When your client sees red

When your client sees red
It’s Sunday night and the kids are finally in bed. You are enjoying the precious last moments of your weekend. As soon as you put your feet up, your (silenced) mobile’s indicator light taunts you. Resistance is futile; you check your messages.

Margaret, the CEO of a medium-sized company, has emailed twice and left two messages. “It’s urgent,” she says. You detect a hint of anger in her voice.

You arrive at the office Monday morning struggling with the weight of a cup of coffee the size of your head. You call Margaret, and she explains that her CFO (let’s call him Judas), who happens to be her close friend, resigned from his job and, contrary to his non-compete, opened a competing business within her business’ local territory. Worse yet, Judas poached one of Margaret’s superstar sales managers, along with her client list. Margaret estimates that if half of her clients leave, her damages will be approximately $400,000. Margaret is hurt, somewhat worried about her company’s future business prospects, but, most of all, blind with rage. She wants justice; she wants revenge; she wants to sue — NOW!   

As a litigator, you quickly learn that hell hath no fury like a woman scorned … or a man double-crossed, or a general contractor with an unwarranted construction lien on the property, or, well — you get the idea. When people feel wronged, they get angry. Most of the time, they get very angry. In these initial moments of rage, clients often say that they do not care what it costs; instead, they say, “It is about the principle.”

The problem with making decisions while in a rage

Fast forward 13 months, after the exchange of pleadings, affidavits of documents, discoveries and expert reports and two procedural motions. Margaret’s company has to date paid $100,000 in legal fees. You advise her that, based on all the evidence, you do not anticipate her company will recover more than $200,000 in damages plus partial indemnity costs.
Margaret is in too deep to walk away — she has spent too much time and money to call it quits now. You advise her of the cost consequences of settlement offers and encourage her to think about making one.

Fast forward again to the week before trial. Judas offers to settle the case for $100,000 payable in 30 days. Judas, however, also makes it clear that Margaret is going to have a very difficult time collecting any amount of money from him, should she obtain a judgment against him. Unravelling his corporate shell game will be costly. You therefore advise Margaret that she should take the offer.

Margaret takes the deal, but is unhappy with your fees. You reduce your fees. Even so, she realizes she just spent an inordinate amount of time and energy fighting to win very little. She also feels that Judas, somehow, got away with murder.

Was it your fault?

As Jane Austen said, “Angry people are not always wise.” Margaret, like many clients, was uninformed about the strengths and weaknesses of the case, did not have a clear understanding of the legal basis of her claim or the litigation costs and had an unrealistically rosy view about the possible outcomes of the litigation. When she instructed you to sue — “Immediately!” — she did so in a rage. She did not stop and ask the right questions.

The catch is: even if she had asked, would you have had the answers? She came in, guns-a-blazing, and wanted the claim to go out ASAP; she didn’t provide Judas’ employment contract or any of the salient facts. She instructed you to get the claim issued, with details to follow. You did as you were instructed; however, by following her instructions, without informing her of the necessary information and risks, you set the wheels in motion for her eventual disappointment. I'd go so far as to say that there was no meeting of the minds as to how to proceed with this case. She expected you to win a $400,000 judgment and full-indemnity costs. You weren’t sure of the merits of the case as you hadn’t even seen the stolen client list or understood the revenue stream of the business.  

A better approach

You could have told Margaret to sleep on it and assured her that you would instead send a cease and desist letter to Judas. At the same time, you could have explained to Margaret that there are interim steps that should be taken, before suing Judas.

One powerful tool is to perform a preliminary case assessment in which Margaret and you enter into an investigative retainer before you start an action. Instead of simply taking her rage-driven instructions, you ask Margaret to compile relevant documents and answer your key questions about the facts. A good investigative report should give Margaret a good idea of: a) the strength of her claim; b) the quantum of damages; and c) the possible outcomes of the action. For example, an action that will find Judas liable, but award Margaret’s company no damages, likely should not be pursued. A case assessment forces the client to go through the cost-benefit analysis with you and take a fact-driven approach to litigation.

Fixed fee?

Fixed fee billing provides clients with a clear idea of the fees, or the range of fees, involved in pursuing litigation. Under the traditional billable hour model, a client will instruct you to proceed and you will ask for an upfront retainer. This does not give the client a good understanding of what the anticipated costs of litigation will be. The client does not find out until after you render your accounts (when it's too late and the client is too far in). For many emotionally charged cases, a fixed fee solution makes sense.

Lawyers have a duty to explain to a client the cost of litigation, and the possible outcomes. A fixed fee — or fees fixed for steps in litigation — allow clients to know, with a greater degree of certainty, the costs of litigation and enable the clients to make informed decisions.

In litigation, emotions often cloud a client’s judgment. If the client doesn’t properly understand the case, the client may quickly turn the anger from their opponent to their lawyer.

Molly Luu is a commercial litigation lawyer at Speigel Nichols Fox LLP in Mississauga. She can be reached at [email protected].

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