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Category: Alternative Fees

Demand for Contingency Fees Grows Amid Pandemic

November 30, 2020

A recent Law.com story by Dan Roe, “Demand for Contingency Fees in Business Litigation Grows Amid Pandemic,” reports that contingency fees are not only confined to personal injury matters.  In the midst of the recession and pandemic, some firms are increasingly taking on contingency fee matters in business litigation and commercial cases.  Business owners who don’t have the cash on hand to front litigation costs are turning to law firms that work on contingency and are willing to absorb case costs, say firm leaders, who report a rise in contingency fee inquiries since the beginning of the pandemic.

Morgan & Morgan is one of the largest personal injury firms in the country, but it also has a 24-lawyer group dedicated to business disputes.  William B. Lewis, the firm’s business trial group co-managing partner, said the practice has seen a 20% to 25% increase in contingency cases — the only type they do — since the pandemic began.  The firm recently hired an associate out of law school to join the group and plans to hire three or four additional attorneys in the next six months.

The cost of hiring an hourly law firm or trying a case can exceed the cash positions of many businesses with legitimate disputes, said Lewis in an interview.  “Trying a case can cost almost as much as everything leading up to it,” Lewis said.  “Even in a two year litigation cycle, it could be $300,000 in attorney’s fees to try a case.  There are pressure points for folks to settle even if they have a valid, strong claim.  We allow clients to try cases because they don’t have to pay huge amounts to get cases in front of a jury.”

Commercial litigation boutique Cain & Skarnulis in Austin, Texas, is also taking an increased number of cases on contingency.  “There are some good business contingency fee cases coming,” founding partner Steve Skarnulis said in an interview.  “I’d estimate that over the last six months we’ve seen inquiries for at least twice as many contingent fee cases and have probably taken 25% more than we normally would.”

And in New York, the commercial litigation boutique The Stolper Group is also seeing more contingency fee questions than usual.  “There’s definitely been an uptick in inquiries,” founding partner Michael Stolper said in an interview.  “Those who do commercial contingency have to be very selective in cases so I wouldn’t say we’re doing more or less than before, but there have been a lot more inquiries now during the pandemic.”

Financial hardship and disputes that stem from it are driving demand for contingency fee arrangements, firm leaders say.  “We’ve had investment loss cases, securities cases where brokers mismanage money and dump everything into an account after the pandemic when they didn’t have the authorization from the client to do so, an uptick in legal malpractice, and real estate commission cases,” Lewis said about the type of matters Morgan & Morgan has handled on contingency.

The firm’s business trial group is also representing community associations in construction defect claims because of the high costs involved in litigating and the fact that community associations hesitate to shift those costs onto their members, Lewis said.  At Cain & Skarnulis, landlords are turning to the litigation firm to handle disputes with commercial tenants on a contingency fee basis, Skarnulis said.

Firms that specialize in commercial contingency may offer a number of fee arrangements, based on the details of the case.  Tiered fee arrangements such as those at Morgan & Morgan’s business trial group may charge 25% to 35% for an early resolution, whereas a more time-consuming trial may net the firm 35% to 45% of a judgment.  Other firms engage in hybrid arrangements, where attorneys charge a reduced hourly rate and a smaller percentage of a recovery.

Clients may look to firms to absorb case costs as well.  Court costs and associated fees such as electronic document management can cost in the hundreds of thousands of dollars, Lewis said, so firms may also agree to front those costs in exchange for a higher percentage of the recovery.

Big Law firms may not be promoting contingency arrangements, but that doesn’t mean they aren’t doing them, said Davie, Florida-based legal consultant Joe Ankus.  “I do think some of largest firms in the world will take on a contingency case if they believe at the outset the odds of recovery or settlement justify taking the risk,” he said.  “Twenty-five years ago, that wouldn’t have happened at Am Law 100 firms.  Now, people have adjusted to the new normal.”  The prospect of collecting significant damages against a major corporate defendant — and the possibility of punitive damages — may entice large firms that have historically abstained from contingency cases, he added.

Meanwhile, Skarnulis said he’s seeing traditional plaintiff’s firms — more adept at selecting contingency cases than hourly firms — get involved in contingency business litigation, as well as mid-size firms that specialize in commercial litigation.

