GUEST POST: A PLAINTIFFS' LAWYERS EXPLAINS THE ECONOMICS OF TURNING DOWN CASES

by John Day

The key to making a decent living (and maintaining sanity) as a plaintiff's lawyer is knowing when to turn a case down.

Our work usually comes from other lawyers. These lawyers either have a conflict, have an inquiry about a case in an area outside their expertise, or (most frequently) have a case that will require the investment of either a considerable sum of money or a considerable amount of time (or both) and the risk of loss of the money or the time (or both) represents too much 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 case are huge and the clients are wonderful people. He thought we should be more aggressive, more willing to assume risk. I went off on a gentle rant with him, and I will repeat it here. 

I am in the risk business. I work for free--unless we win. I advance the costs--sometimes hundreds of thousands of dollars in a single case--and don't get it back unless we win. I don't play blackjack, I don't shoot craps, and I don't play poker. I am a plaintiff's lawyer. Simply put, gambling is my vocation, not my avocation.

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 likelihood of a recovery. In other words, you have to have a reasonable likelihood that a jury will determine that someone did something wrong and caused an injury, and that claim has to either be grounded in current law or you have to have a good shot of making new law. The risk of loss must be balanced against the potential recovery and both must be weighed against the investment of time and money.

We keep track of time. After 24 years of law practice, I have a good idea what it costs 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). And while I am not be the brightest bulb on the Christmas tree I know that (a) 33 1/3 % of 0 is 0; (2) time is money; (3) employees and the landlord want to be paid whether you win or lose; and (4) nobody is making more time.

Therefore, 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 you will be wrong by half--i.e. your investment of time and expenses will be double what you expect. 

You may also want to sit down and figure out what it costs to operate your office per hour. To determine "costs" include everything but 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.) Divide your total hours into your overhead--that is what it costs you per hour in pure overhead for each "billable" hour. To figure out what each professional costs you per hour divide the dollar value of each person's salary and benefits by the appropriate number of hours. Then, add that 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 you to have a decent rate of return on your investment. 

I am not trying to turn our profession into a "business." But 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 unnecessarily raise 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 need to be brought). What I am suggesting is that you should make your pro bono decisions at the time you accept the case, not a week before a three-week trial when you have $100K invested in experts, your house has a third mortgage on it, and you need to settle two whiplash cases in the next 48 hours if you are going to meet Friday's payroll. 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 take an economic hit.

I recognize that this may sound like I am a cold-hearted jerk. To be sure, there a couple of people (maybe more) who would swear under oath that I am. 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 and no 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. 

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. We are taking away time from our families, and 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--we cannot afford not to do so. So we have to determine where we spend our precious little working hours with care.

It is hard to learn the lesson that we cannot help everybody. Unfortunately, we have to give serious consideration to be more like a good oncologist: you can have concern and empathy for that person with Stage 4 pancreatic cancer, but there is little you can do to help them. Some things we just can't fix. We would love to be able to do so. But we just can't.

So, don't be afraid to take a tough case, but do enough homework before you accept the case that you know what you will be investing by way of time and money and can make a reasoned judgment that the juice is worth the squeeze.

This is the conversation I had with my friend who wanted us to accept his very, very tough case, a case which I thought would be lost at least 95 out of 100 times. It was not our easiest conversation. But the next time he asks us to work with him (and he already has) he will know that we will have time to maximize the value of his "good" case and not be mired down trying to (as we say in the South) make chicken salad out of chicken s**t.

About the Author: John Day, a lawyer from Tennessee, is a founding member of the firm Branham & Day. John has served as President of the Tennessee Trial Lawyers Association and Chair of the Council of State Presidents of the Association of Trial Lawyers of America. He is a co-author of West's Law of Comparative Fault and is responsible for the publication of four legal weblogs: Day on Torts, The Tennessee Business Litigation Law Blog, The Tennessee Medical Malpractice Law Blog, and ERISA on the Web.

Comments

[Ted]

I've gone all in on a pair of twos.

[Ed Guest]

What a great post! Thanks.

[Mike]

Great post. I really liked your point that one should not confuse the business side of his cases (i.e., the cases one takes the pay the bills) with his pro bono side cases. So long as lawyers recognize their responsibility to take pro bono cases, no matter how far the business aspect creeps in, law will always remain a profession.

[Eh Nonymous]

I just want to echo what Ed and Mike said, and point out this:

Ted is hilarious.

Also: Ted, and Walter if you happen to read this, I owe you guys a sincere apology for my intemperate remarks the other day in a previous post on this blog. I will try to make amends here and on my blawg, by toning it down and owning up to my mistake here and by posting there a conversation I had in which I realized what a disserve I had done to everybody by flying off the handle.

Back to the post at hand:

Ted's point is that in gambling, it may make strategic or tactical sense to bluff, to go all in when you've got the non-precursor stage to chicken salad. In practice, however, neither bet-the-company defense practice nor bet-the-practice plaintiff's work can involve reckless behavior.

Clients get to say when to settle, but it's a lawyer's job to say when a claim or defense should not be brought or raised because it is a sure loser, and it is emphatically a lawyer's place to say that a claim or defense is a loser and should be settled rather than fought to ignominious (and costly) defeat.

Defense lawyers face severe financial disincentives to encouraging early settlement of claims that do not on their face appear to be bulletproof. Time value of money, client expectations, and so on. With experience and authority, an excellent defense counsel could tell the client, "This case against you will cost you millions, unless you come to the table now and in earnest. Mess around with this claim, and you will not only cost yourself extra dollars when we are forced to the table, but you will earn the hatred of the other side, for fighting when you could have settled." There will seldom be an occasion for that kind of talk, is my guess.

Contrariwise, a plaintiff's lawyer (note the change in noun) must be prepared to have the Hard Talk with a Victim, a potential or prospective or current client who wants justice, and expects us to provide it for them. We can't always. I have personally turned down clients in several of the following categories:

- we don't do that kind of case
- it's a purely local-law case out of my local jurisdiction, and I have no experience in that area
- it's either frivolous or a long shot at best
- damages are probably too small for it to be economical for us to bring it under any circumstances other than pro bono, and I don't have time at the moment.

Fortunately, I have the local Philadelphia Bar Assn. Lawyer Referral Service, and I almost always refer cases I'm rejecting to them. Still, it always hurts to be forced (by economics, by practical concerns) to say "no" to a prospective client who seems genuinely aggrieved. We've got to, but that doesn't make it feel any better.

[Jeannie Elliott]

Great article. It is always nice to see how attorneys evaluate cases and determine which ones they will take and which ones they will not. As economists who work with attorneys in injury and wrongful death cases, we see this all the time.

Many attorneys,rightly so, are concerned about expert fees all the way up to the time of trial. One thing that we have seen increase recently is the number of attorneys that ask us to provide a down and dirty pre-expert report estimate of the economic damages in a case. Some say that this helps determine how far they want to go on a case or in the retention of certain experts.

What some attorneys tell us is why spend $5000 on an expert to proof up $10,000 worth of damages?

Great article! Keep up the good work.

Jeannie
lostcompensation.com

[John Day]

Evan - thanks for the nice coffee mug and for giving me the opportunity to post on your site.

[Jeff]

Great essay!

[alan]

very interesting article especially the last comments about expert fees all the way up to the time of trial,this is always required to give a professional expert opinion on information connected with the case. Hope you understand the whole importance of this.