A Lesson in Criminal Defense Economics
Dallas law firm Rose • Walker is representing software company McAfee in its suit against New York (?) law firm WilmerHale for overbilling McAfee while losing the securities fraud case of its former CFO, Prabhat Goyal. WilmerHale’s team of former prosecutors billed McAfee $12 million to lose Goyal’s case in federal court in San Francisco. (To their credit, they did try the case rather than rushing Mr. Goyal in to chat with the U.S. Attorney, though a cynic might wonder whether that was because the company was paying the bill.)
And what's wrong with a $12 million legal fee? Well, nothing per se, unless it reflects about twice what it would have cost with the finest legal defense team that could have been assembled had anyone given it the slightest degree of thought whatsoever.
As Mark points out, the nature of Biglaw work is that they will keep throwing warm bodies into a case for as long as a client, or the cash machine covering the client, will continue to make the cha-ching sound. They refer to the "handful of associates" who were used to do document review of 1.2 million pieces of paper. Sounds like a lot of paper, though experience in complex white collar cases is that there are vast areas of overlap and duplication which allows many documents to be reviewed in less than a half second.
But the way the fees creep up is the cost plus nature of the business. I've taken issue in the past with Biglaw associates getting salaries that are equivalent to small business CEOs, even though most will never get a corner office at the firm and few, if any, have the capacity to contribute anything more than a quick return from Starbucks with the right mix of steamed milk. These "best and brightest" young lawyers hate hearing this, but then they do think the world of themselves and their brilliant future potential.
While the firm pays these young'uns dearly, the client even more so. Whatever ridiculous sum is reflected in their Friday paycheck, it's a mere fraction of the number that appears on the client's bill. Associates do have a purpose beyond carrying briefcases; they are a profit center when billed properly. Without this, how would one increase partner profits?
So McAfee, footing the bill for the defense of its CFO, is a big business and is used to seeing big bills. No doubt that there was a huge degree of comfort in having a big law firm wrapping their CFO in the warmth of big resources by big time lawyers. It all must have made enormous sense to somebody at the time. It was all so predictable.
Had anyone sat down and given the situation much thought, however, the good people at McAfee, not to mention their CFO at the eye of the storm, Prabhat Goyal, might have chosen to try an entirely different path. Rather than travel the well-worn path to monstrous fees and dubious representation, they could have chosen from a universe of the finest criminal defense lawyers working in their small firms and solo practices, because that's where the finest criminal defense lawyers can be found, and put together a team (if they still felt the need for quantity in the face of quality) for a fraction of the cost.
Real criminal defense lawyers do this every day, making no big deal about representing white collar defendants for under your basic $12 mil. Heck, they probably could have gotten me and Bennett together for half that price, and we would still have enjoyed a pretty comfortable stay in San Francisco. Plus, imagine the impact of having some real criminal defense lawyers on Goyal's chances for winning.
Twice the firepower for half the price. Not a bad deal.