The 18-attorney Miami litigation boutique Podhurst Orseck is handling contingency cases related to the pandemic, such as business interruption cases against insurance companies.  “It’s a huge financial and time commitment, putting our resources into claims on a complete risk basis,” partner Steven Marks said in an October interview.  “On the opposite side, if we’re successful, it’s very good for the firm.”

Marks said the firm’s historical contingency revenues make up 70% to 80% of the firm’s total revenue, while comprising about 50% of cases.  Overall, the economic downturn from COVID-19 has accelerated an ongoing trend, paved by personal injury firms, to extend the realm of contingency work, said Ankus.  “If you were to talk to me 25 years ago and say, ‘Joe, how many law firms are doing contingency work?’ I’d have told you none or less than 5%,” he said.  “Today, the number has exponentially increased to where many firms, more often than not, will readily take on a contingency matter.”

Article: Five Cost-Cutting Strategies for Corporate Legal Departments

October 22, 2020

A recent Law.com article by Nathan Wenzel of SimpleLegal Inc., “5 Cost-Cutting Strategies For Corporate Legal Department,” reports on legal cost measures for corporate legal departments.  This article was posted with permission.  The article reads:

Corporate legal departments have long been focused on reducing legal spending.  The emphasis on cost-cutting has only increased in 2020 as the economic uncertainties of the pandemic have caused companies to scrutinize expenses across the board.

According to a recent report from the Corporate Legal Operations Consortium, 61 cents of every dollar spent on legal costs in 2020 goes to external legal costs — a 15-cent increase from 2018.  This uptick, combined with the year's novel challenges, has many legal departments looking for new ways to control legal expenses beyond reviewing line items, which has proven to be ineffective for many companies.

While there's been a lot of chatter in the industry about the need to switch to fixed fees or alternative fee arrangements to reduce costs, these shifts have been slow to take hold.  They're also difficult to measure if we retain a focus on the billable hour.

When clients ask firms for fixed fees but also request the hours worked so they "know that the fixed fee was the right price," then we haven't really made the change to fixed fees.  It is a difficult transition and one that will take time.  We should always push toward better alignment of price and value, but we need to balance near-term realities with long-term goals.

In the near term, we need to control costs — even if that only means focusing on hourly rates.  In the long term, we need to align the work to the right types of providers at the right price, where price has very little connection to hourly rates.  No one wants to buy time.  We want outcomes, not hours.

To solve for both the short-term and long-term goals, we start with data.  Analyzing and reducing your legal spending start with asking yourself the following questions:

What am I spending now, on what and with which providers?
How does my current spending compare to past spending?
How am I allocating my legal work?
What metrics am I using to measure cost control?
Are there other cost considerations I'm overlooking?

1.  Understand where you are now.

The first step of implementing a change is to understand the current state. Reducing legal spending first requires knowing where you are right now.  This means not only keeping up with the total dollar figure of your spending, but how much you're spending in each practice area and with which law firms or providers.

Don't forget to also investigate the work you currently perform in-house.  With an understanding of outside legal spend and in-house legal work, you will have the current picture of how you allocate the demand for legal services from the business to the supply of legal services you have available.  With this deeper insight, you'll start to see where you can actually have an impact on spending.

Without this data, you risk investing time into an area that looks compelling but won't create real savings.  For example, reducing money spent on compliance may seem like a good idea because the partners at your primary firm have very high billing rates.  But if only 5% of your annual spending goes toward compliance work or if the primary compliance firm effectively leverages associates and paralegals, your efforts won't translate into real savings for the business.

When you track data and analyze legal spending details from your e-billing system, you'll be better equipped to start a real conversation about reductions.  You can identify the practice areas and firms where your efforts will create real returns.

2.  Compare now to where you used to be.

Your business is not static.  It's important to understand where you are today, but it is even more important to understand how things change over time. After you determine where you're spending your money today, you need to compare those numbers to what you were doing last year or the last time you negotiated rates and pricing.

You may have a reliable history of sending work to a single attorney or team at a firm. You may have increased the amount of work sent to a particular firm or in a particular practice area.  If you used to send $2 million worth of business to a firm and now spend $5 million with that firm, that's a powerful position for starting rate and price negotiations.

