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Trial Economics
By R. Craig Smith
Employed Intelligently, Good Tools Work and Make Money
Aside from taking a case to help a close friend or family member, or to satisfy a requirement or an urge to do pro bono work, the most important questions that must be answered in reviewing a new case are, “Is it worth it?” and “What’s in this for me and/or my firm?”
As altruistic and unblemished as trial lawyers believe themselves to be, the reality is that the practice of law, like any profession, is a means of achieving a level of financial security and success that will accommodate a desired lifestyle. For most, it is not merely a means of survival but a path leading to the personal and professional satisfaction that motivates long years of study, hard work, and reaching out towards that goal.
Competition and Costs
In California, for example, where nearly 150,000 lawyers vie for business, even for those who have done well, the luxury of choosing the cases one wants to litigate is becoming increasingly rare, and the need to carefully evaluate the economics of any case becomes increasingly important.
Sure the top 3 percent of heavy hitters who have to say “no” several times a day because they’re actually busy handling multimillion-dollar or high-profile cases, leave the evaluating to a well-paid team of screeners. But, laywers out there every day, slugging through the courts with soft-tissue, employment, or fender-bender cases often have to go into their own pockets to stay alive and have more difficulty saying “no” when a prospective client calls or walks through the door. More important, the ability to scrutinize the worth of a case and what it will take to make it workable, economically, may not be as objective or acute as it might be if Bill Gates called seeking representation.
The bottom line is that it costs money to go to trial. If the client is not blessed with deep pockets, a reasonable understanding of the expenses that can accrue during litigation, and a willingness to provide the resources necessary to put on the most effective and compelling case possible, then the lawyer is left to do battle in an Indy Car race with a Model T Ford. This example is not too extreme! With the resources, technology, and expertise to present information and evidence in court that is available in today’s fast-paced information age, going into trial without the best possible means of convincing a jury why your case has more merit than that of your opponent begins to approach professional negligence. There certainly will be an increasing number of actions brought against attorneys by unhappy clients who realize too late that their lawyers were simply outgunned by the other side. But, economically, in 90 percent of the cases that go to trial, how does one make it work?
The ‘Trial’ Face
When one considers the elements of success, no matter what the context or contest, it is the small, almost imperceptible increments of advantage that make the difference between triumph and disappointment. In sports, part of the pre-game ritual is the putting on of the “game face”. In law, this is called the “trial face.” Assuming a position of strength early on sends clear and strong messages to the other side: “We have confidence in our case!” “We have the resources to see it through!” “We’re prepared to go to the mat on this!”
Particularly in the early stages, during the settlement discussions and proceedings, a strong trial face tells the other side that this case is important and has merit. Settlement, after all, is risk management in its purest form. One can show up at the settlement conference with trial exhibits – the bigger the better – and other tools planned to use in front of a jury. It then is clear that the lawyer is pulling out all stops to win the client’s case. When the opponent sees what the jury will see, not only is the likelihood of settlement increased but the end value of the case is enhanced. If it doesn’t settle, however, 85 percent of the trial work has been completed. This takes careful consideration and planning, but winning often depends as much on the way a case is litigated from the very beginning as on the facts in the case themselves.
Now, assume a case has merit, but there is a lack of resources to put on a strong trial face. How does one bridge the gap between budget and power position? Here, too, as in the world of business, the business of law requires some creative thinking and planning.
For example, suppose a homeowner wants to sell the house. It’s a little old and rundown, but it’s in a good neighborhood that would be great for a family. The owner can sell it, as is, for a pretty good profit. But what if the garage door was replaced, rooms were repainted, and the kitchen was upgraded? The owner might have to go to the bank to borrow $15,000 to complete the improvements, but with the improvements, two things happen: First, once the house is on the market, people tend to be less likely to focus on the flaws. The garage door looks strong. They like the fresh smell of new paint. The kitchen sparkles, and there is no worry whether the pipes under the sink are going to leak. There is buyer confidence that the house is of value. As a result, the second thing that happens is that the asking price can be increased. By comparison to other homes in the neighborhood, with all the new improvements, the house will easily bring $30,000 to $40,000 more than it would have without the upgrades. Sure, $15,000 was spent and the homeowner had to do a little more work, but the net result increased by more than $20,000.
The same result occurs with trials. An investment in making trial powerful, memorable, and compelling for the jury, whether the case settles or goes to trial, probably will be the best investment an attorney makes toward reaching career goals. The lawyer will understand the importance of enhancing the value of the case and making sure that they’re driving the Ferrari, not the Model T.
Availability and Options of Creative Financing
Creative financing can be accomplished in several ways. The old adage,. “The smartest way to make money is to use other people’s money,” can apply even in law. In the world of creative financing, there is a recognizable need to ensure that effective representation has access to the best available resources and adequate funding to complete a project. New alternatives are emerging that allow even sole practitioners and small firms to play with the big guns. Alternative litigation funding is not new, but it has taken a long time to get to the point where the lawyer and the public understand the obvious advantages.
Typically, there are two forms of funding that occur. The first is a credit line that is specifically tailored to the attorney or firm. A credit line is created and no moneys are repaid until the case settles or is successfully litigated. The problems occur when the verdict is against the plaintiff. At that point the loan becomes due and the attorney needs to make repayment. The other problem is that a large percentage fo firms do not qualify for the credit line.
Because litigation funding long has been unregulated, many individuals and companies have taken advantage of an identifiable need and ended up taking more than a reasonable return, charging exorbitant fees that can leave attorneys, despite an excellent result, with little or nothing to show for their work.
Another alternative is to find a company that, in effect, purchases a small percentage of the plaintiff’s case. The purchase is made on a nonrecourse loan basis so that if the case is unsuccessful, the plaintiff’s client owes nothing.
Thomas Hurley, co-founder of one such company, San Diego-based Legal Alternative Funding, explained this concept: The plaintiff’s case is evaluated for its viability. If the case merits some type of intervention, the company will provide up to 10 percent of the case’s conservative settlement value in exchange for up to 10 percent ownership in the case. An example would be a $750,000 case with an advance requirement of $75,000. This money would be used to finance significant discovery and other necessary case work-up. If the case settles or is successful, Legal Alternative would get their $75,000 back plus between 3 percent and 10 percent of the case’s gross, depending on the length of time it takes to resolve. Since not every case is successful, if the case does go south, the plaintiff client owes nothing. This appeals to both clients and attorneys. Attorneys benefit because they are relieved from the considerable costs they normally would be forced to assume for an adverse verdict. Clients like it because, like the contingency arrangement they enjoy with their attorney, they only pay if they win. The average investment made by Legal Alternative Funding is between $50,000 and $100,000 per case.
Craig Smith is the senior trial consultant at Prolumina Trial Technologies, in Seattle. He is a frequent CLE presenter, author of numerous articles on courtroom communication and trial strategies, and is the author of "Championship Law—Seven Keys to Winning Performance in the Courtroom.”
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