Why Big Firms Don't Work
As set forth in detail on our Philosophy page, a traditional, large law firm is by definition in a conflict of interest with its own clients. But this conflict is exacerbated by the counter-productive tactics in which large law firms seemingly feel compelled to engage.
This page is a work in progress. We will be using this page to gather together "war stories" about the tactics used by large firms, and the price that their clients pay as a result. Here are just a few of the stories we have gathered so far:
"Use your opponent's weight against him, Grasshopper."
Some companies don’t care that their law firms charge astronomical fees billing hundreds of hour on a case. Often, with no real defense, an unscrupulous company’s only strategy is to try and wear the plaintiff down with legal fees, hoping to extract a reduced settlement amount or get rid of the case altogether. The company views the high fees as a good thing, assuming that the other side must be incurring similar fees responding to all the pointless litigation tactics.
But often that is a false assumption. We simply
leverage the activities of the big firm back
against them. If they try to bury our client in
discovery, we make them justify every discovery
request to the court and pay us for our time. If
they bring frivolous motions, we have them
So it was in this case, but it was especially bad for the opposition because it was an individual who was trying to employ the big firm tactic. The plaintiff and the defendant, our client, had been in business together, but our client had decided to quit the business and go off and start his own company. There would have been little or no competition between the two businesses, but plaintiff had been a silent partner who knew nothing about the operation of the business, and he knew that if our client went off and started his own business, the original business would fail under plaintiff’s management. The entire point of the case was to keep our client from starting his own company and make him return to the original business. To that end, plaintiff, backed by a very big firm, was making outrageous claims about trade secrets and unlawful competition.
Like Agent Smith, they were a flurry of activity, but they couldn’t get anything to stick. They played discovery games, we had then sanctioned. They spent untold hours on an application for an injunction to keep us from using their super secret manufacturing techniques, and we simply stipulated to it since we were not using any proprietary techniques. They then ran to court claiming we were in violation of the stipulated injunction because we were using those super secret techniques, and we easily showed the court that was not true. It was at that point we got to peek at their attorney fees, because they had sought their fees for the unsuccessful contempt motion. Extrapolating from those invoices, we estimate plaintiff spent over $250,000 on the case. Our client’s defense costs were a tiny fraction of that amount.
As is often the case, on the eve of trial, plaintiff’s big firm brought a motion to be relieved as counsel because plaintiff could no longer keep paying the huge fees. The big firm tactic having failed, plaintiff dismissed the case and walked away with nothing except a big legal bill. As expected, plaintiff was unable to run the business and it closed its doors.
Court Rejects $5 Million in Attorney Fees for Unnecessary "Rolls Royce Defense"
When a wealthy shopping mall magnate died, the trustee of the estate hire not one, not two, but THREE law firms to fight a claim over whether he had sold certain assets for less than fair market value. The issues were not particularly complicated, but that didn't stop Loeb & Loeb, Jones Day and Greenberg Traurig from running up $5 million in fees in successfully defending against the claim. Based on that success, the trial court "rubber stamped" the firms' legal fees.
The 4th District Court of Appeal would have none of that. Reversing the fee award, the justices stated that the trustee had embarked on a "spare no expense strategy" by hiring the three firms at once. "Did [the trustee] demand a Rolls Royce defense when a prudent trustee could have arrived at the same destination in a Buick, Chrysler or Taurus?" the court wrote. Understandably, the justices were skeptical about the astronomical fees. "[S]imultaneous representation by multiple law firms posed substantial risks of task padding, over-conferencing, attorney stacking and excessive research," the panel wrote.
Shepard, Mullin reaches "deep outer space" with its over billing.
LOS ANGELES - The law firm of Sheppard Mullin Richter & Hampton was caught yet again, seriously inflating its legal fees. Los Angeles Superior Court Judge John Shook said that Sheppard Mullin was not entitled to the $1 million it billed the City of South Gate on a relatively simple criminal defense matter.
"The court finds that the fees charged the City by Sheppard Mullin were more than excessive and unreasonable transcending beyond the stratosphere into deep outer space," Shook said in a highly critical 18-page ruling. Shook said Sheppard Mullin engaged in "unreasonable and unnecessary measures" to defend the case. The judge concluded that Sheppard Mullin overstaffed the case with inexperienced attorneys, pursued misguided litigation strategies and sent South Gate confusing and redacted legal bills.
What Part of "Without Cause" Don't You Understand?
