Contingent Fee Business Litigation Blog

Recent developments in the world of contingency fee business litigation and commercial arbitration

Randy McClanahan — Thu, 14 Apr 2011 10:29:33 -0600

Bad news for Jeff Skilling

Former Enron CEO Jeff Skilling lost his most recent appeal to the 5th Circuit. He was originally sentenced to 24 years and $45 million in restitution. His convictions were affirmed, although he is still to be resentenced because of a sentencing enhancement that had been misapplied by the trial court. U.S. v. Skilling, ___ F.3d ___. 2011 WL 1290805, (5th Cir. 2011). Unless the U.S. Supreme Court agrees to revisit Mr. Skilling’s case again, it appears that he will remain in federal prison for a very long time.

Investors receive surprisingly large arbitration award.

According to The Wall Street Journal, Citigroup has been ordered to pay $54.1 million to two wealthy investors (a venture capital investor and a retired patent attorney) for losses they sustained on risky municipal bond funds that lost 77% of their value in the financial crisis. “The award by an industry arbitration panel is the largest ever levied against a major Wall Street brokerage in favor of individual investors . . . .” (Larger awards have been made to corporate investors.) The award included $17 million in punitive damages and $3 million in legal fees. Citigroup’s municipal bond funds are the subject of an SEC probe into whether the bank misled investors by failing to disclose the funds’ risks. The investors were neighbors, and the former Smith Barney broker testified on behalf of his former clients. Arbitration is mandatory in most Wall Street customer agreements, and this result appears to substantially exceed any previous award to individuals is such an investment advice dispute. It is good to see a case in which a FIRA arbitration worked out so well for the investors!

Lieck is out of luck!

The written contract for local counsel (Ed Lieck) provided that he would receive 10% of the first $50 million and 5% above $50 million of “recovered judgments awarded” in a lawsuit. As a result of an arbitration and settlement of a related action in Sweden, the lawsuit was dismissed. Local counsel sued for a fee. He wanted his percentages of the fair market value generated from the business deal. The trial court awarded him approximately $13.5 million. The appellate court reversed and he recovered nothing. The contract was unambiguous. Lieck was to get his percentage of “any and all recovered judgment(s) awarded in [the lawsuit].” The judgment in the lawsuit simply dismissed all claims and ordered each party to bear its own costs. Since the parties were awarded nothing, Lieck recovered nothing. U.S. Denro Steels, Inc. v. Lieck, ___S.W.3d___, 2011 WL 1252090 (Tex. App. Houston [14th Dist.] 2011). Whether fair or not, this appears to be consistent with the view that attorneys’ fee contracts will be construed like any other contracts, and possibly for a further view that they will usually be construed against the attorney.

MME Launches New Website

Mike Myers — Wed, 10 Nov 2010 14:57:56 -0600

McCanahan Myers Espey is proud to announce a new firm website today and express thanks to Steve Matthews, Laurel Fulford, and others at Stem Legal who created and implemented the site's changes.

Please drop by and see our new online home.

Patent Infringement Litigation: Risks of Notifying the Infringer Before Filing a Lawsuit

Randy McClanahan — Mon, 27 Sep 2010 14:00:32 -0600

In “Patent Litigation – Four Steps to Patent Royalties,” the author suggests that after collecting evidence of patent infringement, the patent owner should “notify the infringer” before filing suit, because they “may begin to negotiate right away.” Not so fast. You may be about to have a suit filed against you in a court chosen by the defendant.

In 2007 the U.S. Supreme Court decided MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118. The Court discussed circumstances in which the sending of a letter by a patent owner might present grounds for the recipient of the letter to file a suit seeking a declaration that, among other things, there is no infringement and the patent is invalid. Since the MedImmune decision, many cases have fine-tuned the circumstances in which a declaratory judgment action may, or may not, be filed. A recent post by Professor Lisa Dolak of Syracuse University (and a former Federal Circuit Law Clerk) provides an excellent summary of many of those cases. For example, a statement that the patent owner “does not intend to sue” is likely not sufficient to end the suit for declaratory judgment. Similarly, a stated “continued willingness to negotiate” might be useless in preventing or stopping the declaratory judgment action.

