Wayne State Lawprof Peter Henning wrote a piece for the New York Times DealBook on the fee “dispute” by R. Allen Stanford, left high and dry by the government, who now seeks to collect on a Lloyds of London insurance policy. The policy would provide $100 million to cover his defense.
Judge David Hittner has ruled in Federal District Court in Houston that under a company insurance policy Lloyd’s of London is responsible for paying up to nearly $100 million for the defense of Mr. Stanford and the other officers. While that should go a long way toward paying the legal fees of the defendants, don’t be surprised if the total legal bills exceed even that seemingly generous pool of money.
A generous pool of money indeed, but as Henning explains, it’s not an inexpensive type of case to defend.
White-collar crime prosecutions and related civil actions are enormously expensive to defend, and defense costs can reach the tens of millions of dollars fairly quickly. One reason is the complexity of the cases, which require defense lawyers to spend months digging through piles of documents while trying to interview dozens of witnesses. It is fairly common for cases to come to trial a year or more after the criminal indictment, and there are often dozens of pretrial motions that will have been briefed and argued in that time.
And white-collar trials are usually measured in weeks, if not months, and that only compounds the expenses. Mr. Stanford’s trial is set to begin in January 2011, and don’t be surprised if the trial requires three months (or more) to complete.
What Henning may not realize is that these “reasons” for the astoundingly high legal fees aren’t really that much different from the defense demanded in many criminal cases, white collar or otherwise, where the lawyers labor with equal if not more dedication, provide equal if not more services, and do so for a fraction of the fee. And these aren’t inconsequential lawyers, but highly experience, highly dedicated, highly skilled criminal defense lawyers.
Here’s the difference:
The lawyers who work high-profile white-collar cases come from some of the leading firms in New York, Washington and elsewhere, charging steep hourly rates — there are no contingent fees in criminal matters — and staffing them with a phalanx of partners, associates and paralegals. While it was almost unknown for leading Wall Street law firms to do criminal work 30 years ago, white-collar defense is now a major source of fees and one that appears to be largely immune to the recession that has hit the firms over the past two years. When was the last time you heard about layoffs in the white-collar department?
When Henning speaks of “leading firms,” what he means is white shoe firms. Big Law firms. These are firms that can charge for five people doing the work of one, and getting away with it. These are firms that can’t send out a one page fax for less than a grand. Somebody has to pay for the marble waiting room.
While I hate the characterization of “white collar,” as it evokes the image of plea negotiations over tea served in cups and saucers rather than hard-fighting to keep a defendant from going to prison, Henning is right that they almost invariably require an enormous amount of work, both mundane and sophisticated, to defend. Missing from his description is that these cases, even if they don’t involve someone as notorious as Allen Stanford, suck up time and focus to the preclusion of other work.
Take on the case and forget about being available for much of anything else for the next year or two. They become your life. They become your sole source of income. If you’re not prepared for that, you’re going to be very unhappy (and hungry).
But that doesn’t mean that $100 million makes sense. As the old joke goes, “I could have lost that case for half the amount.” when news of the plea and 5K1.1 letter hit the papers. It’s still an astronomical amount of money, and it’s still a criminal defense, no matter how many motions need be made.
In many of these cases, defendants’ legal fees are indemnified by their corporate employers, with the begrudging help of insurers. But that’s no panacea either.
While I hate the characterization of “white collar,” as it evokes the image of plea negotiations over tea served in cups and saucers rather than hard-fighting to keep a defendant from going to prison, Henning is right that they almost invariably require an enormous amount of work, both mundane and sophisticated, to defend. Missing from his description is that these cases, even if they don’t involve someone as notorious as Allen Stanford, suck up time and focus to the preclusion of other work.
Take on the case and forget about being available for much of anything else for the next year or two. They become your life. They become your sole source of income. If you’re not prepared for that, you’re going to be very unhappy (and hungry).
But that doesn’t mean that $100 million makes sense. As the old joke goes, “I could have lost that case for half the amount.” when news of the plea and 5K1.1 letter hit the papers. It’s still an astronomical amount of money, and it’s still a criminal defense, no matter how many motions need be made.
In many of these cases, defendants’ legal fees are indemnified by their corporate employers, with the begrudging help of insurers. But that’s no panacea either.
Corporations are usually not very happy about paying to defend former officers accused of misconduct that has dragged the corporate brand through the mud. Often, such cases result in companies agreeing to a deferred or nonprosecution agreement for the ex-officers’ wrongdoing. And what insurer has ever jumped at the chance to pay out on claims for misconduct under a directors and officers insurance policy.
