Forbes.com has a good article on the business of big law firms and the pressure on firms to change the way that they do business. According to the article, the global economic crisis is accelerating trends that will alter the structure of law firms and the way that they do business. The article covers a lot of ground including the importance of “leverage” to law firm profitability, firm management and the expected trend away from the billable hour. Here are some of my favorite passages:

Law firms refer to the ratio of partners to associates as “leverage.” In good times, the arrangement produces strong profits, but when revenues fall, highly leveraged firms can find it particularly difficult to sustain all those associates. As a result, if revenues at a law firm decline 10%, profits can fall 30%

“Most large firms are leveraged up for big deals. With no big deals coming through the door, there’s not a lot of work for associates so firms have to [cut] employees. There’s definitely going to be a sea change in the law industry as a result of the credit crisis.”

Beyond staffing, Borghese says firms face pressure from clients to move away from a payment model based on hourly rates. “Billable hours will always be here, but you will see more of a movement toward retainers and fixed fees.”

Susan Hackett, general counsel of the ACC, says the new approach to value is necessary because law firms had become so expensive that their fees often outstripped the value of the problem they were brought in to resolve. “You can have many lawyers and paralegals all billing on a matter worth $50,000 of exposure adding up to a grand total of $250,000. That’s crazy.”

In many firms, he notes, the highest fee-producing lawyer is viewed as a good lawyer and is automatically chosen to run the practice group, whether or not he or she is an effective manager.

One thing that the article gets wrong is its suggestion that clients always want alternative billing and lawyers always resist by demanding hourly billing. There have been several instances where I have proposed flat fees to corporate or insurance clients. In each instance the client rejected the concept and we stuck to hourly billing. I have yet to see in-house counsel embrace alternative billing in my practice.

Back on March 9 I had a post about the Eaton v. Frisby case and called it a mess worth watching. Hinds County Circuit Court Judge Swan Yerger made watching the case harder last Thursday by closing the courtroom to the press and public. In doing so, Judge Yerger apparently disregarded state Supreme Court rules for closing a court from the public. Jimmy Gates from the Clarion-Ledger objected, but was thrown out. The apparent justification for closing the courtroom was:

Yerger said attorneys for both sides agreed it should be closed to the media and the public.

On Sunday the Clarion-Ledger’s Ronnie Agnew wrote a scathing criticism of Judge Yerger’s decision:

How can the public have confidence in the judicial system when shenanigans that took place Thursday continue to occur, when people in charge of upholding the law conveniently ignore what the law states?

The events of Thursday represent a travesty of justice and Senior Judge Swan Yerger, no newcomer to the bench, ought to know the law better than with the judgment he showed that day. Yerger is hearing a $1 billion theft of trade lawsuit where officials at Eaton Aerospace contend five employees revealed trade secrets when they went to work for a North Carolina competitor.

While I’m not going to go so far as to call it a travesty of justice, Mr. Agnew has a point. The Eaton v. Frisby case is probably the biggest case pending in Hinds County, perhaps in the whole state. The parties are litigating the case at the expense of the taxpayers, who fund the judicial system. If Eaton and Frisby are not comfortable airing their dispute in public, then they should agree to a private arbitration where they pay the decision maker and can set whatever ground rules they want. There are strong public policy reasons favoring open courts, and parties should not be able to disregard those policies and close a court by agreement.

There were two more intervenors on Wednesday in the Colson-Wachovia interpleader action. Seashore Development Group, LLC filed a motion and attached a proposed cross-claim that seeks $428,429.25 of the funds that Wachovia froze and interpleaded into the court. Seashore has a condominium development in Biloxi. Colson’s companies held escrow deposits and closing settlement funds for the development that were held in Wachovia bank accounts.

Sandion LTD, d/b/a Coldwell Banker also filed a motion and proposed cross-claim .Coldwell Banker claims that the frozen Wachovia accounts hold a substantial amount of earnest monies belonging to its clients and that it has been unable to close many sales. For some unexplained reason, Coldwell Banker did not identify the amount of its claim or even the number of affected transactions.

With $1.5 million interpleaded by Wachovia the filed claims to date are:

1. Lawyers Title: $10 million
2. Adams Homes: $624,000
3. Seashore: $428,000
4. Coldwell: $??????

There are over $11 million in claims to date with only $1.5 million to satisfy those claims. There could also be additional claims filed in the future. The two prominent questions at this point are:

1. How much money is missing; and
2. Where did it all go?

There will be a lot of attorneys and forensic accountants trying to get answers to those questions on behalf of many clients. It will also be interesting to see when the claimants start turning on each other and Wachovia in this case or separate actions.