It is clear that MedImmune has altered the world in which a patent owner may safely initiate communication with a potential infringer or licensee of the patent. Before sending any letters, the patent owner should be working with patent litigation counsel to make sure that the risks of a hostile declaratory judgment action are carefully evaluated and a fully informed decision made about how to go about enforcing the patent.

Business Method Patents: Challenges for Patent Infringement Cases

Randy McClanahan — Tue, 14 Sep 2010 14:49:12 -0600

As attorneys involved in patent litigation, our firm has received several inquiries lately about whether we might take, on contingent fee, a case for infringement of a business method patent. The answer is “maybe!” “A business method is simply one kind of ‘method’ that is, at least in some circumstances, eligible for patenting.” Bilski v. Kappos,130 S.Ct. 3218 (U.S. 2010). Great care must be taken in evaluating such a case, however, because method patents are not broadly patentable.

Bilski made its way to the highest court via an administrative route rather than by private litigation. An applicant tried to patent a method of hedging risk in commodities trading in the energy market. The PTO rejected the patent, which was affirmed by the Board of Patent Appeals and the Federal Circuit (en banc). The Supreme Court granted certiorari.

Methods of doing business are not necessarily non-patentable. In Bilski, the claimed invention was a mathematical formula, an “abstract idea,” and thus not a patentable “process.” Significantly, however, the Court rejected any limitation that a method patent must satisfy a “machine” or “transformation” test. That is, a claimed process is not patent eligible only if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. Although a useful tool, the Supreme Court held that the “machine or transformation” test is not the sole test for determining whether a method is patent eligible. While the “machine or transformation” test might have worked well in the Industrial Age, it does not work as well in the Information Age.

In the Supreme Court’s decision, four Justices concurred in one opinion (strongly disagreeing with the Court’s disposition of the case) and two in another (believing that business methods are not patentable). The Federal Circuit’s decision produced five opinions. This led Justice Kennedy to note, “Students of patent law would be well advised to study these scholarly opinions.”

This has led some to suggest r eexamination as an alternative to patent litigation or a license and that “defendants and potential licensees are using reexaminations more frequently than in the past to challenge the validity of the claims in issued patents. So what’s the bottom line? Business method patents, while perhaps alive, will be difficult to successfully litigate by a plaintiff. Perhaps the patent owner can best prepare his case for successful litigation by seeking re-examination himself before it is sought by a defendant, potential licensee or other third-party. We would be much more likely to take a business method case on contingency fee after the patent has survived re-examination in light of the substantial, though perhaps somewhat ambiguous, discussion of the higher and highest courts in Bilski.

Oops! Plaintiffs want a jury to award them money, but end up with arbitrators making them pay!

Randy McClanahan — Mon, 13 Sep 2010 09:38:44 -0600

This should be of interest to plaintiffs and attorneys who hope to conduct business litigation or arbitration with a contingent fee.

Homeowners hired a construction company to build an 8000 square foot house, 2000 square foot guest house, pool and pool house, tennis court, pavilion and multi-car garage on their 12 acre property. The project was to cost $11.3 million. About 2 and ½ years into the project the builder stopped work, alleging the homeowners breached their contract by failing to pay for increased construction costs due to a design change. The homeowners claimed that the builder had delayed work and overrun costs.

The homeowners wanted the case heard in court. The builder wanted to arbitrate. The case was ultimately heard by a three member arbitration panel. The homeowners were ordered to pay the construction company $5.75 million in legal fees and arbitration costs.

The homeowners believed that they would have won with a jury and that the arbitrators were biased because they had formerly represented construction companies.

Obviously, it can matter a great deal to a contingent fee plaintiff whether his case gets tried by a jury or arbitrators. In either case, however, it is very important to pick the right audience, whether they are jurors or arbitrators!

