Hi there,
Are in-house litigation teams leaving money on the table when they settle matters — all because of the billable hour? ⌛
It’s a conclusion that I couldn’t shake after reading this recent post from Trend Micro’s Director of Legal Ops, Brent Dyer.
In short, part of Brent’s logic was that civil defendants tend to (wrongly) assume parallel spending between themselves and the plaintiff when assessing a case and the potential outcome.
So when it comes time to decide whether to settle and for how much, an in-house team might consider that settling for $200K less than the initial demand to be a net win.
“Sure we spent $1 million to settle, but so did they. We sent a strong message!”
But they’ve often not considered that plaintiff’s counsel is likely working on a contingency fee. They are incentivized to limit work and minimize costs to only what’s necessary to have a reasonable chance of winning the case.
On the other hand, defense counsel understands their clients are often coming from a “can’t lose” approach to the situation.
When reputation is at stake, the scope of work often balloons without questions being asked (and that scope was likely poorly understood from the outset).
To pile on, defendants can and often do fall into a sunken cost fallacy: “We’ve already invested X dollars on this case. It would be a waste to not spend even more to see it through.”
As a result, while defendant’s counsel may rack up $1 million in spend prior to settlement, plaintiff’s counsel likely only incurred 1/10th of that in theoretical billables and maybe $50K in other expenses against a 40% contingency fee.
As Brent summed it up so well:
“You didn’t send a strong message to the plaintiff. You created a minor inconvenience on the way to a net positive recovery.”
And on top of that, should “sending a message” to the other party even be the goal in deciding if and for how much to settle? But let’s be honest, it is often a huge part of the equation.
So back to my original question:
Are in-house litigation teams leaving money on the table when they settle — and a LOT of it — because of the billable hour?
💡 What if your defense counsel was operating under a value-based fixed fee, and maybe had even competed for a well-scoped RFP before undertaking their work?
💡 What if that fixed fee was one-third or one-half of our theoretical $1 million settlement example?
💡 And what if that fixed fee was broken down by phase for maybe say $300K to conduct everything in the pre-trial phases?
How would that impact the lens through which you viewed a potential settlement?
Your in-house team’s $300K pre-trial investment against the plaintiff’s $150K. ⚖️
Now a $1 million settlement starts to look a bit absurd.
If you had properly scoped and sourced your defense at the outset, perhaps you could have settled the matter for $300K or $500K rather than $1 million.
Multiply that potential savings of $500K in settlement spend across hundreds of matters.
It adds up quickly. 💸
Is your in-house team leaving millions on the table because you’re reverting to a traditional hourly billing model when sourcing your defense teams?
I’d love to hear your thoughts.
Hit reply and tell me.
Cheers,
Jim
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