For additional information on this developing case click here.

Kingfish at the Jackson Jambalaya blog has an update on the Steve Colson fraud scandal.

One question is how many victims will there be? I received a not so nice email from one of the victims that stated that there are 250 people “going through this.”

Kingfish found this Mobile Press article from early March. I’m surprised by the limited amount of press attention that this story has received thus far. This appears to be a major scandal involving a lawyer, the mortgage industry and LSU football players who may have been investors in some of Colson’s companies.

Denada Investments, LLC moved to intervene in the Colson-Wachovia interpleader action on Monday. Here is Denada’s proposed answer and cross-claim. Denada’s claim of $530,000 is based on a 2007 one page promissory note that Colson personally guaranteed. It appears that the entire principal may still be due, but it’s unclear. Denada alleges that Colson defaulted in November 2008. Denada is represented by Clarence Webster and Will ‘Deuce’ Manuel of Bradley Arant out of Jackson.

With $1.5 million interpleaded by Wachovia the filed claims to date are:

1. Lawyers Title: $10 million
2. Adams Homes: $624,000
3. Seashore: $428,000
4. Coldwell Banker: unspecified
5. Denada Invest.: $530,000

There are now over $11.5 million in claims to date with only $1.5 million to satisfy those claims.

Stephen Colson filed a response opposing Denada Investment’s Motion to Intevenve in the Wachovia-Colson interpleader case. Colson’s position is that the Denada promissory note is a separate transaction that is unrelated to the subject of the interpleader action. In addition, the response points out that only about $150.00 of the interpleaded funds were in Colson’s personal accounts or his law firm’s accounts. Most of the funds were in various Prestige Title accounts, including trust accounts.

Colson’s response appears valid and I expect Judge Ozerden to deny Denada’s motion to intervene. Look for Denada to file a separate action against Colson in the near future.

Overall, things have been fairly quite in the two Colson cases currently pending in federal court. In the Lawyer’s Title case the parties are conducting written discovery and Judge Ozerden scheduled a hearing on a motion for preliminary injunction for July. There is a motion pending to consolidate the two cases, which if granted will make following the litigation easier.

The two big shoes that have yet to drop are a criminal indictment and a bankruptcy filing. I think we’ll see both before this is over. I’m hearing from Coast contacts that Colson is telling people that he is innocent and will be vindicated. I hope so. Colson has a reputation as being a nice guy and many people would like to see this work out for him.

On Thursday the Mississippi Supreme Court affirmed two jury verdicts.

The first was Young v. Guild, which was a medical malpractice case against a psychiatrist. The plaintiff alleged that the defendant was negligent in failing to prevent the suicide of one of his patients. In 2004 a jury in the Circuit Court of Yazoo County rendered a defense verdict at the end of a three day trial. Defense counsel was Whit Johnson and plaintiff’s counsel was Ronald Kirk. The Court affirmed the judgment with Justice Chandler authoring the majority opinion joined by Justices Carlson, Randolph, Kitchens and Pierce. Justice Graves concurred in the result only and Justice Lamar dissented in an opinion joined by Justice Dickinson.

The appeal issues involved jury instructions, apportionment and the admission of evidence. The Court found that the plaintiff waived apportionment by not raising it in an interrogatory response, that the jury instructions were proper and that the trial court did not abuse its discretion in the evidentiary rulings. The dissent argued that the trial court’s jury instructions did not properly set forth plaintiff’s theory of the case. It’s pretty rare for me to believe that jury instructions materially altered the outcome of a trial, so I am putting this case in the category of “move along folks, there’s not much to see here.” It looks like the defendant won fair and square.

The second case was Horseshoe Casino v. Mitchell, which was a casino slip and fall case that resulted in a January 2008 jury verdict and judgment for the plaintiff in the amount of $56,000 in the Circuit Court of Tunica County. Unaccustomed to losing, the casino appealed. To me, if you are going to appeal a $56,000 jury verdict you should be real sure that there was error, since the attorney’s fees and expenses in connection with the appeal will be significant. There is a reason that appeals courts aren’t deciding many appeals from county court.

The main issue on appeal was whether the trial court properly excluded evidence of a collateral source. The Court found that there is a narrow impeachment exception to the collateral source rule, but the trial court correctly did not apply the exception in this case. Justice Randolph wrote the Court’s majority opinion. Justice Dickinson wrote a concurring opinion. Justice Kitchens wrote a dissent joined by Justice Waller that argued that there should be no exceptions to the collateral source rule. The main take away from this case is that unlike on the casino floor, the casino can actually lose at the courthouse.

