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Contingent fee ruling

A couple of months ago, the Fifth Circuit upheld a fee agreement that entitled the lawyers to full-price hourly fee plus a 15 percent contingent-fee on any recovery. An arbitration panel had ruled that the lawyers might never have received anything, including the hourly portion, in view of the fact that the contract said the clients could defer payment until “financially practicable”. The fact that the underlying case settled for $188 million meant that the lawyers would receive more than $28 million — now, with interest, north of $40 million — for less than $5 million worth of work.

I opined that the decision “enhances confidence in contingent-fee agreements and therefore lowers the collection risk that law firms face when entering into contingent-fee arrangements with clients.” That, I went on, “should save clients who live up to their contracts money” because the lawyers do not need to “build in an additional premium for the lawyer’s risk of enforcing the fee deal.”

But thinking about that case put me in mind of an article about a more basic notion — why clients choose the contingent-fee lawyers they do. With contingent-fee rates “uniform” or nearly so — running about a third of the recovery — how do clients get their money’s worth, the article asked.

Assortative matching of lawyer and client

The article answered like this:

The notion of assortative matching was introduced and analyzed from an economic perspective by Gary Becker (1973). Becker used it to model decisions regarding whether and whom to marry. Among other things, he showed that when the division of output from marriage is uniform and nonnegotiable, a positive assortative matching is expected. Applying this model to a legal-services market with nonnegotiable CF rates, plaintiffs with particularly strong cases, where the anticipated recovery is particularly large, are expected to match with lawyers of particularly high repute; plaintiffs with the second-most lucrative cases are expected to pair with second-best lawyers; and so forth. The high value of the case is likely to result in an especially large fee for the top lawyer, and the high quality of legal services is expected to result in a particularly large net recovery for the plaintiff with the lucrative case, without deviating from the standard CF rate. At the other end of the scale, low-quality cases are expected to match with low-quality lawyers, thus yielding small net recovery for the plaintiff and a minimal fee for the lawyer.

The hypothesis of positive assortative matching in the CF market is supported by a large-scale study of Texas plaintiff lawyers conducted by Stephen Daniels and Joanne Martin. Daniels and Martin (2002, pp. 1783-95) describe a hierarchical plaintiff bar. The “Bread and Butter” lawyers at the bottom of this hierarchy ordinarily deal with low-value cases, while the “Heavy Hitters” at the top handle very large ones. Sara Parikh (2001, pp. 59-61) provides a comparable description of the CF market in Chicago. The lawyers in these categories, as well as the intermediate ones, differ with regard to the mean value of the cases they handle, with the mean and median cases ranging from several thousand dollars to several million. These categories also differ with regard to the scope of the geographic market the lawyers serve (local, regional, or state/national) and the percentage of potential clients they turn away.

Eyal Zamir, Barak Medina, and Uzi Segal, The Puzzling Uniformity of Lawyers’ Contingent Fee Rates: An Assortative Matching Solution  at 6-7 (Jan. 16, 2012).

The authors propose that the best lawyers charge the same percentage but get a far better result for the client and therefore earn a larger fee than their less-capable colleagues would have.

Return on investment

You could also look at the phenomenon in terms of the return on the lawyers’ investment.

You can figure out the implicit value of what the lawyer invests if you have a proxy for the lawyers’ value. In the case of a lawyer who does work by the hour as well as on a contingent-fee basis, you can simply multiply his or her hourly rate by the number of hours he or she must spend to obtain the favorable outcome.

If the lawyer typically earns $1,000 per hour from clients who pay her by the hour and she works 1,000 hours on the case before it settles or she wins an award or judgment, her investment totals $1,000,000. A less able lawyer might charge $400 an hour but take more time to achieve the result, investing (say) 1,500 hours for an implicit investment of $600,000.

If the dispute settles for $10 million, the more expensive lawyer would receive $3.33 million — a 3.33 multiple on her time. But the less costly colleague would receive the same multiple in the event of a resolution totaling only $6 million. The client nets $6.67 million for a one-third fee to the pricier lawyer but only about $4 million for the one with the lower hourly rate.

