August 29, 2006
Day: The Economics of Case Acceptance
The key to making a decent living (and maintaining sanity) as a plaintiff's lawyer is knowing when to turn a case down.
Our law firm’s work usually comes from other lawyers. These lawyers often have a conflict or have an inquiry about a case in an area outside their expertise. Most frequently, however, the referring lawyer has a case that will require the investment of either a considerable sum of money or time and the risk of loss of represents too great of a risk for them to handle the case on their own.
We recently turned down a case for one lawyer because we did not think it could be won. He was disappointed--the damages in the potential case are huge and the clients are wonderful people. But I did not think that the case could be won even one out of ten times before a jury. The referring lawyer thought we should be more aggressive, more willing to assume risk. I went off on a gentle rant with him; that rant gave rise to an entry in my blog (www.dayontorts.com) and, now, an expansion of those ideas are set forth in this paper.
As plaintiffs’ lawyers, we are in the risk business. We work for free -- unless we win. We advance the costs -- sometimes hundreds of thousands of dollars in a single case--and don't get it back unless we win. If you are not willing to accept some risk, you need to do something else.
I am not risk-adverse. That being said, I don't play blackjack, I don't shoot craps, and I don't play poker. I am a plaintiffs’ lawyer. Simply put, gambling is my vocation, not my avocation. I like a little more control over the outcome of any event other than the flip of a card or a roll of the dice.
But just like you don't "hit" on 19 and don't "go all in" on a pair of twos, you cannot accept every case with strong damages proof simply because it has the potential for a significant jury verdict. There has to be a reasonable opportunity for a recovery for your client. In other words, you must be able to articulate (at least to yourself) that there is a reasonable belief that a jury will determine that someone did something wrong and caused an injury that a jury will value and will result in a judgment that can be collected. In addition, you must know that the claim is either well-grounded in current law or you have a good shot at making new law. In most cases (the exceptions will be discussed below), the risk of loss must be balanced against the potential recovery and both must be weighed against the investment of time and money as part of the case selection process.
As trial lawyers we have only a few resources available to us to commit to any case. Those resources are: (a) our mind; (b) the minds of those who work with us; (c) our money; (d) our time; and (e) the time of those who work with us. Let’s explore each.
Our mind. Each of us are blessed with a strong mind and ability to learn. There is virtually nothing that we cannot learn if we are willing to dedicate the time to do it and have appropriate resources available to us. Our co-workers have various skills that are hopefully consistent with, and certainly not less than, those required for their particular job, but almost all of them are able to learn and grow within their job provided they are given enough training and time to do so.
Our money. For most of us, money is a more finite resource than our ability to learn. For plaintiffs’ lawyers, money impacts our practice in three ways. First, we spend money on out-of-pocket expenses to prepare a case for trial and to try it. Unfortunately, this is the only aspect of the money equation that many plaintiffs’ lawyers think about and, quite frankly, many of us do not do a very good job at looking at those expenses on the front-end of a case.
Second, there is the cost of paying co-workers and overhead while we prepare the case for trial and try it. This is a cost that some of us have a handle on but, once again, many of us do not spent a lot of time thinking about, much less quantifying it.
You may want to sit down and figure out what it costs to operate your office per hour; in fact, I encourage you to do so. To determine "overhead" include everything but lawyer and paralegal salaries, FICA taxes, benefits, and case expenses. Assume that a lawyer will "bill" 1800 hours and a paralegal will "bill" 1300 hours. (By "bill" I mean the number of productive hours you can get out of each professional, knowing that they have other "nonbillable" responsibilities and that each will take vacations, get sick, etc. These numbers are high-reasonable expectations.) Divide your total hours available for productive work by the professionals in your office into your overhead. The result is what it costs you per hour in pure “overhead” for each "billable" hour. To figure out what each professional employee “costs” you per hour divide the dollar value of each person's salary and benefits by the assumed productive hours for that professional. Then, add that sum to the amount of overhead per hour and you have a good feel what it "costs" to have a given professional work on case per hour.
Scary, isn't it?
The cost per hour depends on a multitude of factors, but most people who do this exercise are surprised what it costs them per hour to give legal service to a client. Hopefully, this information will help you in determining what cases you can afford to accept and, when working by the hour, what your hourly rate must be for to permit you to have a decent rate of return on your investment.
Third, there is “opportunity cost.” Opportunity cost is the loss of income and other things from preparing and trying one case as opposed to another or, even, doing something else entirely. Assuming that we are only willing or able to devote “x” number of hours to professional activities, each hour we spend working on a given case costs us the opportunity to work on another case. To the extent that we work more than “x” hours on professional matters, each hour we work on a case has a cost: less family time, less personal time, etc.
