Contingent Fee Business Litigation Blog : Houston Patent & Contingent Fee Business Litigation Lawyer & Attorney : McClanahan Myers Espey Law Firm : Intellectual Property, Commercial Litigation

            I just perused a lawyer’s website. His firm had several lawyers. He was from a small town, adjacent to a metropolis. He handled business litigation and probate litigation. His firm worked by the hour and on contingent fee. Then I noted the disclaimer: “He is not licensed by the Texas Board of Legal Specialization.”

            How do people find a competent trial lawyer? I suspect it is the same way they find doctors, dentists and other professionals – they ask a friend if she knows one! There are, of course, better ways, but most ordinary folks don’t know about them. That’s where the Board of Specialization comes in.

            Would you want a general practitioner physician to perform your heart surgery? Of course not. You would want a Board Certified heart surgeon. Then why would you want a non-board certified trial lawyer to handle your important patent or business litigation?   High hourly rates are not an excuse. If your case is right, you can probably get a highly qualified attorney to handle it on a contingent fee basis.

            Board Certification is a mark of excellence and a distinguishing accomplishment.Within the Texas legal community, Board Certification means an attorney has substantial, relevant experience in a select field of law as well as demonstrated, and tested, special competence in that area of law. There are more than 70,000 attorneys licensed to practice in Texas. Only 7,000 are Board Certified. 

           About 1100 Texas lawyers are Board Certified in Civil Trial Law. That is the specialized area that deals with litigation involving contracts, businesses and business owners, negligence, creditors and debtors, fair debt collection, landlord and tenant, and deceptive trade practices act. 

           You can easily find a Board Certified Trial Lawyer by going to the Texas Board of Legal Specialization’s on-line directory.  It has a "search" page. That allows you to search the database using a variety of criteria, including name, city, county, or zip code.  Alternately, call the TBLS at 800-204-2222, ext. 1454 or at 512-453-7266, or e-mail TBLS.

           It behooves you to insist on the best. Make sure your contingent fee lawyer is Board Certified in Civil Trial Law. Why do anything else? 

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             A company files for bankruptcy. Millions of dollars are lost by unsecured creditors. There is no cash to pay lawyers to go after third parties. What do you do? 

            It’s simple. Find a competent firm willing to take the case on a contingent or hybrid fee basis. 

            Take theHeller Ehrman bankruptcy as an example. The 750-member international law firm filed for bankruptcy, in part it says, because its main two lenders -- Bank of America and Citibank -- refused to renegotiate the terms of a $5.7 million debt the banks say the firm owes as part of a long-term loan. 

            According to a recent court filing, the unsecured creditors' committee has asked the bankruptcy judge to approve the hire of a litigation firm for a pending case against Bank of America and Citibank. Under the proposed contract, the 11-lawyer firm would be paid $1 million up front, plus a contingency fee based on the net benefit to the estate if they win. “It’s BIG, You’re in Charge! Firm Picked for Pending Case Against BofA, Citi,” The Recorder, April 9, 2010. 

            When such a bankruptcy gets underway, counsel for the debtor should investigate potential claims against third-parties. They should then work with the unsecured creditors’ committee to search for special counsel – typically contingent fee business litigators who frequently represent plaintiffs against powerful companies. Once they negotiate a contract with the law firm that will undertake the case, the contract can be presented to the bankruptcy judge for approval. 

            Of course, the firm chosen for the task must possess entrepreneurial spirit and courage, as big third-party defendants such as B of A and Citi will have excellent counsel who are highly motivated by their substantial hourly fees. But such is the case in major, contingent fee business litigation. 

            In the end, it should be a win-win for everyone. Enough money may be generated to pay back all or part of what is due the unsecured creditors. Counsel for the debtor and the creditors will be heroes. The Court will be happy. The contingency fee lawyers, who get paid if they win, will be happy. The only unhappy people will be the third-party defendants who pay. 

            If the right lawyer agrees to take the case, it’s a no-brainer for the debtor and creditors!

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            When excellent lawyers leave big firms to become entrepreneurial contingent fee trial lawyers, they inevitably run into the “CYA effect.” This is the unfortunate tendency of many fearful General Counsel and corporate executives to hide behind a large, well-known firm in the event a case goes bad.   Such was the experience of Elizabeth Starrs and her partners described in “Starting a Litigation Boutique.” 

            How ridiculous!   It is frequently only the best lawyers who have the courage to strike out on their own. This may leave the bureaucrats and timid folk to handle these risky and important corporate cases.   The big firms tend to hire high-grade law graduates at high dollar prices. To justify their salaries, they charge high hourly fees for the tutoring of neophytes. A corporate client looks at the bill and sees many lawyers, of unknown experience and abilities, charging outrageous fees for too many hours and unnecessary work– all because the corporate employees who hired the large firm want to cover their derrieres. 