An attorney reported to us that he recently attended a judges conference, where he learned that the motion most despised by judges is the demurrer. A demurrer is a motion that claims the complaint fails to allege sufficient facts to state a claim, or is unclear. A demurrer is proper when the defendant truly cannot figure why it is being sued.
Judges loathe demurrers because they are almost always a huge waste of time and judicial resources. If a complaint is truly unclear, any confusion can be cleared up through discovery. Even when a demurrer is sustained (granted), all that is accomplished is the plaintiff is told to amend the complaint to allege more facts. Further, a plaintiff may amend the complaint without leave of the court anytime prior to the hearing on the demurrer. Thus, defense counsel will spend thousands of dollars of his client's money preparing and filing a demurrer, only to have the entire exercise rendered moot when plaintiff's counsel files an amended complaint.
Demurrers can be effective if used properly to dispose of the entire case or a particular cause of action that would necessitate additional defense time. But if the complaint can easily be amended to address the purportedly missing allegations, then the demurrer is a waste of time. In my experience, big firms demurrer to complaints about 90% of the time, and I don't recall a single instance where one of these demurrers accomplished anything. In this case, the big firm we were up against brought the typical pointless and somewhat humorous demurrer.
Our client is an Engineer who was hired by a company pursuant to an employment agreement. The agreement provided that if our client was terminated without cause, he would receive a year's wages. The company breached the agreement by terminating our client without cause and failing to pay the severance. We sued for breach of contract.
So, our complaint alleged that plaintiff was terminated without cause, and that the company was therefore required to pay the year's wages. The company demurred, paying thousands in legal fees to argue that it could not possibly determine the basis of the claim from the wording of the complaint. The defendant company claimed we should have somehow alleged additional facts regarding how the termination was without cause.
How can one provide more detail about a how termination was without cause? Maybe if we had used stronger words? "Plaintiff was absolutely, positively fired without cause." Or perhaps, "Plaintiff was really, really, really fired without cause, and that's no lie."
We wish we could credit the victory to our attorney's brilliant oral advocacy, but in overruling the demurrer, the court did not even invite argument. The court said the complaint was fine and ordered the defendant to answer. But the good news from the defense firm's perspective is that the defense attorney that prepared the demurrer billed probably 20 hours toward his annual billing requirement of 2400 hours. If he files pointless demurrers to 20 complaints over the course of a year, he'll have covered one-sixth of his billing requirement.
Let's make it a nice round number, say, $100,000 per day.
NEW YORK - Among large firms, Sheppard Mullin Richter & Hampton is certainly not alone with its sharp pencil billing. A $100,000-a-day fee application by Dewey & LeBeouf for receivership work is excessive, according to a federal judge in New York City.
The law firm was appointed as receiver to safeguard the trust’s assets after the Securities and Exchange Commission sued, claiming the trust was operating as a Ponzi scheme that targeted the Orthodox Jewish community. U.S. District Judge Denny Chin said Dewey had overstaffed and overworked the case.
The fee request is “excessive in the context of a securities receivership where hundreds of victims of fraud have suffered substantial losses,” Chin wrote in a Dec. 30, 2008 opinion. Chin’s ruling came after he raised questions about the firm’s billing rates, which were as high as $950 an hour for some partners, $605 an hour for some associates, and $285 an hour for summer associates.
So much for professional courtesy.
The counter-productive, poor attitude of big-firm lawyers was beautifully illustrated by a voicemail message that has made its way around the Internet. In the voicemail*, Winston & Strawn associate Ankur Gupta (see photo) criticizes opposing counsel concerning proposed changes to a joint document prepared in a real estate deal. In the message, he states: "If you send one more f---ing e-mail message again, I can assure you your life on this deal is going to be very unpleasant . . . . Whether you consider it material or not, again, I don't give a flying f---. Make the f---ing change." (* Be aware that the voicemail is much fouler than what we have quoted here, so listen at your own risk.) Of course, the firm was so outraged by his conduct that it made him a partner.
"A culture of gamesmanship and flagrant disregard to the court's orders."
You can only push a judge so far. After witnessing law firm Gibson, Dunn & Crutcher engage in what he described as a "culture" of "obstruction, gamesmanship and flagrant disregard to this court's orders," U.S. Magistrate Lawrence O'Neill fined the firm $102,078.97 for unprofessional conduct and abuse of the discovery process. GD&C represents a company called EnCana, which is being sued by Gallo Winery for fixing the price of natural gas. Judge O'Neill held the firm fully responsible for the misconduct and ordered GD&C to pay the sanctions, not EnCana.