On Thursday the Mississippi Supreme Court affirmed a $6,925,000 judgment against Franklin Corporation, which is a furniture manufacturer. $5 million of the verdict was for punitive damages. Here is the opinion and the Clarion-Ledger article reporting the decision. The initial Ledger article incorrectly states that the judgment was for $3.76 million. Justice Randolph wrote for the Court, with Justices Graves and Dickinson writing concurring opinions. There was no dissent.

The Circuit Court of Calhoun County (Judge Howorth) rendered the judgment in July 2007. The jury’s verdict was $9.5 million and the trial court reduced the amount to $6.925 million before entering the judgment. The four plaintiffs alleged that they suffered injuries as a result of Franklin’s use of a hazardous glue in its facility and failure to adequately ventilate the facility.

The bulk of the Court’s opinion on appeal dealt with the issue of whether Franklin could be liable outside the workers’ comp. act under the intentional tort exception. The Court sided with the trial court’s determination that there was a fact question for the jury on the claims of battery and intentional infliction of emotional distress. If the Court had found that workers’ comp. was the exclusive remedy, the plaintiffs would not have been able to recover anything in circuit court.

This will be a controversial decison. Employers are going to hate the decision, since most would have assumed that workers’ comp. would have been the exclusive remedy for the employees. The Supreme Court’s response to that probably would be that they were just applying Mississippi statutory law and that it is the legislature’s job to change the law.

Last week the Mississippi Court of Appeals affirmed a $2.1 million verdict against Goodyear Tire and Rubber Company in a defective tire case in Copiah County. The Associated Press later botched its analysis of the Court’s decision.

This week a unanimous Court of Appeals affirmed a 2005 Washington County jury verdict in favor of Goodyear in Oliver v. Goodyear Tire and Rubber Co. Judge Lee wrote the Court’s opinion. Goodyear’s defense counsel was a team of lawyers from Watkins & Eager that included David Ayers and Jimmy Wilkins.

The facts of the two cases were similar in some respects. In both cases the vehicle was speeding when a tire burst, leading to an accident where the un-belted driver was thrown from the vehicle and died. But that is where the similarities end. In the Copiah County case, the tire was new and had been properly maintained and serviced, including a few days before the accident. In the Washington County case, there was “considerable testimony at trial” that the decedent failed to properly maintain the tire. These differences apparently made a big difference in the trial court verdicts.

In the Washington County case the jury disagreed on whether the tire was defective, but unanimously agreed that a defective tire was not the proximate cause of the accident. The Court of Appeals can make a compelling argument that it is fair to everyone when it affirms a verdict against Goodyear one week and affirms a verdict for Goodyear the next week. Notice that as in the decision last week, the Court did not agree or disagree with the jury. Instead, the Court evaluated whether there was reversible error and determined that there was not. It will be interesting to see if this decision gets any press, since defense verdicts and appellate decisions affirming defense verdicts typically receive less press that plaintiff’s verdicts.

On Tuesday the Mississippi Court of Appeals affirmed a $2.1 million Copiah County Circuit Court jury verdict in favor of three plaintiffs against Goodyear Tire and Rubber Company. Judge Forrest Johnson presided over the trial because Judge Lamar Pickard recused himself from the case. Judge King wrote the majority opinion, which was fifty-six pages long. Judges Griffis and Barnes dissented without an opinion and Judge Carlton wrote an opinion concurring in result only. It looks like plaintiff’s lead counsel at trial was Mike Allred and Goodyear’s was Michael Baxter of Copeland Cook.

The case involved a car crash that killed one young man and injured two others. The driver was intoxicated and the car was traveling at between 88-92 mph when a back rear tire failed and the car crashed. It was undisputed that there was a tire failure. Plaintiff argued that there was a breach of warranty because the tire should have been safe up to 112 mph, but fell apart because of the car’s speed. Goodyear argued that the tire hit an object that caused the failure and that the driver could have averted the crash if he had been sober.

The Court rejected all eight of Goodyear’s appeal issues, which covered the water front. One interesting point was that the trial judge granted more than one form of the verdict instruction. One was a general verdict form and another was for apportionment of fault to the driver. The jury returned its verdict in general form with no allocation of fault. It makes sense to have more than one form of the verdict form for that situation, but I have always thought in terms of there having to be only one form of the verdict instruction and cannot recall having a trial with more than one.

Another interesting issue involved a jury instruction that Goodyear objected to, but the Court found that the objection was not specific enough and was therefore waived.

It will not be surprising to see the Supreme Court take this case given the size of the verdict and numerous issues. If so, Justice Kitchens will not participate, since he was one of the plaintiffs’ attorneys.