Legal 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.