Insurer faces counterclaim in STOLI case

Mike Myers — Fri, 13 Aug 2010 09:55:22 -0600

In 2009, the Penn Mutual Life Insurance Company sued a trust and its trustee in a Delaware federal court, alleging the life insurance policy issued to them was part of an impermissible “stranger oriented life insurance” or “STOLI” scheme. Penn Mutual sought to rescind the policy because of “material misrepresentations” it relied upon when it placed the coverage.

The trust filed a counterclaim against Penn Mutual, essentially arguing that any misrepresentations in the policy application were made by Penn Mutual’s agents and should therefore be imputed to Penn Mutual itself. Penn Mutual asked the Delaware court to dismiss the counterclaim. But the court refused. On July 30, 2010 it held the trust’s allegations “implicate legal and factual issues related to agency” and allowed the counterclaim to proceed further. The case is styled civil action number 09-677, Penn Mutual Life Insurance Company v. Barbara Glasser 2007 Insurance Trust, in the United States District Court for the District of Delaware.

Federal Court refuses to dismiss STOLI suit

Mike Myers — Thu, 05 Aug 2010 08:57:49 -0600

Penn Mutual Life Insurance Company sued two insurance agents, Kevin Bechtel and Steven Brasner, alleging they unlawfully initiated a “stranger originated life insurance” or “STOLI” policy. Penn Mutual claimed Bechtel and Brasner contacted a seventy-one-year-old woman, encouraged her to participate in a STOLI scheme, and then submitted an “Agent's Underwriting Report” which falsely stated the policy was not intended for sale in the secondary market and the premiums would not be paid with borrowed funds. Brasner was to receive 60% of the policy’s sales commission. Bechtel was to receive 40% of the commission

Bechtel moved to dismiss the case, arguing that the Illinois federal court did not have jurisdiction over him because he did not: (1) do business in Illinois, (2) speak with the woman insured by the policy while he was in Illinois, or (3) sign the underwriting report. The Court was not persuaded. It denied Bechtel’s motion and noted he carefully crafted his statements to leave the misleading impression that he did not engage in any conduct with regard to the policy, but did not actually deny any of the essential claims against him. The Court concluded it had jurisdiction because Bechtel had an Illinois insurance agent’s license and was therefore subject to suit in Illinois. Bechtel also asked the Court to dismiss the case because Penn Mutual had not “stated a claim” against him. The Court refused, stating Bechtel’s arguments “merit little discussion.” It denied the motion on a procedural matter and also restated the obvious sufficiency of Penn Mutual’s allegations.

Notably, Bechtel’s co-defendant Brasner has been accused in other civil actions alleging the same type of STOLI scheme, including suits filed by Axa Equitable Life Insurance Company and West Coast Life Insurance Company. He was also indicted in Florida on charges of grand theft, insurance fraud, creating an organized scheme to defraud, and aggravated white-collar crime for allegedly inflating the income and net worth of several senior citizens on life insurance applications to foster STOLI transactions.

Florida Supreme Court hears "dead peasant" insurance case

Mike Myers — Fri, 07 May 2010 14:33:23 -0600

On May 4, 2010, the Florida Supreme Court heard argument in the case Wayne Atkinson v. Wal-Mart Stores, Inc. (Click here to watch the argument). The case concerned Wal-Mart’s policies of “corporate-owned” life insurance, sometimes called “dead peasant” insurance, on the lives of its Florida employees. Michael Myers of McClanahan Myers Espey argued on behalf of the families of the Wal-Mart employees. Wal-Mart was represented by Eileen Tilghman Moss of the firm Shook, Hardy & Bacon in Miami, Florida.

In the case, Mr. Atkinson and others sued Wal-Mart, seeking to recover life insurance benefits Wal-Mart was paid after the deaths of their relatives, who had worked for Wal-Mart as rank-and-file employees. The company received $66,048 after the death of Rita Atkinson and $72,820 after the death of Karen Armatrout. A federal judge ruled the women's families did not have the right to sue under Florida law. The United States Court of Appeals for the Eleventh Circuit then asked the Florida Supreme Court whether Florida law allows such a lawsuit.

