Mississippi Litigation Review & Commentary : Mississippi Personal Injury Lawyer & Attorney : Phillip W. Thomas Law Firm : MS Litigation Review & Commentary

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Legal Newsline.com reported last week on U.S. Southern Dist. Judge David Bramlette's January 25, 2011 ruling on Illinois Central Railroad's motion for attorney's fees and expenses in its lawsuit against McComb lawyers William Guy and Thomas Brock. Prior posts on that case are here and here.

The title of the article is: “Railroad company losing money on fraud case.” Jackson law firm Forman Perry represented Illinois Central.

Here is Judge Bramlette's thirty page opinion. The opinion looks to have been written with publication in mind, and it will probably be heavily cited in future cases involving attorney's fees and expenses.

The article states:

The company that successfully fought against alleged fraud on the part of two asbestos lawyers is financially in the red on the case.

Illinois Central Railroad decided to sue two Mississippi lawyers who allegedly defrauded the company out of $210,000 in settlements. In doing so, the company racked up nearly $1 million in attorneys fees.

On Jan. 25, U.S. District Judge David Bramlette awarded $547,500 in attorneys fees to Illinois Central, which says it spent $1,075,869.80 in fees, court costs and online research. Illinois Central recovered $588,822.96 in the Jan. 25 order, as well as $420,000 from a jury award last year.

"Illinois Central's 5,731 attorney hours and nearly $1 million in legal fees is extraordinarily high," Bramlette wrote. "First, Illinois Central knew at the outset of this case that its maximum compensatory damages were $210,000.

"Even given the very real possibility of recovering punitive damages, attorneys fees that are nearly five times the maximum compensatory damages recoverable are not reasonable."

Judge Bramlette stated that the requested fees were excessive given the fact that this was a “run-of-the-mill state law case.” The court further found that the bills reflected a failure to exercise “billing judgment” with things like billing for two attorneys to attend one deposition.

Judge Bramlette also cut the costs award from the $58,506 requested to $20,661. There is a good discussion in the opinion about what is properly recoverable as costs in federal court.

My Take:

I didn't find anything unusual about the description of Foreman Perry's bills in the case. Illinois Central is a sophisticated client and had to know when they hired Foreman Perry on an hourly rate that there was a good chance that the railroad would end up underwater in the case. I suspect that the case was about a lot more than the money. Illinois Central probably had a point to make, and I suspect that they made it.

In general though, this does provide a good example of a major difference between the plaintiff side and defense side of a case. On the plaintiff side, when a lawyer bills by the hour the fees can exceed the recovery. There is no danger of that on the defense side. That makes it a lot easier to justify high attorney's fees in a defense case.

Hourly rate defense lawyers sometimes have trouble managing the economics of a plaintiff case. I can think of several examples where defense firm lawyers told be about their fun plaintiff case. When I inquired about the value of the claim, it sounded like it didn't justify the amount of time being put into the case. It sounded like they brought the defense lawyer “leave no stone unturned” mentality to a plaintiff case.

But you can't do that on the plaintiff side. On the plaintiff side, you have to manage your case better than you do on the defense side. You have to always keep the economics of the case in mind. Often, that means that you have to tell the client that the economics don't justify filing the case.

On  the defense side, it's more about justifying each individual billing entry than justifying the entire defense costs. And the defense lawyer can always blame the high bills on the plaintiff's lawyer or the case in general.

The defense lawyer can run up $500,000 in fees and tell the client it's a victory when the case settles for $250,000. They neglect to tell the client that they could have settled for the same $250,000 back when there had only been $10,000 in fees incurred in the case.

For the Illinois Centrals, insurance companies and big corporations of the world, that's on them. Sophisticated users of legal services should be able to figure that out for themselves. But then you start getting into the Dilbert culture of corporate America, which is another story. See my prior post on the Dilbert culture here.    

