Law Practice Management
Ohio Law Firm Switches to Success-Fee Billing
Posted Jul 7, 2008, 11:45 am CDT
By Debra Cassens Weiss
Updated: The ABA Journal recently called the billable hour “the dandelion of law practice: pervasive and not so popular.”
The billable hour billing system has been criticized for fostering inefficiency and putting the interests of lawyers and clients in conflict.
Now an Ohio firm is joining a few law firms that are changing the way they bill clients. Waite, Schneider, Bayless & Chesley recently adopted a success-fee billing method for its corporate clients.
Name partner Stanley Chesley, who made a name for himself as a plaintiffs lawyer, told ABAJournal.com he has learned over the years that corporations want to resolve lawsuits expeditiously, economically and efficiently. Now he is putting that knowledge to use representing corporate defendants in securities litigation and antitrust cases.
Chesley told ABAJournal.com that the success fee may be based on several factors. They include whether a corporation is able to get the case dismissed or to settle the case within a defined time period, whether the payout is less than a set amount, and whether the corporation’s insurance carrier covers the payout.
Insurance policies that cover directors and officers liability typically pay attorney fees and settlements out of the same pot, so corporations have an incentive to settle before legal fees eat up the money, Chesley says.
He explains the kind of contract he might negotiate with a corporate defendant this way: “If I can get it settled within your policy limits, and there’s no money coming out of the corporation, then we put together a compensation package based upon how much I save” the company.
Besides the success fee, the corporation will typically be asked to pay reasonable expenses to cover such costs as expert witnesses and travel.
“My primary goal is to do the negotiation and settle the case,” says Chesley. “Very few cases are going to trial. Corporations are spending millions of dollars in defense costs, and they’re huge budget issues. And at the end of the day, the cases are settled.”
“I think many cases should be settled before summary judgment because the cost of discovery is not only the lawyer fees, it’s also the corporate executives and all the department heads” who have to spend valuable time giving depositions and assisting in discovery, he says. The days of settling on the courthouse steps are over, he says. “All I’ve done is seize the moment.”
One of the first companies that discussed a success fee with Chesley in a corporate defense case was Procter & Gamble. The company had hired Chesley to help represent it as a defendant in a securities case after Chesley helped it sue over false Satanism rumors.
He says success-fee billing is also more economical for his law firm, which has only about two dozen lawyers. Their time would be better spent pursuing new cases rather than doing the drudge work of evaluating discovery evidence, he says.
Waite Schneider partner D. Michael Grodhaus agrees that corporations like alternative billing approaches. He told the Columbus Dispatch that clients dislike the unpredictability of billable-hour billing. "The billable hour is just a terrible way for attorneys to bill their client," Grodhaus said. "It doesn't give the client any certainty, and it doesn't give the attorney any incentive to expedite the process."
But some clients are reluctant to change their billing method, says Russ Gertmenian, the presiding partner at another Columbus firm, Vorys, Sater, Seymour and Pease. The law firm uses several different billing methods. "Most of the clients that request for alternative billing options are still opting for the hourly rate," Gertmenian told the newspaper.
Updated at 11:45 a.m. to include comments from Stanley Chesley.
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Comments
Posted by mhpp - 1 month, 2 weeks, 5 days, 14 hours, 52 minutes ago
Is this the same attorney who was granted immunity to testify against the other attorneys in the Phen-fen case where the attorneys were crimally charged with taking over 60% of their clients $220 million settlement?
Posted by Dan Herrington - 1 month, 2 weeks, 5 days, 14 hours, 17 minutes ago
I’ve heard over and over (from the ABA and others) that the billable hour encourages inefficiency. This implies that lawyers are acting unethically toward their clients when it comes to billing. I believe the premise is faulty and the conclusion incorrect. First, the Model Rules of Professional Conduct require that any fee be reasonable. Second, most lawyers I know are too busy to hang on to a case and resist early resolution just because they may be able to continue to bill the file. Personally, I can say in 13 years of practice, I’ve never settled a case (at any stage) and wondered if I was going to have enough work to keep me busy the next week or month. I always explore settlment possibilities early in the case. I believe that is part of my professional responsibility. Likewise, I loathe settlement on the courthouse steps. Who wants to go through the nights and weekends preparing for trial and then not get the chance to try it? In the end, no matter the billing method agreed to by lawyer and client, a good lawyer will show his client the value of the work as it relates amount of the bill.
