GENCO MEMO-6/24/24: Don't Make This Big Mistake When Conducting Lawfare.
The biggest mistake I see clients make is failing to appreciate the underlying cost of litigation. Here's how not to make that mistake.
Did you know that when you enter a courtroom, it's like you're stepping onto a battlefield?
Don't believe me?
In my early 20s, I spent time at a trial lawyer training camp in the California mountains with Gerry Spence.
He made clear that trial work is war and that we were warriors fighting for others.
Here's how he later put it in his book,
"IT'S WAR OUT THERE-plain and simple war....
The history of man is the history of war. In the first trials, trial by duel, the winner supposedly occupied the side of right since the winner was said to have been chosen by divine powers. Such trials by physical combat were a means to settle disputes between the king's subjects short of war. And the place where these domestic conflicts were settled was a room set aside by the king in the king's court called a courtroom.
In the courtroom of old, the contestants fought to submission or death. Each side engaged a champion to fight for them. The king or his lords were able to field the most fearsome mercenaries of all, and those who contested these power-persons rarely prevailed. As civilization advanced, the warriors in the king's court were replaced by advocates for each side. Today, they are known as trial lawyers. But the same historical paradigm is still in place. Trial lawyers fight to submission with words, not swords."
Gerry Spence, Win Your Case: How to Present, Persuade, and Prevail-Every Place, Every Time
And here is a funny clip from a recent movie where Jamie Foxx is making the same point:
So, let's start with that as a first principle:
When you engage in litigation, you are at war.
And in every war, there is a cost beyond the prize.
In other words, there is always the underlying "cost of war."
Let's look to the ancient master Sun Tzu for guidance on this idea:
"CHAPTER 2. WAGING WAR
1. Sun Tzu said: In the operations of war, where there are in the field a thousand swift chariots, as many heavy chariots, and a hundred thousand mail-clad soldiers, with provisions enough to carry them a thousand LI, the expenditure at home and at the front, including entertainment of guests, small items such as glue and paint, and sums spent on chariots and armor, will reach the total of a thousand ounces of silver per day. Such is the cost of raising an army of 100,000 men."
What's the point: Here, Sun Tzu illustrates the cost of war by listing what must be paid for while fighting.
Let's look at another section,
"CHAPTER 13. THE USE OF SPIES
1. Sun Tzu said: Raising a host of a hundred thousand men and marching them great distances entails heavy loss on the people and a drain on the resources of the State. The daily expenditure will amount to a thousand ounces of silver. There will be commotion at home and abroad, and men will drop down exhausted on the highways. As many as seven hundred thousand families will be impeded in their labor."
What's the point: Sun Tzu explains that the cost of war will drain resources in people, money, and energy.
(The quoted text is from THE ART OF WAR BY SUN TZU, Translated by Lionel Giles, Originally published 1910.)
Ok, understood.
Now, I'm not saying we should always avoid these costs.
Sometimes, it's unavoidable; other times, it's worth it.
Here's one of my favorite scenes in the show Billions exemplifying “crazy eyes.”
From a practical standpoint, there will be instances where:
You decide to attack because you stand to gain more than you will risk, or
You are attacked and have to calculate the costs when weighing your options.
The takeaway is that, as a good leader, you need to understand war costs money.
And attorney’s fees is a big part of those costs.
Remember to elevate up to a larger perspective. As Clausewitz said,
"War is a continuation of policy by other means."
You or your company will have a policy or aim, and using the courts is just another means of fulfilling it.
In the end, swap out those chariots for legal briefs and those soldiers for lawyers, and you've got a pretty accurate picture of modern litigation.
The battlefield might look different, but the costs and consequences are just as real and damaging.
Ok, now I think that gives us a good foundational understanding.
My goal today is to give you an appreciation of this underlying cost and add it to your mental spreadsheet (or literal spreadsheet) when weighing your options.
And I want to give you a framework for systematically measuring the costs so it's grounded in reality–as much as it can be considering the unpredictability of war.