Why not use a Board Certified lawyer?

Randy McClanahan — Fri, 07 May 2010 11:37:23 -0600

I just perused a lawyer’s website. His firm had several lawyers. He was from a small town, adjacent to a metropolis. He handled business litigation and probate litigation. His firm worked by the hour and on contingent fee. Then I noted the disclaimer: “He is not licensed by the Texas Board of Legal Specialization.”

How do people find a competent trial lawyer? I suspect it is the same way they find doctors, dentists and other professionals – they ask a friend if she knows one! There are, of course, better ways, but most ordinary folks don’t know about them. That’s where the Board of Specialization comes in.

Would you want a general practitioner physician to perform your heart surgery? Of course not. You would want a Board Certified heart surgeon. Then why would you want a non-board certified trial lawyer to handle your important patent or business litigation? High hourly rates are not an excuse. If your case is right, you can probably get a highly qualified attorney to handle it on a contingent fee basis.

Board Certification is a mark of excellence and a distinguishing accomplishment.Within the Texas legal community, Board Certification means an attorney has substantial, relevant experience in a select field of law as well as demonstrated, and tested, special competence in that area of law. There are more than 70,000 attorneys licensed to practice in Texas. Only 7,000 are Board Certified.

About 1100 Texas lawyers are Board Certified in Civil Trial Law. That is the specialized area that deals with litigation involving contracts, businesses and business owners, negligence, creditors and debtors, fair debt collection, landlord and tenant, and deceptive trade practices act.

You can easily find a Board Certified Trial Lawyer by going to the Texas Board of Legal Specialization’s on-line directory. It has a "search" page. That allows you to search the database using a variety of criteria, including name, city, county, or zip code. Alternately, call the TBLS at 800-204-2222, ext. 1454 or at 512-453-7266, or e-mail TBLS.

It behooves you to insist on the best. Make sure your contingent fee lawyer is Board Certified in Civil Trial Law. Why do anything else?

Bankruptcy Attorney Fees: Make them contingent

Randy McClanahan — Mon, 19 Apr 2010 13:48:55 -0600

A company files for bankruptcy. Millions of dollars are lost by unsecured creditors. There is no cash to pay lawyers to go after third parties. What do you do?

It’s simple. Find a competent firm willing to take the case on a contingent or hybrid fee basis.

Take theHeller Ehrman bankruptcy as an example. The 750-member international law firm filed for bankruptcy, in part it says, because its main two lenders -- Bank of America and Citibank -- refused to renegotiate the terms of a $5.7 million debt the banks say the firm owes as part of a long-term loan.

According to a recent court filing, the unsecured creditors' committee has asked the bankruptcy judge to approve the hire of a litigation firm for a pending case against Bank of America and Citibank. Under the proposed contract, the 11-lawyer firm would be paid $1 million up front, plus a contingency fee based on the net benefit to the estate if they win. “It’s BIG, You’re in Charge! Firm Picked for Pending Case Against BofA, Citi,” The Recorder, April 9, 2010.

When such a bankruptcy gets underway, counsel for the debtor should investigate potential claims against third-parties. They should then work with the unsecured creditors’ committee to search for special counsel – typically contingent fee business litigators who frequently represent plaintiffs against powerful companies. Once they negotiate a contract with the law firm that will undertake the case, the contract can be presented to the bankruptcy judge for approval.

Of course, the firm chosen for the task must possess entrepreneurial spirit and courage, as big third-party defendants such as B of A and Citi will have excellent counsel who are highly motivated by their substantial hourly fees. But such is the case in major, contingent fee business litigation.

In the end, it should be a win-win for everyone. Enough money may be generated to pay back all or part of what is due the unsecured creditors. Counsel for the debtor and the creditors will be heroes. The Court will be happy. The contingency fee lawyers, who get paid if they win, will be happy. The only unhappy people will be the third-party defendants who pay.