It seems to be more common lately for companies and insurers to resist paying for the lawyers because there is little prospect of recovering those fees if a corporate officer is found guilty. Companies usually include in their articles of incorporation or bylaws a provision requiring them to advance attorney’s fees to directors, officers and employees who are caught up in investigations or charged in criminal or civil actions. Although the companies and insurers may balk, the courts — especially those in Delaware where so many large companies are incorporated — have been particularly protective of the right to advancement of legal expenses.
That doesn’t mean that corporations won’t try to screw with payment of fees, challenging them, trying to renegotiate or cut them, seeking to stick their nose into the attorney/client relationship to “ascertain” the fairness of fees. It’s hardly uncommon for some assistant in-house counsel, the kind who has never seen the inside of a courtroom, to “opine” that particular fees are unreasonable or unnecessary. In-house counsel are a peculiar breed, who issue opinions from behind a desk to people who normally view their word as gospel. They don’t mesh well with trial lawyers, who tend not to be as impressed with their putative legal prowess as in-house counsel expect and are used to.
It seems lately that no matter how reasonable the fees may be, or how clearly the letter of engagement sets out how fees are set or payments made, the indemnifying corporations will do everything in their power to make the defense lawyer have to fight for his fee. Ironically, it’s got nothing to do with their representation, which may be brilliant or awful, but rather with their bottom line and proclivity to love budgets. It’s just about cutting costs.
As a result, criminal defense lawyers have two jobs when taking on white collar cases. The first is the hard work of defending the client. The second is the annoying work of dealing with the corporate monster. The second, which isn’t openly accounted for in the fee structure, can suck up an enormous amount of time as well, often with greater regularity than the defense aspect of the representation. Plus, dealing with grocery clerks in corporations can be a very unpleasant experience, their having no sense of responsibility for their representations that “the check is in the mail” being accurate and honest. Unlike lawyers, honesty plays no role in the Accounts Payable Department clerk’s job review.
As much as “white collar” work allows the lawyer far greater latitude to provide everything needed to defend, unlike cases where we defend on a shoestring and fear making a phone call to an expert will break the bank, it comes with its own set of problems and issues that can turn the best of defenses into years of misery. And not surprisingly, given the nature of the offenses and people involved, it’s almost invariably because of money.
It seems lately that no matter how reasonable the fees may be, or how clearly the letter of engagement sets out how fees are set or payments made, the indemnifying corporations will do everything in their power to make the defense lawyer have to fight for his fee. Ironically, it’s got nothing to do with their representation, which may be brilliant or awful, but rather with their bottom line and proclivity to love budgets. It’s just about cutting costs.
As a result, criminal defense lawyers have two jobs when taking on white collar cases. The first is the hard work of defending the client. The second is the annoying work of dealing with the corporate monster. The second, which isn’t openly accounted for in the fee structure, can suck up an enormous amount of time as well, often with greater regularity than the defense aspect of the representation. Plus, dealing with grocery clerks in corporations can be a very unpleasant experience, their having no sense of responsibility for their representations that “the check is in the mail” being accurate and honest. Unlike lawyers, honesty plays no role in the Accounts Payable Department clerk’s job review.
As much as “white collar” work allows the lawyer far greater latitude to provide everything needed to defend, unlike cases where we defend on a shoestring and fear making a phone call to an expert will break the bank, it comes with its own set of problems and issues that can turn the best of defenses into years of misery. And not surprisingly, given the nature of the offenses and people involved, it’s almost invariably because of money.
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Note to lawprof Henning: Kent Schaffer ain’t Biglaw; he’s who smart guys like Allen Stanford use when Biglaw isn’t good enough.
I’m glad to see this post, as the comments section over at the NYTimes was pretty quiet when the item appeared there but something about it didn’t sit right. An army of ten lawyers billing at an average of $500 an hour each for 2000 hours a year gets us to $10 million per year. With that much work going into the case, it isn’t going to take ten years to get to trial. The $100 million dollar figure is absurd and if it comes anywhere near that, somebody, the client, the insurer, the corporation, is getting robbed.
Either that or my fees are way too low.
Hugelaw?
The $100 million is to cover multiple defendants, but yes, your fees are probably way too low.
SmartLaw.
Smartlaw is right.
Aaaannnnnd another coinage is born.
The best thing about working in a Smartlaw firm is that it implies that everyone else isn’t. At least Biglaw only implied that everyone else is small, it’s psychological free advertising.