us because we are lawyers.

The Solution

Let’s go back to our championship fight for a moment. Now assume that a group has secretly found and approached a challenger who actually likes to fight. They offer to pay him to get in there and knock the hell out of the dancer. Query…on whom are you going to bet?

Lawsuits are fights. They can become titanic struggles for one’s very business life. In such a situation, the last thing a business needs is a warrior who has every incentive to waltz about the room with the enemy, play 18 holes at the local posh country club, and bill all of the above to you at $400 an hour.

When your opposition is represented by a mega law firm, your most prudent strategy is to steer your course clear of another big law firm. Nothing makes a big firm happier than going up against another big firm. Why? Because every big law firm knows that every other big firm operates the same way. They know that it is a virtual guarantee that nothing productive is going to happen until the last possible dollar can be bill(k)ed. On the other hand, the most foreboding foe of a big law firm is a tough litigator who is not being rewarded for piling up enormous amounts of time passed on to business. The big firms know that this kind of litigator does not play by the big firm rules. And that knowledge is the ultimate threat to big firm billing practices. What a business with legal concerns needs is the equivalent of a David to the big firm’s Goliath: a giant killer who aims for the heart and is being paid only to get in and get the job done. The person who has an interest that is antithetical is dragging things out.

The fuel at the core of every successful business is a willingness to compete and a need to win. Why should lawyers be rewarded for spending a lot of time unless it brings results? Lawyers who spend time extolling on how hard they have tried are usually the losers.

Good plaintiffs’ lawyers are often vilified as the scourge of business. They are feared, loathed and blamed for virtually every conceivable economic woe. And why is that? Because they often win leaving the big firms to justify all of their “hard work”. Why is it that the big firms are so often on the wrong end of the jury verdict? It all comes back to the fact that the top plaintiffs’ firms do not play by the same good-ole-boy-hourly-wink-and-dance rules. They figure out what they have to do to win as quickly and as convincingly as possible and they focus on the prize…not the amount of time it takes to get to the deposition and whether or not they can upgrade to a suite and first class plane tickets.

Several years ago I was involved in a very complicated dispute between two Beltway scientific research corporations. There were allegations of fraudulent concealment in the sale and acquisition of a division. I represented the small of the two. One of the premier firms in Washington represented the larger firm. My client had started out with a big firm who had been billing him $15,000 a month. After three and a half years of litigation, countless depositions, and useless discovery disputes, no one had budged an inch. I spent four days reviewing the file. Astoundingly, I discovered that the really important work --- the case clinching work --- had not yet been done. These two firms had been spinning each other’s wheels for forty months, and it looked like neither one of them really wanted to force the issue. I proposed a contingent results depending agreement. The client was thrilled. Five months later the matter was concluded on terms that were extremely favorable to my client and pretty good for me. The client’s only regret was that he had ever agreed to pay anybody on an hourly basis.

Pay for Results

Results oriented billing is not appropriate in every case. It is contrary to the canons of ethics in criminal and domestic relations cases. Writing and reviewing contracts takes time without any guarantee of a “win”. However even ordinary reviews and drafting can be defined with outside limitations. There is almost no situation in which outside limits for legal services should not be spelled out at the outset. But major litigation can lend itself to fair “win or whine” arrangements in most instances. If your business is on the plaintiff’s side, a simple contingent fee involving a percentage of the amount recovered or a fixed fee tied to a win, may be the answer. If your litigator won’t take the case on that basis it tells you something about the lawyer’s confidence that he can gain a favorable outcome for you, or it tells you something about your case. In either instance, you need that information. If you are a defendant, the approach should involve setting a reasonable goal. What would you define as a realistic objective win, knowing your strengths and weaknesses? An agreement focusing on bringing about that goal for a fixed fee with incentives for better than hoped for results is to your advantage and to your attorney’s advantage.

Most importantly, shop around. There are many good litigators. Find yourself a winner and ask him or her the tough questions. Almost everyone wants your business. Only the best and the most confident will take it on a results oriented billing basis because they believe that they can give you the outcome you want.

Published on this site with the permission of Howard Siegel

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