Additionally, if your team uses multiple firms for similar work, you may benefit from consolidating that work with fewer preferred firms.  Larger companies may go through a formal panel selection process annually or every few years.  A preferred panel is a great tool to provide the best legal services to the business at the best price if you have the team and time to implement this type of program.  But you can still achieve the benefits of allocating work to fewer firms without a full preferred panel program.

You don't always know what the demand for legal services will be from year to year.  But if your data shows that you have a history of allocating work among several firms, ask those firms what they would be willing to do to earn a greater share of that work.

3. Understand how you're allocating work.

After you have an understanding of the dollar value of your legal spending, you need to know how you're allocating different types of work, to whom and why. How you're assigning your legal work certainly depends on finding the provider with the right expertise but should be equally dependent on its business impact and complexity.

Your high-impact, high-complexity work probably belongs with the more expensive firms.  An example of a high-impact matter could be a large litigation that threatens the balance sheet of the company.  Or it might be a patent for the core technology driving your business.  In either case, you might choose to work with the very best money can buy.

Every year the legal press makes a big deal about high billable rates for eye-catching headlines.  But for your highest-impact and highest-complexity work, those firms and lawyers are probably a bargain at twice the price.  You're buying outcomes, not hours.

Too many companies simply send the rest of their work along with their high-impact work without stopping to see if smaller matters would be better handled by a lower-cost provider.  There are a variety of suppliers beyond the Am Law 100, such as specialty firms, alternative legal service providers, nonlegal consultants and your in-house team.

Your low-impact, low-complexity work probably doesn't need to go to the premier firms.  Specialty firms, alternative legal service providers, consultants and solo practitioners may not have massive staff and unlimited support resources, but they can still provide high-quality work at a fraction of the price.

You may also have high-impact but routine work where speed and a deep understanding of business issues are important.  The most common example here is commercial contracts.

For customer contracts, any delay in reviewing costs the company revenue. An extensive back-and-forth over mundane legal minutiae could cause your company to miss a quarter's revenue target.  In-house teams will have a better understanding of business priorities and can better deliver the right kind of legal work with speed at the right price.

When you satisfy your demand with the right mix of supply, the potential for savings is much greater than through rate discounts alone.  Allocating work based on impact and complexity provides far greater cost savings than a 10% rate reduction when the right provider is already half the price.

4. Use the right metrics.

You can't manage what you can't measure.  You get what you incentivize.  These two classic business statements tell us that we need to measure savings with the right metrics.

How are you measuring cost savings today?  Is it through average hourly rates?  Adjustments to bills based on guidelines?  If you measure discounts on rates to determine savings, you're going to focus on high hourly rate firms that discount their hour rates.  But is that really saving your company any money?

Achieving savings by reallocating work rather than by negotiating rate discounts definitely makes sense.  But with the wrong metrics it is harder for the C-suite to understand what you've accomplished.  If you measure and report savings only as the discount on standard rates, the reallocation effort appears to have achieved nothing.  In fact, if the work was moved in-house or to a provider with a lower but not discounted rate, it may appear that you have lost savings because you won't have a discount to report.

In fact, with the wrong metrics, if you were to implement a routing tool for automated nondisclosure agreement review, it might appear to be a driver of cost even if it created hard dollar savings from external counsel and soft dollar savings — i.e., efficiencies — from allowing in-house counsel to spend time on high-impact, high-complexity work.  With the right metrics, you can show the true return on these investments.

To demonstrate the full value of the savings and quality initiatives, you might need to use new metrics.  I am certainly not advocating for cherry-picking data or choosing vanity metrics.  To the contrary, the right metrics will actually make more sense to the business, the CEO and the board.

Legal expense as a percentage of revenue has been promoted in Association of Corporate Counsel benchmarking studies and Altman Weil Inc. surveys. It is well understood and trusted by chief financial officers and CEOs.

Whichever metrics are used to measure legal cost controls, just remember that you get what you incentivize.  If you're going to achieve cost savings, you need to use the right metrics to incentivize your team and showcase results.

5. Monitor compliance with your billing guidelines, consider automation of certain legal tasks and standardize workflows.

