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June 8, 2009 5:35 PM

GCs, Law Firms, and Flat Fee Arrangements: A Matter of Trust

Posted by Amy Miller

Tom Sager, general counsel for E.I. du Pont de Nemours, likes alternative fee arrangements, and he's made sure his outside counsel know it. With the economic downturn forcing cost cutting across corporate America, Sager's not alone.

Making such agreements work for both the company and its law firms takes more than an innovative proposal and a solid pitch. The success of any alternative fee arrangement depends on mutual trust, said lawyers from DuPont's legal network who attended a two-day conference late last week in St. Louis hosted by the company.

"The single biggest obstacle to flat fee arrangements is fear," said Lawrence Abbott, managing director of Abbott Simses, a small New Orleans-based firm that has represented DuPont for decades, primarily handling product liability, mass tort, and commercial disputes.

In-house lawyers worry about getting quality legal work. Outside counsel worry that they'll lose money if there's an unexpected outcome in a case, creating more work than anticipated when a flat fee was set.

Still, if there's mutual trust between the parties and open dialogue, the proposals can work. Companies must be willing to share enough information so that law firms can draft realistic fee proposals, the firm lawyers said.

One prospective corporate client, for example, granted the Birmingham firm Lightfoot Franklin & White access to its computer system and five years' worth of billing data. The information provided about the company's past legal expenses, said Lightfoot founding partner John Johnson, helped the firm in its pitch to handle a case on a flat-fee basis. (Lightfoot has handled DuPont cases in Alabama for 15 years.) The company accepted the proposal, and Lightfoot won the work.

"We may lose our shirts on it. But I bet we don't," Johnson said.

Alternative fee arrangements can work well for routine, ongoing matters, said Mark Rochefort, a partner in the Los Angeles office of Alston & Bird. His firm handles many typical, straightforward cases for a large shipping company on a flat fee basis.

Rochefort admits he's not sure the firm makes money on these arrangements, but structuring routine work this way offers young associates valuable work experience and helps the firm solidify its relationship with the client. "It's one less headache the company has to worry about," he said.

Law firms, on the other hand, must be willing to put some skin in the game, said Silvio DeCarli, DuPont's chief litigation counsel. Too often, DuPont gets alternative fee proposals in which a firm makes money if the company loses a case, and even more money if the company wins.

"Law firms too often get the idea that they've got to make money on everything, and a lot of it," DeCarli said. "And that's the tension."

But who covers costs when a case takes an unexpected turn was a subject of debate. At the conference, some outside counsel said companies have an obligation to ensure their firms don't lose money if a turn of events isn't due to the firm's negligence. Other outside counsel said it’s a risk law firms have to live with.

"If something goes wrong and I didn't account for it, the answer is I eat it," said Ricardo Cedillo, a founding partner with David, Cedillo & Mendoza. The San Antonio firm has handled toxic tort and other matters for DuPont for about ten years.

 

 

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