Hopefully, you'll also learn to spot those instances where the costs don't outweigh the benefits, allowing you to consider alternative strategies or options.
Let's get started.
Know Your Battlefield: Understanding Reasonable Fees
Now imagine you have been sued and sitting with me.
In front of you are several pages detailing the projected fees and costs of defending you.
It lists the various filings, motions, and depositions expected over the next year or two.
You get to the last page and see the total. And yes, it's a big number.
Your eyes bulge.
You look back at me.
And I don't flinch.
This scene plays out weekly.
There's not much I can do about the costs.
The questions racing through your mind are:
Are these fees fair?
How do I know if I'm getting a good deal or being taken for a ride?
To answer those questions, let's consider three significant factors:
Complexity is key: Is your case as tricky as a Rubik's cube or as simple as a game of tic-tac-toe? The more complex, the higher the fee.
Time is money: If your lawyer works round the clock on your case or is rushed to respond to an urgent situation, expect to pay more. But remember, exclusivity of a lawyer's time and attention comes at a premium.
Location, location, location: Fees can vary wildly depending on your location. A small-town lawyer might charge less than a big-city player. In one case I'm involved in, local lawyers are charging $400 an hour while the out-of-town New York lawyers are charging $1,500 an hour.
There are some other factors to weigh:
The American Bar Association's Model Rules of Professional Conduct, Section 1.5, lays out eight factors to determine if a fee is reasonable.
In a nutshell, the Rules state that lawyers must not agree to, charge, or collect unreasonably high fees, nor can they charge unreasonable amounts for expenses. To help decide what qualifies as "reasonable," eight main factors are spelled out in the rules.
Complexity of the Case. The rule first looks at how complex the legal issue is, including the amount of time, labor, skills, and the uniqueness of the situation. For instance, a lawyer handling a complicated federal white-collar anti-trust case would need a high level of expertise and might charge more than a lawyer handling a simple DWI in a state court.
Exclusivity of Representation. If taking on a case means the lawyer can't represent other clients — which might happen in high-profile or high-stakes cases — then the lawyer will probably charge more. For example, a lawyer representing a defendant in a politically charged and controversial case might charge more because this case could dominate their time and potentially deter other clients.
Standard Fees in the Area. The usual charges for similar legal services in the region are a consideration. If most lawyers in an area charge a $400.00 an hour rate, it might be unreasonable for a lawyer to bill $1,000.00 an hour without good reason.
Outcome and Amount at Stake. The results achieved, or the value of what's fought over can also matter. A lawyer involved in a sizeable financial dispute might reasonably charge more than one who handles a dispute over a relatively minor sum.
Time Constraints. Suppose a client needs something done quickly (like responding to a temporary restraining order), which puts the lawyer under tight deadlines or working overnight or during weekends. In that case, the lawyer will probably charge a higher fee than a standard lawsuit.
Length and Nature of Professional Relationship. The history between a lawyer and a client also plays a role. A lawyer might not reasonably increase their rates suddenly if they've been charging the same long-term client a steady rate for years, and that is what the client has been accustomed to.
Lawyer's Expertise and Reputation. A lawyer's experience level and reputation in the legal community can also support higher fees. For example, a well-known criminal defense lawyer with a history of high-profile wins will expect to get paid more than a less experienced lawyer fresh out of law school.
Type of Fee Agreement. Whether the fee is fixed or contingent (based on winning the case) can affect reasonableness. A contingent fee might be higher depending on what stage the case is in and how much the lawyer is expected to spend. For example, many contingent fee contracts have a stepped increase in percentage, and the case progresses.
It's important to remember that while these eight factors assess reasonableness, they aren't the only considerations, and they might not all apply in every situation.
Plan Your Attack: Agreeing on Fees and Scope Upfront
Now, you've probably heard the saying, "Fail to plan, plan to fail."
Well, it's never been truer than when it comes to legal fees.
A little planning and clarity upfront can avoid a mess or problems later.
Here are a few essential practices that will help prevent missteps:
Get it in writing: Verbal agreements are about as good as a pot to...well, you know the rest. Just remember, always get your fee agreement in writing.