Our time. Our time, and the time of those who work with us, is limited. Our firm keeps track of time in all cases, including contingent fee cases. After almost 25 years of law practice, I have a good idea what it costs in time and money to prepare and try a case the way we prepare and try cases. I know that, other things being equal, it costs more to try a multi-defendant case than it does a single defendant case. I know it takes longer to prepare a multi-defendant case than a single defendant case (in part because of increased scheduling difficulties). I know that preparation of a case in an unfamiliar area of law costs more time and increases the risk over that of a case where I am intimately familiar with the law. I know that cases involving out-of-town experts cost a lot more than cases with local experts, not just for airfare and hotel bills but also because of the time it takes to go back and forth. And, because I have kept track of time for almost 25 years, I have a good shot at coming up with a decent estimate about what it will cost (in money and time) to try a case before I accept representation in that case. (I also know I am an optimist and that my estimates will almost always be low, and I take that into account in determining which cases I accept.)
Therefore, I suggest that the acceptance of any case has to take into consideration the likelihood of recovery, the potential amount of recovery, and the amount of time and money it will take to get there. If you are not thinking about those things, I suggest you start. Know that in the beginning that unless you have historically kept time in contingent cases you will be probably be wrong by at least half -- i.e. your actual investment of time and expenses will be no less than double what you expect on the front end.
Of course, some of this assumes that the people in the office will be fully employed even if the particular case you are evaluating is rejected. If there are people sitting around with absolutely nothing to do it is true that you will be incurring those costs whether or not you accept the case (assuming everyone continues to work with you). But the fear of people not having enough to do is part of the problem. We tend to make our worst case acceptance decisions when we are not “busy.” If the phone hasn’t rung with a good case in a couple days or a week or a month and then a tough liability case comes in with significant damages we tend to jump at it.
This is usually a mistake. I would suggest to you that we make our best case selection decisions when are “busy” and our worst case selections when things are “slow.” (Exception: we make bad decisions when we are busy after we let potential cases sit around too long and then feel forced to file them because of an upcoming statute of limitations.) We must resist the temptation to jump into cases without appropriate reflection during “slow” times. A full file cabinet (or 50 of them) is not necessarily a sign of good things ahead; if we are not careful, it can be a sign of disaster.
Let me hasten to add that I am not trying to turn our profession into a "business." What I am saying is that if we don't manage our time, our expenses and make informed judgments about case acceptance (1) we won't be in our profession too long; or (2) we will stay in our profession but will see an unnecessary increase in our stress level as we try to juggle financial problems that could have been avoided through planning.
Nor am I suggesting that you should only take "easy" cases, that you should not do pro bono work, or that you should not accept what I call "cause" cases (cases that are almost certainly not financially viable but that you believe are cases that need to be brought). If you wait for “easy” cases, you will go broke. And, concerning pro bono or “cause” case decisions, I urge you to appropriately classify those cases at the time you accept the case, not before a three-week trial when you have $100,000 invested in experts, $300,000 invested in your time and that of your co-workers, your house is tied-up with a third mortgage, and you need to settle two whiplash cases in the next 48 hours if you are going to meet Friday's payroll. Pro bono decisions should be made on the front-end, not the back-end, of a case.
You should take a "cause" case when it fits into the overall caseload of your practice or, in other words, when you can afford to work on it and take the economic hit. This will, by definition, limit the number and/or size of this type of case you can take on at any one time.
I submit that there is absolutely nothing wrong with that -– you have no obligation to work yourself into physical or financial ruin simply to advance social welfare. It is perfectly acceptable, and in fact admirable, to do only enough fee-generating legal work to permit you to do as many “cause” cases as you can possibly accept, and if that is the type of law practice you want you should say so and do it. The point is that the decision of what type of practice you want should be a conscious one and should be made before you accept cases, not afterwards. If you don’t define your practice consistent with your values and needs at any given time in your life, you will find yourself resenting the acceptance of the “cause” cases and those cases will probably be neglected as you struggle to keep the rest of your law practice and life together. That result does not do anyone any good. If you really want to advance the cause of social justice but lack a trust fund or other means of support, the best way to do so is to accept only that amount of “cause” work that you can do it a prompt, efficient, and competent manner.
As you go through the process of deciding to accept a case, think about these things:
- Who is the plaintiff?
- Do I want to sit next to this person at trial?
- Who is the defendant?
- What are the warts and the flowers?
- Is it possible for the defendant to settle this case or must the defendant try this case?
- What are the facts?
- Not just your client’s version – the facts from objective sources.
- Do I need experts?