If the right lawyer agrees to take the case, it’s a no-brainer for the debtor and creditors!

"CYA," the corporate curse!

Randy McClanahan — Mon, 05 Apr 2010 10:34:53 -0600

When excellent lawyers leave big firms to become entrepreneurial contingent fee trial lawyers, they inevitably run into the “CYA effect.” This is the unfortunate tendency of many fearful General Counsel and corporate executives to hide behind a large, well-known firm in the event a case goes bad. Such was the experience of Elizabeth Starrs and her partners described in “Starting a Litigation Boutique.”

How ridiculous! It is frequently only the best lawyers who have the courage to strike out on their own. This may leave the bureaucrats and timid folk to handle these risky and important corporate cases. The big firms tend to hire high-grade law graduates at high dollar prices. To justify their salaries, they charge high hourly fees for the tutoring of neophytes. A corporate client looks at the bill and sees many lawyers, of unknown experience and abilities, charging outrageous fees for too many hours and unnecessary work– all because the corporate employees who hired the large firm want to cover their derrieres.

Starrs found that this corporate tendency led her firm toward representing privately owned and cost conscious companies and individuals. We have had the same experience, and it has been most gratifying. We listen. We solve problems. We have incentive to be cost efficient. Our ability to be profitable requires us to find the most efficient path to the goal line.

Since “turning from the dark side,” we and lawyers like us now represent David instead of Goliath. This occurs in virtually all forms of business cases, including patent litigation, breach of contract cases and complicated arbitrations. Of course, the “CYA” folks could repent! They could easily find the best, most efficient, trial lawyers, not just the largest firms and motivated hourly billers. Will they? I doubt it.

The best business people often leave large, cumbersome companies to go on their own. This is the era of the entrepreneur, in business and in law. General Counsel and corporate executives should have courage in seeking out the best lawyers for their case. After all, they were hired to do a job, not hide in the corner.

Why don't more hourly-billing lawyers take on contingent fee cases?

Randy McClanahan — Tue, 30 Mar 2010 09:55:52 -0600

In the Wall Street Journal’s Law Blog dated March 29, 2010, Ashby Jones asks whether there are any takers on the strategy of mixing a traditional hourly fee practice with a contingent-fee business.

Most firms do not take plaintiff's contingency fee cases because they are risk averse. They lack the entrepreneurial spirit. I've seen it time after time. Many lawyers on the hourly side think it is easy to make loads of money during contingent litigation. It is not. It requires huge investments of lawyer time and borrowed expense money. For the same reasons that some people work for corporations and other are entrepreneurs, some lawyers and firms are cut out for hourly work and others are willing to risk everything. No risk, no reward.

For a lawyer to be successful with a contingent fee case, three things are necessary. First, there must be a reasonably good case for liability. Second, there must be significant damages. Third, the defendant must be able to pay a judgment.

Even if all those things are present, the case must survive inevitable legal challenges by the defense, including motions for summary judgment (to prevent the case from even reaching the jury) and appeals. Years can pass, and millions of dollars in lawyer time and case expenses will be repaid. And after all is said and done, the lawyer might lose and have to pay back a line of credit. It is not a business for the weak or fearful.

Many of our contingent fee clients are true entrepreneurs. Even if they are doing business as a corporation, they are risk-takers. They appreciate that their lawyers have their own “skin in the game.” Businessmen and lawyers who will not take risks need not apply!

Contingency Fee Representation: When the lawyer's fee exceeds the amount in dispute.

Randy McClanahan — Fri, 26 Mar 2010 15:02:24 -0600

All too often, legal fees eclipse the amount in dispute in the lawsuit. Why is this? Typically, the culprit is hourly billing.

I recently saw an editorial in the Houston Chronicle entitled “It’s time to reconsider how lawyers are trained.” It is written by James Parsons, a staff attorney with one of the Texas Civil District Courts in Houston.