Contingent fees need extra care: If your lawyer's fee depends on winning the case, make sure every detail is spelled out in black and white. For example:
What is the lawyer's percentage, and is it calculated from the total recovery before or after deducting expenses?
Will the lawyer cover costs like court fees, medical expenses, third-party support services, and expert fees?
Is the lawyer adding internal costs like copy, travel, and other affiliated services that they will deduct from a recovery later? If so, how are these costs being charged?
If the case is unsuccessful, will you be responsible for any costs incurred or authorized by the lawyer during litigation?
Will you be provided a recovery breakdown document showing the net recovery after fees and expenses that you get before you agree to a settlement.
As a side note, there are also specific situations where lawyers are not allowed to work on a contingent fee basis:
Family Law Cases. Lawyers can't use contingent fees in cases like divorce or child custody. The reason is to prevent financial motivations from influencing the outcomes of such personal and sensitive matters, like the amount of child support or how property is divided.
Criminal Defense. Lawyers are also not allowed to charge contingent fees when defending someone in a criminal case. This rule is in place to avoid any implication that a lawyer's pay could be tied to the outcome of a trial. Such entanglements could lead to unethical practices by the lawyer.
The Main Takeaway: Clarity is king.
Ensure you understand how fees are calculated, what expenses are included, and what might cost extra.
No matter the type of case, the Model Rules are crystal clear on this.
Sharing the Wealth
Sometimes, lawyers share fees because they decide to work together on a case.
For example, a lawyer might be an expert in one area of law but needs help from another lawyer who specializes in another. Like medicine, law is a specialized profession. When cases are complex or entail multiple domains of speciality, lawyers will work together to provide the best representation for their client. They will agree to share the fees they earn from the case as compensation for their combined efforts.
In my case, the last several cases I've tried were cases where I was brought in solely to try the case with the initial lawyer.
How it works:
Within the same firm. Lawyers who work at the same law firm will typically have internal agreements on dividing fees among themselves. This agreement is between the lawyers, and the Model Rules don't set specific requirements for these arrangements.
Between different firms. The rules are more structured when lawyers from different firms work together on a case. In these situations, they can share fees in two main ways:
Proportional to work done: The lawyers might divide the fees based on how much work each one did. For example, if one lawyer does more of the work or handles more complex matters, that lawyer may get more of the fees;
Joint responsibility: The cooperating lawyers can also decide to take equal responsibility for the case, meaning they share the fees equally, regardless of how much work each one does. In this case, both lawyers are equally responsible for the case, ethically and financially, as if they were partners.
To ensure everything is clear and agreed upon by the client, any fee-sharing between lawyers from different firms must be approved in writing by the client.
Weigh the Spoils: Balancing Litigation Costs Against Outcomes
Now, here's where things get interesting.
It's time to put on your strategic thinking hat and ask:
Is this legal battle worth fighting?
Most of the time, when I recommend to settle a case (even if I think we're in the right) is because I have analyzed my client’s real objectives, and the litigation doesn't serve them.
This can be things like our opponent has no money, and we'll never recover our costs or collect a judgment.
Other times, my client is in the wrong and I am looking to reduce their exposure instead of risking a significant money loss in a trial.
Here is the basic framework for thinking this through:
Cost vs. Benefit: Will the potential payout or victory justify the legal fees and other costs?
Time consideration: How long will this battle tie up my client’s time , and when would it be better to focus on other matters?
Reputation damage: What's the potential impact on my client’s business relationships and public image?
Sometimes, the most brilliant move is to resolve the case quickly or find an alternative to litigation.
Remember, litigation is just one tool in service of a larger strategic policy or grand strategy. In other words, the bigger picture of your business or life than what the litigation represents.
Legal warfare isn't just about winning cases–it's about making smart, strategic decisions that benefit you or your business in the long run.
So, the next time you're faced with a potential legal battle, remember Sun Tzu, assess the battlefield, and make a decision that aligns with your overall personal and business strategy.
That is all.
Have a good start to your week.