            Starrs found that this corporate tendency led her firm toward representing privately owned and cost conscious companies and individuals. We have had the same experience, and it has been most gratifying. We listen. We solve problems. We have incentive to be cost efficient. Our ability to be profitable requires us to find the most efficient path to the goal line. 

            Since “turning from the dark side,” we and lawyers like us now represent David instead of Goliath. This occurs in virtually all forms of business cases, including patent litigation, breach of contract cases and complicated arbitrations. Of course, the “CYA” folks could repent! They could easily find the best, most efficient, trial lawyers, not just the largest firms and motivated hourly billers. Will they? I doubt it.

            The best business people often leave large, cumbersome companies to go on their own. This is the era of the entrepreneur, in business and in law. General Counsel and corporate executives should have courage in seeking out the best lawyers for their case. After all, they were hired to do a job, not hide in the corner.

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              In the Wall Street Journal’s Law Blog dated March 29, 2010, Ashby Jones asks whether there are any takers on the strategy of mixing a traditional hourly fee practice with a contingent-fee business. 

Most firms do not take plaintiff's contingency fee cases because they are risk averse. They lack the entrepreneurial spirit. I've seen it time after time. Many lawyers on the hourly side think it is easy to make loads of money during contingent litigation. It is not. It requires huge investments of lawyer time and borrowed expense money. For the same reasons that some people work for corporations and other are entrepreneurs, some lawyers and firms are cut out for hourly work and others are willing to risk everything. No risk, no reward. 

            For a lawyer to be successful with a contingent fee case, three things are necessary.  First, there must be a reasonably good case for liability. Second, there must be significant damages. Third, the defendant must be able to pay a judgment.

            Even if all those things are present, the case must survive inevitable legal challenges by the defense, including motions for summary judgment (to prevent the case from even reaching the jury) and appeals. Years can pass, and millions of dollars in lawyer time and case expenses will be repaid. And after all is said and done, the lawyer might lose and have to pay back a line of credit. It is not a business for the weak or fearful.

            Many of our contingent fee clients are true entrepreneurs. Even if they are doing business as a corporation, they are risk-takers. They appreciate that their lawyers have their own “skin in the game.” Businessmen and lawyers who will not take risks need not apply! 

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             All too often, legal fees eclipse the amount in dispute in the lawsuit.  Why is this?  Typically, the culprit is hourly billing.

            I recently saw an editorial in the Houston Chronicle entitled “It’s time to reconsider how lawyers are trained.”  It is written by James Parsons, a staff attorney with one of the Texas Civil District Courts in Houston. 

            Parsons correctly notes that too often the legal process begins by billing rather than problem solving.  I see it in my practice all the time.  The plaintiff’s lawyer, on a contingency fee, has an incentive in getting to the goal line as quickly, efficiently and inexpensively as possible.  The defense attorney, if billing by the hour, wants to do the opposite.  His incentive is to turn over every rock, scorch the earth, and “defend” every issue possible.  If it can be done, it must be done.  After all, he gets paid for every hour worked, not by the result he obtains.

            Why not just solve the problem?  Communicate.  Listen to the other side’s point of view.  As Parsons suggests, employ the skills of teamwork, communication and leadership.   Good defense lawyers should not ask “how can this case be defended.”  Rather, they should ask “how can this plaintiff’s problem be solved.”

            Sometimes the problem can be solved with a simple apology.  Other times a business deal will do the trick.  If it’s more complicated, however, and litigation or dispute resolution is necessary, then try to identify the points where the parties agree and just fight about the rest. 

            Agree on as many facts as possible.  Narrow the issues down to the real dispute.  Conduct only the minimum necessary discovery.  Get an early trial setting and let the decider decide.   Don’t focus on how to obfuscate, obliterate and litigate.  Instead, focus on communication, understanding and resolving.

            The contingent fee lawyer wants to do that.  Clients would be happier if hourly billing lawyers did the same.

http://www.chron.com/disp/story.mpl/editorial/outlook/6928793.html.

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        The recent case Ferguson v. Strutton involved claims for the partition of several pieces of real estate.  The client retained her attorney through a contingency fee contract which entitled the attorney to “thirty-three and one third percent of whatever may be recovered, whether in money or property, or whether recovered through suit or compromise.” 

         The client settled her case and received 338 acres of the land.  She originally offered her attorney a specific parcel of property as his fee, but then changed her mind and gave him nothing.  He sued and was awarded $135,804.06, an amount equal to one-third of the appraised value of the 338 acres. 

        The Missouri court of appeals reviewing the case reversed the award for money.  It held the fee contract expressly provided the attorney one-third of whatever was recovered and, because the client’s recovery was real estate, the attorney’s fee was therefore “an undivided one-third interest in the property recovered by the client as a result of the settlement of the partition suit.” 

        Every person who wants to hire an attorney should know that the amount and method of the attorney’s payment is negotiable.  The attorney and client in the Ferguson case agreed that the attorney would receive one-third of whatever the client received.  In this case, it happened to be real estate.

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