Parsons correctly notes that too often the legal process begins by billing rather than problem solving. I see it in my practice all the time. The plaintiff’s lawyer, on a contingency fee, has an incentive in getting to the goal line as quickly, efficiently and inexpensively as possible. The defense attorney, if billing by the hour, wants to do the opposite. His incentive is to turn over every rock, scorch the earth, and “defend” every issue possible. If it can be done, it must be done. After all, he gets paid for every hour worked, not by the result he obtains.

Why not just solve the problem? Communicate. Listen to the other side’s point of view. As Parsons suggests, employ the skills of teamwork, communication and leadership. Good defense lawyers should not ask “how can this case be defended.” Rather, they should ask “how can this plaintiff’s problem be solved.”

Sometimes the problem can be solved with a simple apology. Other times a business deal will do the trick. If it’s more complicated, however, and litigation or dispute resolution is necessary, then try to identify the points where the parties agree and just fight about the rest.

Agree on as many facts as possible. Narrow the issues down to the real dispute. Conduct only the minimum necessary discovery. Get an early trial setting and let the decider decide. Don’t focus on how to obfuscate, obliterate and litigate. Instead, focus on communication, understanding and resolving.

The contingent fee lawyer wants to do that. Clients would be happier if hourly billing lawyers did the same.

http://www.chron.com/disp/story.mpl/editorial/outlook/6928793.html.

Lawyer awarded real estate from contingency fee agreement

Mike Myers — Thu, 25 Mar 2010 14:47:03 -0600

The recent case Ferguson v. Strutton involved claims for the partition of several pieces of real estate. The client retained her attorney through a contingency fee contract which entitled the attorney to “thirty-three and one third percent of whatever may be recovered, whether in money or property, or whether recovered through suit or compromise.”

The client settled her case and received 338 acres of the land. She originally offered her attorney a specific parcel of property as his fee, but then changed her mind and gave him nothing. He sued and was awarded $135,804.06, an amount equal to one-third of the appraised value of the 338 acres.

The Missouri court of appeals reviewing the case reversed the award for money. It held the fee contract expressly provided the attorney one-third of whatever was recovered and, because the client’s recovery was real estate, the attorney’s fee was therefore “an undivided one-third interest in the property recovered by the client as a result of the settlement of the partition suit.”

Every person who wants to hire an attorney should know that the amount and method of the attorney’s payment is negotiable. The attorney and client in the Ferguson case agreed that the attorney would receive one-third of whatever the client received. In this case, it happened to be real estate.

Contingency Fee Representation: Hourly fees contingent on winning.

Randy McClanahan — Wed, 24 Mar 2010 14:24:26 -0600

We all know that many clients cannot afford to pay the hourly fees of a good lawyer. In a plaintiff’s case, if there is a good argument for liability, the potential damages are substantial and the defendant can probably pay a judgment, some lawyers will take the case on a contingent fee basis. That is, the client pays a percentage of what is collected. No recovery – no fee. This arrangement is common in personal injury cases and sometimes in business cases.

Similarly, some defense cases can also be handled on a contingency basis. If the plaintiff’s demand is much higher than the value of the case, and if the defendant can afford to pay, a “reverse contingent fee” may be possible. The lawyer receives a percentage of the savings between the plaintiff’s demand and what the defendant ultimately has to pay.

But what about cases where those requirements are not met? Suppose the client has a plaintiff’s case with good liability, the defendant can pay, but there are small or nominal damages? If the law allows a successful plaintiff to recover attorneys’ fees, a contingent fee representation may still be possible.

Take, for example, In re Thompson, Bankruptcy No. 08-02560, United States Bankruptcy Court, N.D. Illinois, Eastern Division, March 19, 2010. Mr. Thompson was in bankruptcy. GMAC wrongfully repossessed his car, in violation of the automatic stay under 11 U.S.C. § 362. Like most folks in bankruptcy, Mr. Thompson had no money to pay lawyers to go after GMAC.

The law provides, however, that an individual injured by a willful violation of the automatic stay may recover "actual damages, including costs and attorneys' fees.” 11 U.S.C. § 362(k)(l). Importantly, the debtor need not have actually paid the fees before they can be recovered. Recoverable fees can even be contingent upon the attorneys' success in the litigation!