This case also shows the potential value of a contingency fee contract for a client. The client does not have to worry about attorney's fees exceeding the recovery when there is a contingency contract.

As for the lawyer, trust me on this one: plaintiff lawyers often come out underwater in a case by having substantially more time in a case than they ultimately recover as a fee. And when they lose the case outright, they recover nothing and often have to eat the expenses, which can easily be in the five figures.

I've been on both sides. I like being on the plaintiff side of a case better, but not for the reasons that many defense lawyers suspect. It's not because I make more money with a contingency fee. If someone would guarantee me my hourly rate and a full case load on the plaintiffs side, then I would give up the contingency fee in a heartbeat. Sure I might make more in the contingency fee situation. But I also might lose money or make very little. 

A contingency fee based practice is a huge gamble that many lawyers fail at and wind up heavily in debt. It's a lot like gambling. Don't get me wrong, the defense-hourly rate side of a law practice is also hard and stressful. But it's a lot different. It's a lot harder for a defense lawyer to be real busy all year and lose money.    

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I ask people all the time if they read the Dilbert comic strip. Invariably the answer is no. I love Dilbert. Although the strip is set in a corporate office setting, lawyers who have worked in big firms will get many of the jokes because big firms operate like big corporations. After all, who likes an unproductive meeting more than a big law firm? And don't all big firms have dead weight partners like the pointy hair boss in Dilbert? But Dilbert is not just for defense lawyers. Both plaintiff and defense lawyers can learn something by reading Dilbert. Here is a link to the Dilbert website, where you can review the strips. The strip from Sunday September 6, 2009 is a great example of what I love about Dilbert.

The fact that individuals in big corporations do not want to make decisions is a recurring theme in Dilbert. And it's often true. How many defense lawyers have waited months to get a decision from their client? The bigger the decision, the less one person wants to make it. As a general rule, plaintiff lawyers have no concept that this is how insurance companies and other corporations operate. Plaintiff lawyers assume that the defense lawyer can make one phone call and get a million dollars in settlement authority for a mediation tomorrow. That's not how it works, even in cases with clear liability and large damages.

In big corporations one person does not want to be held accountable for making a big decision--like paying a lot of the company's money to settle the case. They don't want to have to defend the decision when someone up the food chain questions it. In big cases this can lead to a couple of things. First, delay. With delay maybe the case is assigned to someone else or an unlikely defense is spotted. Regardless, for many individuals managing litigation in a big corporation the pros of delay far outweigh the cons.

A second thing that indecision leads to is group think. Many times it takes a meeting to make a big decision. That way, no one person can be held responsible for the decision. Who should participate in the meeting? As many people as possible, since no one who was in the meeting can criticize the decision. But it takes time to schedule the meeting, leading to more delay. Delay and group think are big reasons that trial dates drive settlements. Sometimes everyone on the defense side will know that the company is going to settle the case, but the process has to run its course. With a trial date approaching, the decision can't be delayed any longer.

The fact that defense costs and expenses can reach six figures usually does not outweigh the factors that cause delay. Defense costs are a cost of doing business. They are bills that have to be paid. For corporations with a lot of litigation, one case will not significantly affect the yearly defense costs. One reason for this is that many defense lawyers are going to bill their eight hours every day. If the company settles this case, then the lawyer is just going to work a different file. Corporations don't like to talk about this, but I think they know it.

In contrast to defense costs, a settlement is a voluntary payment to a plaintiff. Settlements do not have to be made. High defense costs can be blamed on the plaintiff lawyer for filing a frivolous case, the defense lawyer for over-billing, or even the judge for making bad rulings. Paying too much to settle a case, however, is more likely to be blamed on the person in the company who made the decision.   

 Ironically, the stars in the corporate world are the employees who are willing to speak out and make big decisions. You would think that all the employees would recognize this fact and act accordingly, but they don't. Most act like scared sheep. In just a few panes, Dilbert captures the essence of these principles.