Archive for the ‘Choosing a Lawyer’ Category

Businesses that can afford them must decide whether to use the Big Boston Law Firms (“Biglaws” for short) for their legal work. This is an easy choice for large businesses. For the most part, the Biglaws do excellent legal work. They have excellent reputations and customer relations and a wide range of resources and expertise. The in-house counsel or manager that chooses the Biglaws for legal work insulates himself or herself from internal criticism. Even if the result is not satisfactory, no one can blame the in-house counsel or manager who hired a top firm.

A recently reported case from the Business Litigation Session, Brooks Automation, Inc. v. Blueshift Technologies, Inc. 2006 WL 1537520, *1 (Mass.Super.) illustrates both the excellent work that large firms do, and the staggering amount of legal fees and costs that a client can incur. We know this because the prevailing party filed an application with the Court for an award of fees and costs (the prevailing party won on a c. 93A claim, which allows for the recovery of fees and costs). It sought $873,830.50 in attorneys’ fees and $88,222.25 in costs, for a total of $962,052.75. The Court awarded the fees and costs. It reasoned that the attorneys were well qualified and did an excellent job on an important legal matter for their client.

The judge had some other interesting observations:

“To be sure, there are certainly able, smaller, purely local law firms that could have represented Blueshift in this action, perhaps at a lower price. Yet, it would have been difficult for a small law firm to devote the quantity of resources needed to be devoted in a short time frame to obtain the result that [the Biglaw] was able to produce for Blueshift.”

I agree with the judge that there are able, smaller law firms that could have represented Blueshift well. But this litigation, compressed into a short time period, apparently required a massive amount of lawyer and paralegal time. The judge is right that it would have been difficult for a small firm devote the sheer quantity of resources. Thus, in the Blueshift case, the client was well served to retain a Biglaw (especially since the opponent had to pay the legal fees). However, the vast majority of business and employment law cases do not need such a massive amount of resources in such a short time.

The judge had some other interesting observations:

“Certainly, in some cases, the number of attorneys and staff who billed time in this case on behalf of Blueshift-ten attorneys, a senior litigation technology specialist, a paralegal, and a case assistant-would be excessive or inefficient, but this Court does not find that it was here. To be sure, the billing rates charged by all the attorneys and paralegals are large, but they are roughly the median charged among comparable large firms with Boston offices, and therefore reflect approximately the “going-rate” in the large firm attorney market. To characterize these attorneys’ fees as “unreasonable” simply because they are expensive would be a moral judgment, not a market judgment. By analogy, it may seem crazy that a utility infielder in major league baseball earns $1.5 million per year while a Superior Court judge earns $112,000, but that does not mean it would be unreasonable for a baseball team to pay that amount. Indeed, an arbitrator may justly find that the ballplayer is “entitled” to that amount if his salary is determined by arbitration. The $600 per hour billed by [the senior attorney] is certainly a great deal of money, but it is comparable to that billed by other lawyers in Boston of his ability and experience.”

There you have it. $600 an hour is the going rate for an experienced Biglaw lawyer. Some charge more, some less.

By contrast, you can find very good business litigators for $200-$300 an hour in smaller firms, especially outside of Boston, and for $300 – $350 inside Boston. Hiring a less expensive lawyer can work to your advantage if your opponent hires a Biglaw. If you know that for every $1,000 in legal fees that you spend, your opponent is spending $2,000 or $3,000, you have an advantage. For example, there may be much more pressure on your opponent to settle the case rather than incur more legal fees.

In any event, small and medium size businesses should recognize that litigation can be very expensive and choices of which counsel to hire should be considered carefully. Some clients think that if they hire a Biglaw, it will immediately bring their opponent to its knees (the “my lawyer can beat up your lawyer” approach). This rarely happens in reality. And if it doesn’t, get ready to open your checkbook. Or, find a less expensive lawyer who can handle the matter more cost effectively.

By Adam P. Whitney, 617.338.7000.

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Business people who incorporate often think that the corporate form protects them from lawsuits. That is true only to a point (you are not protected for wrongful acts that you personally commit), and only if you respect corporate formalities. If you do not, you could unwittingly be inviting personal liability, or liability for a parent or sister company. The whole point of incorporating (including forming an LLC) is to limit exposure for that specific corporation. But your effort to limit exposure doesn’t end on the date of corporation. Even taking simple steps can go a long way toward limiting this exposure. Here are some simple things you can do.

1. When you sign any contract, proposal, purchase order, invoice, letter, etc, be clear that you are signing in your corporate capacity. Don’t ever simply sign “Joe Smith.” If you do, you could get personally sued and your opponent will claim that they thought they were doing business with you personally. The claim could be total b.s., but shame on you for exposing yourself like that. How should you sign it? Easy: “Joe Smith as President of J.S. Corp.” You can even add “and not personally,” to make it clear. In fact, your company should be clearly identified as the contracting party.

A short war story makes the point. I defended a law suit a few years ago where three business people started a business, duly incorporated their new business, and hired a contractor to put up a substantial commercial building. The owners then did not heed the above advice; they referred to one another as “my business partner.” The also failed to make clear that contracts were in their corporate capacity. When the corporation eventually ran out of funds, the contractor sued the business “partners” personally, claiming that he thought it was a partnership and did not know about the corporation. The claim had enough traction to make it all the way to a jury trial. We convinced the jury that the contractor knew who he was dealing with because he received checks from the corporation and some of his own invoices listed the corporation. But you don’t want to rely on a jury’s good judgment.

2. If you operate more than one corporation, such as a parent or sister corporation, or even if you have corporate partners, be very clear with whom a third party is contracting. Do not use shorthand names to describe your company. Make it clear to corporate partners and clients that each corporation is separate and one cannot bind the other, and that a contract with one does not bind the other. How you do this in practice depends on precisely how you do business.

Another short war story makes this point. I defended a company called Jones Plumbing Systems, Inc. (names changed to protect the innocent). The owners of Jones Plumbing Systems, Inc. decided to go into business with a supplier named Smith, and together they formed a new corporation called Jones Plumbing Supply, Inc. All well and good. To give the new company some recognition, they referred to the two companies collectively as “Jones Plumbing Group.” This would not really be a problem if they had followed Rule No. 2. However, Smith got sloppy and started entering contracts as “Jones Plumbing Group,” even though it was not a legal entity. Smith turned out to be a poor businessperson, and the owners of Smith Plumbing Systems cut their ties with him. However, the damage was done. Jones Plumbing Group could not pay its debts, so a creditor sued Jones Plumbing Systems, Inc., claiming that it thought it was doing business with Jones Plumbing Systems, or with a joint venture called Jones Plumbing Group. Here, the jury found for the creditor, undoubtedly thinking that this was merely a corporate shell game on behalf of Jones Plumbing. We were able to convince the trial judge that Jones Plumbing Systems committed no violation of c. 93A, so the damages were limited to single damages and the plaintiff had to pay its own attorneys’ fees.

3. Follow corporate formalities. There is a theory in Massachusetts and other states called “piercing the corporate veil.” That’s a fancy way of saying that a plaintiff can get at the assets of a stockholders or a parent corporation if the corporation did not follow corporate formalities. This theory is too complicated to explain in detail here, but generally you need to make sure that you are keeping business accounts separate and not commingling monies or assets, that the corporation has adequate insurance or assets and is not just an empty shell, and that you keep corporate records and books like one would expect of a corporation. There are twelve factors in all that a court will look to, but the key is whether the corporation is a sham and has perpetrated some wrong or fraud on a third party.

By Adam P. Whitney, 617.338.7000.