The Thompson Bankruptcy Court suggests how a fee contract can be written to allow this. The Court says that the parties may enter into a clear written agreement providing that the fees are to be due from the client, but contingent upon success of the matter and collection from the defendant. Don’t say that the lawyer “waives” the fee. The client must be obligated to pay the fee, although that obligation may be conditioned on collection from the defendant.

Sometimes a case can be funded with a business arrangement. For example, our firm once defended a “David” business against potentially ruinous litigation by a “Goliath” corporation trying to stop David from competing. Although “David” could not afford to pay us during the litigation, we won the lawsuit, “David” was acquired by a much larger corporation, and we were then paid for our work.

In other cases, a lawyer might agree to handle litigation for a business, whether as plaintiff or defendant, in exchange for an equity interest in the business. There are numerous other creative ways to accomplish the same result.

So, don’t assume that you cannot have competent lawyers merely because you can’t pay their hourly rates. Whether you are a plaintiff or defendant, where there is a will there may be a way.

ABC News Interviews Mike Myers on Dead Peasant Insurance

Mike Myers — Mon, 05 Oct 2009 15:52:08 -0600

I was recently interviewed by ABC News on the topic Dead Peasant Insurance. That segment is embedded below:

If this is a topic of interest, be sure to visit our recently launched FAQ collection for more in-depth commentary.

Mike Myers Launches COLI FAQ Website

Mike Myers — Wed, 09 Sep 2009 16:11:33 -0600

Mike Myers of McClanahan Myers Espey is pleased to announce his recently-launched website, Dead Peasant Insurance FAQ (DeadPeasantInsurance.com). The site answers common questions about Corporate Owned Life Insurance (COLI), which is also sometimes called janitor insurance or dead peasants insurance.

The site describes the origins of COLI (including how it came to be known as "dead peasants insurance"), lists which employers are believed to have bought insurance policies on the lives of their employees, and discusses employer disclosure requirements. Myers also invites readers to submit more questions on the topic of COLI.

About Mike Myers: Mike Myers has a national law practice involving class actions and commercial litigation at both the trial and appellate levels. He has been counsel in cases involving eighteen approved class action settlements, including the Wal-Mart and Fina Oil “dead peasant” insurance cases. Mike is frequently used as a media resource on the topics of insurance and annuities. He has appeared in the National Law Journal and on CNN’s Prime News with Erica Hill to discuss life insurance issues and consulted on the documentary film SiCKO.

Legal in-sourcing: the day of the billable hour is over

Randy McClanahan — Tue, 25 Aug 2009 10:13:33 -0600

The problem is hourly billing. The solution is legal in-sourcing. But it takes two to tango. The dance partners must consist of a non-traditional lawyer and a courageous corporate chief legal officer.

In “Billable Hour Under Attack, In Recession, Companies Push Law Firms for Flat-Fee Contracts,” by Nathan Koppel and Ashby Jones, the authors report that companies are ditching hourly fees because they provide incentive to rack up bigger fees. I remember when Nathan was on top of things at Texas Lawyer, and he is once again right on point for The Wall Street Journal.

According to a survey by management consultant Altman Weil, Inc., there was a “dramatic vote of no confidence from chief legal officers” to the suggestion that the major firms might be serious about changing their traditional hourly billing paradigm. Daniel J. DiLucchio, Jr., a principal of Altman Weil who has been providing management and consulting services to corporate law departments and law firms for 25 years, predicts that “in-house lawyers will assume greater workloads . . . and chief legal officers will need to become more strategic about triaging work, allocating resources, and, in some cases, tolerating higher levels of risk.”

Triaging legal work! I love that term. That is what legal in-sourcing is all about. In litigation – even “bet the company litigation” -- the key is to get a great trial lawyer to lead the team. Then take as much of the routine work in-house as possible. The lead trial lawyer would not do such work anyway. So why pay his firm millions to do what can be done in-house for thousands? Why must getting “cover” for the CLO be considered risky?

