Daniel Harris

Article Summary:

Part two of two on how to save on legal costs.

Save on Legal Fees: Nine Keys to Controlling Costs (Part 2)

Key #4: Avoid Litigation
Being sued or finding yourself in a position where you have no real choice but to sue should almost always be avoided. This is easier said than done, but by living up to your agreements (and getting them in writing), spending a little up-front in legal fees and consulting with lawyers, you can go far in avoiding most lawsuits.

However, litigation is often necessary and should even sometimes be employed to further broad strategic business objectives. Nonetheless, once litigation has begun it is time consuming, difficult to control, and very expensive.

Regular communications with your lawyer will better enable her to head off problems before litigation becomes the only solution. It will also enable her to better position you to prevail in any such litigation, if it cannot be avoided.

I have found that the clients who are best at communicating with me have gone through litigation and truly understand the need to avoid it. Concentrate your efforts close to home. While great time and effort are spent on protecting against injury lawsuits (hot coffee and the like), that risk for most businesses is relatively small and, more importantly, can be insured against. For most businesses, employee and contract issues present a greater danger of getting out of hand. Ironically, these are precisely the issues that are easy to avoid up-front with proactive employment policies and clear written contracts.

Key #5: Use a law firm that appropriately outsources
The big firms are usually set up in such a way that the profits of the partners come from the work of their associates. These associates are often recent law graduates who are likely to be far less efficient than a more senior lawyer. Put simply, 20 hours at $200 will cost you more than 10 hours at $300.

Associate time is often a lousy value. Law firms love having their associates doing legal research. The associate conducts highly profitable legal research and the law firm avoids having an inexperienced lawyer making strategic decisions. In the meantime you are paying to help train that associate. In seven years or so, he'll be ready to become a partner and use a new associate to do the same thing to some other client.

How can you avoid putting too much of your legal budget into associates? On each matter ask your lawyer whether it would be possible for her to subcontract out some of the research work by using a part-time contract lawyer or even an overseas research service.

In Seattle there are many lawyers who, for whatever reason, do not wish to work full time and so contract out their legal research services for anywhere from $30 to $70. Though your law firm will justifiably mark up these charges to cover their normal overhead, you still should expect substantial savings. There is even the possibility of using overseas lawyers to assist in initial research of some matters. With competent lawyers in India charging as little as $7 an hour for computerized legal research, there is no reason not to give them the first crack at research that your lawyer will have plenty of time to review and supplement.

The outsourcing used by your law firm should not be confined just to lawyers, either:

  • Good Japanese translators are in great demand in this country and so they are quite expensive. For years we have been successfully e-mailing Japanese documents to excellent translators in Russia who charge 1/5 as much.
  • We realize substantial savings for our clients by having our Chinese documents translated in China, rather than here.
  • We have used Korean engineers for initial engineering review on cases, saving at least 30%.
  • We even encourage Vancouver or Toronto, Canada, arbitration provisions in our client's international contracts because Vancouver arbitrators, though quite competent, generally cost about half of those in the locales most commonly used for international arbitration (London, New York, and Stockholm)

Key #6: Explore alternative fee arrangements
It almost always makes sense to at least discuss with your lawyer billing arrangements other than straight hourly fees.

Perhaps you'll both benefit from a fixed fee arrangement. Here, you and your lawyer agree on a fixed fee that covers legal services. The real advantage in this arrangement, for both counsel and the client, is the ability to budget in advance and so limit billing "surprises" for both of you.

Contingent fees are another alternative option. Simply stated, the law firm is paid contingent upon the results they achieve. Although you often hear "If we don't win, you don't pay" on TV commercials, the more common arrangement in business cases is to use contingent fees in combination with cost-reduced or limited-number hourly fees.

There are also a number of hourly billing variations to consider. One common option is to negotiate a reduced hourly rate plus bonus. Here, an agreement can put your counsel at a reduced hourly rate plus bonuses to be paid for meeting or exceeding deadlines you agree upon.

Key #7: Have your lawyer give you an estimate of the fees and costs
It's in your best interest to get an estimate of your legal fees.

An estimate is just that: an estimate. Legal fees are often difficult to predict, particularly in litigation where the opposing party's tactics greatly influence what your lawyer is required to do. However, you still need an idea of the legal costs you're about to encounter.

From my perspective as counsel, I have learned that it is always a good idea to give an estimate because sometimes clients truly have no idea exactly what is involved in handling a particular matter. Years ago, a client called me wanting to seize the assets of a Russian company that owed his company about $350,000. Because this was the first time I had worked with the company, I wanted to impress the client and I told him that I would use my contacts throughout Asia to determine whether this company had any assets there that could be seized. I also told him I would be working with a Russian law firm to explore the likelihood of success if we needed to sue in Russia. When he agreed to that strategy, my firm did all of these things, incurring $5,000 in fees and costs. About half of that went to lawyers/agents in Korea, China, Hong Kong, and Japan and to the lawyers in Russia who had written a very good four-page memorandum outlining what would likely happen if we were to sue in Russia.

I reported back to the client within a week and gave him very clear directions on what we needed to do to recover the debt. I then sent out the bill for approximately $5,000, believing we had done a great job very quickly and efficiently. I assumed the client was very happy with our work and would gladly pay the bill. (I can assure you that my clients for whom I regularly do this sort of work would not have batted an eye at the bill.)

My assumption was wrong. The client called and said he had no idea that it would cost so much. This struck me as curious, since the client was a rather sophisticated business person whose company uses one of the big firms in town. Yet he told me that he thought that my search for assets, and my working with Russian lawyers, would basically consist of one afternoon's worth of phone calls. Because the miscommunication regarding fees was more my fault than his, I drastically cut the bill. But from then on I've tried to always give an estimate up front and then continue to update that estimate as the work progresses.

Key #8: Don't focus too much on the attorneys' hourly rate
An in-house counsel for one of the largest corporations in America once told me that, no matter what the hourly fees were at the various firms used by her company, in the end, most of the firms tended to charge similar amounts. According to her, the firm whose partner billed out at $250 per hour simply billed more time than the firm whose partners billed out at $350. At the $350 per hour firm, more work would go to associates.

So here's the principle behind the key: Focus on lowering your total bill, not on the fees charged by individual lawyers.

Key #9: Don't forget about insurance
One of the best investments against monumental legal fees is insurance.

Carry liability insurance and, if feasible, carry directors' and officers' liability insurance. Discuss your various insurance options with both your broker and your lawyer. Then, if you do get sued for any reason, have your lawyer check your policy to see if you have coverage. Too many times, companies have assumed their policy could never cover a particular matter when in fact it either might or it does.

These nine keys combined can form a powerful strategy to significantly control your legal costs. You may never be able to smile with your lawyers when they say "Fees!" for the firm's holiday photo, but you'll know you're making the most of your legal budget.

This information should not be relied upon as a substitute for individual legal advice.

Daniel Harris is an attorney at Harris & Moure, pllc., where he represents small and mid-sized companies in their international legal matters in or involving Asia, Eastern Europe, and North America. His areas of practice include: International law, International Litigation, Domestic Litigation, International Maritime Law, Domestic Maritime Law, International Vessel Arrests, and Yacht litigation. He is a member of the Alaska, Illinois, Washington, and American Bar Associations. For more information, visit www.harrismoure.com.

Read all advice by Daniel Harris; Find more Legal Advice experts

More advice on Legal Advice
» Save on Legal Fees: Nine Keys to Controlling Costs (Part 1)
» Save on Legal Fees: Nine Keys to Controlling Costs (Part 2)
» all Legal Advice articles