The preceding four steps are the critical actions that build on each other to significantly trim legal spending.  It's a journey.  You don't need to take all the steps all at once to achieve results.  Alongside those major considerations, there are a couple other things to keep in mind to run alongside those longer-term initiatives.

The first is billing guidelines.  Your billing guidelines let your firms know what it means to be a good legal partner to your department and a good business partner to your company.

Guidelines often devolve into rules about copy charges and not billing excessively for underqualified people — things your firms probably already do on their own to better serve their clients.  You should always be monitoring compliance with your billing guidelines and enforcing timekeeper rates, but it is important to remember that ensuring that your firms only bill for work in accordance with your guidelines isn't actual savings — it only prevents overcharging.

Another way to reduce legal costs and improve response time is to automate low-complexity, low-impact legal tasks and standardize workflows.  Automation of basic document review by artificially intelligent contract review tools can be a big time and money saver.  As an example, nondisclosure agreements are high-volume but typically low-impact documents that can be reviewed with the help of AI-enabled tools.

In addition to automation, standardized playbooks designed by the legal team to give other departments a checklist of items to review can also help improve turnaround time and reduce costs.  For example, a sourcing manager in a procurement department could be given a checklist of five or six specific business and legal terms to review before sending to the legal team.

Automation and standardization improve speed of delivery and reduce cost of delivery for the business.

The Path to Lower Legal Spending

It's time to shift the perspective on cost reduction beyond hourly rates and copy charges.  As legal departments, you need to look at where you are now, how that compares to the past, how you're allocating your work and whether you're using the right legal spending metrics to achieve real savings.  These steps with effective legal billing guidelines, automation and standardization provide the foundation to match your company's demand for legal services to the right legal service providers to trim your spending while improving delivery.

Nathan Wenzel is co-founder at SimpleLegal Inc.

The Nation’s Top Attorney Fee Experts of 2020

June 24, 2020

NALFA, a non-profit group, is building a worldwide network of attorney fee expertise. Our network includes members, faculty, and fellows with expertise on the reasonableness of attorney fees.  We help organize and recognize qualified attorney fee experts from across the U.S. and around the globe.  Our attorney fee experts also include court adjuncts such as bankruptcy fee examiners, special fee masters, and fee dispute neutrals.

Every year, we announce the nation's top attorney fee experts.  Attorney fee experts are retained by fee-seeking or fee-challenging parties in litigation to independently prove reasonable attorney fees and expenses in court or arbitration.  The following NALFA profile quotes are based on bio, CV, case summaries and case materials submitted to and verified by us.  Here are the nation's top attorney fee experts of 2020:

"The Nation's Top Attorney Fee Expert"
John D. O'Connor
O'Connor & Associates
San Francisco, CA
 
"Over 30 Years of Legal Fee Audit Expertise"
Andre E. Jardini
KPC Legal Audit Services, Inc.
Glendale, CA

"The Nation's Top Bankruptcy Fee Examiner"
Robert M. Fishman
Cozen O'Connor
Chicago, IL

"Widely Respected as an Attorney Fee Expert"
Elise S. Frejka
Frejka PLLC
New York, NY
 
"Experienced on Analyzing Fees, Billing Entries for Fee Awards"
Robert L. Kaufman
Woodruff Spradlin & Smart
Costa Mesa, CA

"Highly Skilled on a Range of Fee and Billing Issues"
Daniel M. White
White Amundson APC
San Diego, CA
 
"Extensive Expertise on Attorney Fee Matters in Common Fund Litigation"
Craig W. Smith
Robbins Arroyo LLP
San Diego, CA
 
"Highly Experienced in Dealing with Fee Issues Arising in Complex Litigation"
Marc M. Seltzer
Susman Godfrey LLP
Los Angeles, CA

"Total Mastery in Resolving Complex Attorney Fee Disputes"
Peter K. Rosen
JAMS
Los Angeles, CA
 
"Understands Fees, Funding, and Billing Issues in Cross Border Matters"
Glenn Newberry
Eversheds Sutherland
London, UK
 
"Solid Expertise with Fee and Billing Matters in Complex Litigation"
Bruce C. Fox
Obermayer Rebmann LLP
Pittsburgh, PA
 