The CLO must have the courage to break from the traditional hourly billing norm. Remember the saying: “No one ever got fired for hiring IBM.” That is part of the problem. A CLO might find “cover” by hiring a well-known national firm and the costs be damned. The firm will likely insist that it do everything, from producing documents, to answering interrogatories, to file maintenance, at its usual and outrageously-high hourly rates. Nonsense. The firm wants to charge hourly rates for such work because it is profitable. More money for the lawyers, less for the client. Most of that can be better done in-house. Outside counsel can direct the show, but the stage hands don’t have to be with their firm.

Big-time litigation has become big business. It does not have to be. General Counsel: Take the routine work on big cases in-house. Engage a seasoned and experienced outside trial lawyer to lead the in-house work force. Pay him creatively, not hourly. If it’s a plaintiff’s case, consider a contingent fee. If it’s a defense case, come up with a retainer or performance bonus that will fix costs to a number that the company can live with. The General Counsel will be a hero to the CEO, who will please the Board, which will make the shareholders happy.

Hourly billing should be a relic of history. This is the internet economy. Let’s act like it!

U.S. appeals court labels STOLI transactions "insurance fraud"

Mike Myers — Tue, 07 Jul 2009 15:49:57 -0600

Liberte Capital Group advertised itself as a “viatical investment company.” Its stated business was to buy existing life insurance policies from terminally-ill or elderly persons with a lump-sum payment and then receive the policy benefits when they died. But in reality, Liberte was a fraud. Its chief executive was convicted of two counts of conspiracy and 155 counts of money laundering for buying life insurance policies from others who, with his assistance and through false statements, acquired the policies after receiving diagnoses of terminal illnesses. The owner of Liberte’s escrow agent was also convicted of multiple counts of fraud and tax violations relating to the transactions and sued for embezzling the company’s assets.

On May 28, 2009, the United States Court of Appeals for the Sixth Circuit made the most recent examination of Liberte’s affairs after Liberte’s receiver sued for rescission of three policies and return of the premiums. The Court’s opinion contains the unexpected and remarkable statement that:

The viators’ purchases of the insurance policies with the intent to re-sell them to Liberte immediately constituted insurance fraud, because the viators never intended to insure their own lives.

It would not have been remarkable for the Sixth Circuit to label the policies fraudulently-procured. The false statements in policy applications were legion and well-litigated. The Court’s statement was remarkable because it focused on the insured person’s intent to immediately sell the policy to an investor.

STOLI is an acronym for “stranger-owned life insurance” or “speculator-owned life insurance.” It is a shorthand reference for transactions in which someone buys insurance on his own life only to sell it to a third party, often an unrelated investor, once the policy’s contestability period expires. For those who participate in STOLI transactions, the Court’s opinion is noteworthy. Perhaps inadvertently, perhaps not, the Sixth Circuit’s opinion classifies the basic STOLI transaction as “insurance fraud.”

Court reprimands lawyer for unreasonable contingency fee

Mike Myers — Wed, 01 Jul 2009 14:00:13 -0600

Every person who wants to hire an attorney should know that the amount and method of the attorney’s payment is negotiable. But there are limits to what an attorney can charge.

The American Bar Association’s Model Rules of Professional Conduct state that “A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses.” State bar associations have adopted this restriction and Indiana’s version of the rule was recently addressed by its Supreme Court.

On June 12, 2009, the Indiana Supreme Court assessed a public reprimand against an attorney for charging an unreasonable fee. The fee agreement at issue called for an hourly rate of $75 per hour plus 50% of the amount recovered. Interestingly, the Indiana Supreme Court did not actually rule that the fee agreement was unreasonable. It instead accepted the parties’ stipulation that making an agreement to charge a client a 50% contingency fee in addition to an hourly fee was a violation of Rule 1.5(a) of the Indiana Rules of Professional Conduct when it assessed the reprimand.