- What do they say?
- What will my opponent’s experts say?
- What are the injuries/losses?
- What was the prior condition of the plaintiff?
- What are the economic losses?
- Can they be proven?
- Can the jury get angry?
- What is the law?
- Do I have to make new law? Can I make new law?
- What is the venue?
- Can I win this case in this venue with this plaintiff? With this defendant?
- Who is the judge likely to be?
- Can I get a fair shake on discretionary rulings?
- How quickly can I get to trial?
- Can I keep body and soul together in the meantime?
- Will my client still be alive?
- What about case expenses?
- How many depositions will I have to take?
- Where do I have to travel?
- How many experts? Where are they?
- Will I need to spend money on focus groups/trial consultants?
- Is any judgment I obtain collectible?
Now, in light of all of those things and weighing them as objectively as possible, ask yourself this: Is this a case I should accept as a vehicle that will provide a reasonable rate of return for the money (in dollars and time) that I am likely to invest it in? Should I accept this as a “cause” case, knowing the economic return is not likely to be present but it is a case which I want to handle on limited-financial-return basis? Should I accept this as a pro bono case, knowing that I will make no money on it but will accept it because, for me, it is the right thing to do? Or, is this case one in which I lack either the experience necessary to economically prepare it or am unable or unwilling to risk the monies necessary to properly prepare it? If so, you should associate another lawyer. I submit that if you go through this thought process you will get an appropriate mix of these cases in your office, improve your financial stability, and reduce your stress.
I recognize that this may sound like I am a cold-hearted jerk. But I believe that we have a responsibility to our existing clients, to our employees, to our families, and indeed to ourselves not to jump into every case that has a sad story but nothing more. Unfortunately, there are lots of sad stories. Our office turns down hundreds of cases every year, almost every one of them is a sad story, and many of them are downright tragedies. It tears my heart out to have to turn a potential client away simply because the case lacks sufficient merit and / or collectible damages to justify accepting the case into our firm.
The only way I can rationalize this (and I acknowledge the fact that this is a rationalization, but I submit that it is an entirely appropriate one) is that when I make a decision to refuse representation in a case that is not economically viable for our practice I am not just talking about making (or saving) money. Every hour we spend working on cases that have a ten percent chance of recovery we are taking away hours from maximizing the value of the "good" cases. Those other clients with “good” cases have the right to expect that we will take reasonable steps to maximize the value of their cases. If we spread ourselves too thin we will affect our ability to work on those “good” cases and risk harm to those clients. The harm may never be seen or it may not be readily measurable. It may mean less preparation for a deposition than we would like to do. It may mean a six-month delay in a trial date because of workload or the failure to declare an expert on time. It may mean spending a little less time preparing an expert than we might otherwise spend. It may mean less client communication because we simply do not have time to pick up the phone and explain what is going on. At the end of the day, all of these things can potentially impact the result in the case our client has entrusted with us.
Poor case selection may mean that we increase our number of work hours and thus take time from our families. There are ball games to attend, parent-teacher conferences to participate in, and homework that needs a guiding hand. Family vacations create a lifetime of memories, good ones and bad ones, and when mom or dad spend all their time on the computer or cell phone taking care of business on vacation, the memories are not likely to be good. (And even that assumes that you take the time to go on vacation.) Why would we want to sacrifice this time at such a great cost for a case that makes no economic sense?
Finally, we are taking away time from ourselves. Time is our most scarce resource. We can become more efficient, but we cannot make more time. Most of us who rarely work by the work by the hour are already squeezing every second out of every minute out of every hour out of every day - we cannot afford not to do so. So, we have to determine where we spend our precious non- working, non-family hours. Too much work under too much pressure affects our health and the quality of our life.
It is hard to learn the lesson that we cannot help everybody. Unfortunately, we should emulate a good oncologist: he or she should have concern and empathy for that person with Stage 4 pancreatic cancer, but he or she must accept the fact that it is extremely unlikely that the cancer will be cured. As a doctor, you can ease their pain. You can treat the patient with dignity and respect. Perhaps you can (with permission) try an experimental treatment that may help another patient a generation from now. But there are some things we just can't fix. We would love to be able to do so, but we just can't. We need to accept things that are out of our control and channel our efforts toward things we can.
The bottom line is this: case selection decisions should be made after conscious reflection, not on reflex. The goal for many of us who represent plaintiffs is not just to make money, but to use our skill as advocates and the money we make from our labor to improve the world in which we live. I submit that in the long run we can only do that by making intelligent, thoughtful decisions about the “for profit” cases we accept; doing so will allow us to take our resources and use our time to advance our social concerns though other cases or community involvement.
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