At about the same time a judge in Orange County Superior Court was also hammering GD&C for its discovery tactics. Judge Geoffrey T. Glass (one of our favorite judges since his ruling in Pallorium, Inc. v. Jared) held that GD&C client KPMG had "deliberately or recklessly withheld or delayed in producing many responsive documents in order to gain an unfair advantage." While KPMG was sanctioned only $30,000 -- a mere pittance compared to EnCana case -- the far heftier price will come at the time of trial. Judge Glass will instruct the jury about KPMG's failure to produce documents and instruct the jurors that they can consider those actions when deciding the lawsuit. Cheryl D. Justice (see photo) was the GD&C partner assigned to the KPMG case.
By all means an attorney should vigorously advocate his client's position. But some firms never learn that you aren't doing your client any favors if you insist on fighting about everything. This story illustrates the folly of pointless fights, and shows why litigation can get so expensive.Why settle for $650 an hour when you can also overcharge for the costs?
After more than 20 years I can’t believe this sort of thing is still going on.
On-line legal research offered by Lexis and Westlaw used to be very expensive. These services charged by the hour and according to the database being used. Printing out what the research revealed was also expensive, with the services charging by the line. An intensive research session for a major motion could cost thousands of dollars.
The profits being realized by the research services were so high that at the first mega-firm I worked for they offered a free trip to Hawaii to the attorney at the firm that spent the most time using the service. The firm gladly passed along word of the contest and the associates obliged by signing on and staying on for days at a time. Only after I pointed out the conflict of interest in such an arrangement did the firm cancel the contest.
Flash forward a few years and the competition between LexisNexis and Westlaw – the two major services – became intense. They both began offering flat fee arrangements for law firms. For around $300 per month, an attorney can perform unlimited searches in specified databases and print to his heart’s content at no additional charge. But in a throwback to the earlier times, the services continued providing invoices that showed the charges under the old hourly system. The attorney would pay just $300 for the month, but the invoices would reflect, say, $8,000 in search fees, perhaps to make the attorney appreciate the incredible deal he was getting.
This proved too tempting for many large firms. Ignoring the actual cost, big firms continued to bill their clients at the rates reflected in the invoices, turning legal research into huge profit centers. Any other business would recognize that as highly unethical – like a contractor charging a home builder hugely inflated prices for materials – but the big firms just saw it as another in a long line of fictional charges, like billing for faxes.
Apparently the practice has not abated. In an action filed in Los Angeles Superior Court, the firm of Chadbourne & Parke is alleged to have engaged in this practice. According to court records, the firm’s client was billed $108,000 for the law firm's services, of which roughly $20,000 was for legal research fees. At the rate my firm pays for legal research services, it would take nine years to incur those fees.
Speaking of expensive, a Cincinnati law firm, working with a San Diego firm, spent nearly three times the amount defending an action compared to what we spent prosecuting the action. Our client was seeking $550,000 in actual damages, and defense counsel billed their clients $350,000 to unsuccessfully defend the case. At this point, one would expect them to reassess the wisdom of the defense and possibly talk settlement. Not so. They went right on bringing unsuccessful motions. In fact, despite the scathing loss, they brought a motion for attorney fees claiming that defendants were somehow the prevailing party. You can imagine how well they did with that motion.
Read how a large Los Angeles firm spent almost $2,000 of its client's money in order to recover $23.
Having learned nothing from the above $2,000 hissy-fit, the same firm billed its client an estimated $10,000 to bring a motion for summary judgment. They argued (unsuccessfully) that based on nothing but the opinions of their own clients and witnesses, the case could be decided without a trial.
When opposing counsel served unintelligible interrogatories, we offered to answer them within the week if he would just put the questions in proper form. Silly us. Why would he spend 30 minutes rewording the questions so that he could have the answers in a week when he could instead bill the client some $5,000 for a motion to compel and get the answers in two months?
There were two defendants in the action in question, and although one defendant accepted service and answered the complaint, the other defendant challenged the service as improper. The plaintiff's attorney could have simply served the complaint on the recalcitrant defendant, but chose instead to fight the issue month after month after month.
What to do when there is no basis to recover attorney fees? According to Sheppard Mullin, you bring a motion anyway, failing to offer any competent support for the motion.
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