Posted by KDE - 1 month, 2 weeks, 5 days, 13 hours, 49 minutes ago
To mhpp: It certainly is the same Stan Chesley who was granted immunity in the Phen-fen case. He’s also the one that many observers of this case think the jury foreman was referring to when he said that the jury was frustrated that certain other individuals were not made a party to the case. That trial just ended with the acquittal of one attorney and a hung jury for the other two. The foreman’s comments suggest that while the jury believed, by a margin of 10-2 that the two remaining attorneys were innocent, the real culprit was not even tried.
Posted by JTM - 1 month, 2 weeks, 5 days, 13 hours, 35 minutes ago
Yep! He’s the same crook. He also claimed under oath not to know the 5th Amendment or the fact he took home $20M in the case. My five year old knows the 5th Amendment and who (besides Bill Gates) doesn’t know when they’ve just earned a cool $20M! The prosecutors absolutely sucked. Tread carefully with this fool. He’s a waste of human tissue.
Posted by Bill Wagner - 1 month, 2 weeks, 5 days, 12 hours, 14 minutes ago
Any lawyer who doesn’t believe law “firm” are driven to do unnecessary work because of the billable hours involved has not talked to the Associates who are doing the work. They get the assignment, do the work, and the firm gets the money.
Posted by Pete Wanger - 1 month, 2 weeks, 5 days, 10 hours, 10 minutes ago
Most solo lawyers, like me, and lawyers in very small firms take their professional responsibilities to give value for their time very seriously and very conscious of the risks of hourly billing. Some of us still think of our activities as a profession and not just another service business. Most lawyers in American do not practice in large firms that make headlines. A lot of us just try to make a living.
Posted by Gov't. Attorney - 1 month, 2 weeks, 5 days, 5 hours, 36 minutes ago
Notwithstanding the behavior of this particular attorney, this subject raises some much needed attention to our profession. The real discussion is about whether it’s time for practitioners to bring about a sea change in the way clients are billed. Measuring associates contributions to firms in terms of billable hours is silly. Outcome based measurements seem much more efficient and less demoralizing. Did the attorney go what the clients wanted and needed done in a time-efficient and economical way? Did you solve the client’s problem(s) in a way that ultimately best served that client? These seem much more relevant “metrics” than how many hours you billed the client. Even if billable hours is not the problem that I think it is, I still wonder if it is the BEST way to run a profitable law firm. I dare say, no.
Posted by JOSEPH B. MANSOUR, CFE, CPA, CEO, CFO - 1 month, 2 weeks, 3 days, 8 hours, 3 minutes ago
I am a Forensic CPA, and Certified Fraud Examiner, CFE. I was hired as an expert in numerous cases dealing with attorney’s billing issues. For the most part, I find most attorneys are ethical in their billing practice. I also find, most of these same attorneys foster ineffeciencies in their practice thru no fault of their own. The cases I examined shows, the following:
1. Attorneys did not have an overall plan at the begining of the case, detailing to the client the most logical way the case will progress.
2. The Attorneys did not do a cost benefit analysis at the begining of the case for the client.
3. The Attorneys did not set up a proposed budget plan for the case and inform the client of potential expenses.
4. THe attorneys did not consider bringing an expert at the begining of the case to determine damages for the client. It is critically important to have the client know the damages in advance, best position, middle position and the low position. By doing this analysis the client can know whether they want to litigate the case or perhaps attempt settlement or mediation.
5. I discovered the Attorneys most of the time get lost in the case and not keep a good eye on the client’s needs. The reasons are many, such as a case overload for the Attorney, ineffecient assistance and so forth. This causes more meetings with the clients, and with others in the firm to re-evaluate the case. This means more money has to be paid by the client to go over the same ground as before causing the inefficiency.
6. I find Attorneys do not have a Cost Pricing Policy with the client. This policy will state if there is duplications of meetings or re work the Attorney will do this re work at no additional charge. If this is in place it will foster bettr efficiency.
After all a law suit is nothing more then a product that needs to be evaluated, budgeted, and analized at the begining. Most of the time the Attorney does not hire a Forensic CPA until an expert is needed. By that time it is too late.
I recommend that a Forensic CPA, trained in the Procedures of the Law, ie. Civil Procedures, Rules of Evidence and so forth be hired at the begining of the case. I know when attorneys hired me in the begining of their case, I recommended ideas they would not have thought of as they do not have my same training in business, tax, fraud etc.. These ideas assisted them in resolving the case with settlements insead of on going litigation that drains the clients funds.
For the most part, I can set up an efficiency model for each law firm based on that Law firm’s criteria. But most important in keeping an eye on giving the client the best dollar for dollar service and keeping costs within the budget constraints.
For all the law firms that are interested in having their case financially analized and an independent report submitted to the law firm, I can be reached at 513-779-4200 or www.mansourcpa.com.
Very Truly yours
Jose[h B. Mansour, CFE, CPA, CEO, CFO