"Excellent on Attorney Fee Issues in Florida"
Debra L. Feit
Stratford Law Group LLC
Fort Lauderdale, FL
 
"Nation's Top Scholar on Attorney Fees in Class Actions"
Brian T. Fitzpatrick
Vanderbilt Law School
Nashville, TN
 
"Great Leader in Analyzing Legal Bills for Insurers"
Richard Zujac
Liberty Mutual Insurance
Philadelphia, PA

Court Uses Special Fee Master to Award Attorney Fees

June 6, 2020

Following Straight Path IP Group’s, the patent owner’s, unsuccessful appeal, Apple and Cisco moved for reasonable attorney’s fees.  Although the district court reaffirmed the exceptionality of the patent owner’s prosecution of the case, the district court found that defendants’ fee requests were too high and directed the parties to submit their billing requests to a special fee master.  The order cautioned the defendants to “take care to submit only for time and expenses that truly deserve compensation and at billing rates that truly deserve to be compensated,” stating that the district court might treble the deductions for requests the special fee master found unreasonable.

After briefing and a hearing, the special fee master recommended that Apple should receive nearly all it requested, with some minor deductions taken for “certain ambiguous or duplicative time entries.”  On the other hand, the Special Fee Master recommended that Cisco should receive only half because its billing records never conformed to the district court’s direction.  As part of the reasoning, the special fee master explained that Cisco did not pay counsel by the hour, rather it paid a flat-monthly fee.  As explained by the district court, “[t]he special master found Cisco’s original billing submission deficient and asked Cisco to resubmit.  Cisco did so, but the special fee master found the records remained deficient for an ordinary lodestar review.  To be sure, the special fee master found this alternative billing method compensable under § 285, but the records did not paint a clear picture of counsel’s billable activities or clearly delineate between this case and other, non-compensable work for Cisco.  Thus, the special fee master concluded a 50% reduction would ensure patent owner did not overpay, yet still compensate Cisco for fees actually paid.  Finally, the special fee master declined to treble the deduction, finding Cisco’s noncompliance a product of the alternate billing arrangement and not of bad faith.”  The patent owner subsequently objected that the special fee master’s awards of fees was too high.

After accepting the recommendation with respect to Apple’s fees, the district court turned to the objection to Cisco’s fee award.  First, the district court determined that “Section 285 does not foreclose reimbursement of Cisco’s alternative billing method.  Quoting that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party,” 35 U.S.C. § 285, the district court noted that the “requirement of reasonableness specifies the outcome, not the mechanism.  The text mandates no specific calculation method and does not foreclose reimbursement of an alternate billing scheme like Cisco’s.  Nor does precedent mandate that result.  True, the lodestar method (hours times a reasonable rate) generally guides fee shifting.  And the Supreme Court has “established a ‘strong presumption’ that the lodestar represents the ‘reasonable’ fee.” City of Burlington v. Dague, 505 U.S. 557, 562 (1992).  But the lodestar’s place as the preferred method does not make it the only method.  Even the Supreme Court acknowledges this.”

Second, the district court noted that “[i]n asking this order to exclude a flat-fee arrangement from reimbursement for reasonable attorney’s fees, patent owner essentially argues that such arrangement is presumptively unreasonable.  This order declines to so hold. Several of the considerations leading to the adoption of the lodestar method still apply to the flat-fee method.  Consider, first, that both methods look to the market.  That is, they look to what practitioners actually charge in the market for legal representation. … And, second, the flat-billing rate remains what clients actually pay for legal services.  Recall, § 285 fees compensate what was actually and reasonably spent.  See Mathis, 857 F.2d at 753.  Last, as noted, the lodestar was never meant to determine the precise value of an attorney’s services.  It merely provides “rough approximation of general billing practices.”  Given adequate records delineating separate matters, flat-rate billing may prove just as effective an approximation of general billing practices.  Indeed, as courts and counsel become accustomed to the method, the method may well become as “readily administrable” as the lodestar method.  Despite patent owner’s protest, this order agrees with the special master that § 285 does not categorically bar reimbursement of Cisco’s alternate-fee arrangement.”  Accordingly, the district court adopted the recommendation of the special master to award Cisco reasonable attorney’s fees based on the flat fee agreement.