You can use different numbers of course, but you will always find that the lawyer who has the higher rate — which presumably the competitive market has blessed — must get a better result for the client in order to obtain the same return on investment unless he can handle the case with far greater efficiency. And even if he does get to a resolution faster and with less brain damage, that also confers a net benefit on the client, other things remaining equal.

What do you think? Should clients prefer a contingent-fee lawyer who charges a top hourly rate?


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Photo of Barry Barnett Barry Barnett

Clients and colleagues call Barry Barnett an “incredibly gifted lawyer” (Chambers and Partners) who is “magic in the courtroom” (Who’s Who Legal), “the top antitrust lawyer in Texas” (Chambers and Partners), and “a person of unquestioned integrity” (David J. Beck, founder of Beck…

Clients and colleagues call Barry Barnett an “incredibly gifted lawyer” (Chambers and Partners) who is “magic in the courtroom” (Who’s Who Legal), “the top antitrust lawyer in Texas” (Chambers and Partners), and “a person of unquestioned integrity” (David J. Beck, founder of Beck Redden).

Barnett is a Fellow in the American College of Trial Lawyers, and Lawdragon has named him one of the top 500 lawyers in the United States three years in a row. Best Lawyers in America has honored him as “Lawyer of the Year” for Bet-the-Company Litigation (2019 and 2017) and Patent Litigation (2020) in Houston. Based in Texas and New York, Barnett has tried complex business disputes across the United States.

Barnett’s background, training, and experience make him indispensable to his clients. The small-town son of a Texas roughneck and grandson of a Texas sharecropper, Barnett “developed an unusual common sense about people, their motivations, and their dilemmas,” according to former client Michael Lewis.

Barnett has been historically recognized for his effectiveness and judgment. His peers chose him, for example, to the American College of Trial Lawyers and American Law Institute. His decades of trial and appellate work representing both plaintiffs and defendants have made him a master strategist and nimble tactician in complex disputes.

Barnett focuses on enforcement of antitrust laws, the “Magna Carta of free enterprise,” in Supreme Court Justice Thurgood Marshall’s memorable phrase. “Barry is one of the nation’s outstanding antitrust lawyers,” according to Joseph Goldberg, a member of the Private Antitrust Enforcement Hall of Fame. Named among Texas’s top ten antitrust lawyers of 2023, Business Today calls Barnett a “trailblazer” among the “distinguished legal minds” who “dedicate their skill and expertise to the maintenance of healthy competition in various sectors” of the Lone Star State’s booming economy. Barnett is also adept in energy and intellectual property matters and has battled for clients against a Who’s Who list of corporate behemoths, including Abbott Labs, Alcoa, Apple, AT&T, BlackBerry, Broadcom, Comcast, Dow, JPMorgan Chase, Samsung, and Visa.

Barnett commands a courtroom with calm and credibility and “is the perfect lawyer for bet the company litigation,” said Scott Regan, General Counsel of former client Whiting Petroleum. His performance before the Supreme Court in Comcast Corp. v. Behrend prompted the Court to withdraw the question on which it had granted review. The judge in a trial involving mobile phone technology called Barnett “one of the best” and that his opening statement the finest he had ever seen. Another trial judge told Barnett minutes after a jury returned a favorable verdict against the county’s biggest employer that he was one of the two best trial lawyers he’d ever come across—adding that the other one was dead.

A versatile trial lawyer, Barnett knows how to handle a case all the way from strategic pre-suit planning to affirmance on appeal. He’s tried cases to verdict and then briefed and argued them when they went before appellate courts, including the Second, Third, Fifth, and Tenth Circuits, the Supreme Court of Louisiana, and (in the case of Comcast Corp. v. Behrend) the Supreme Court of the United States.

Barnett is a sought-after public speaker, often serving on panels and talking about topics like the trials of antitrust class actions and techniques for streamlining complex litigation. He also comments on trends in commercial litigation and the implications of major rulings for outlets such as NPR, Reuters, Law360, Corporate Counsel, and The Dallas Morning News. He’s even appeared in a Frontline program about underfunding of state pensions, authored chapters on “Fee Arrangements” and “Techniques for Expediting and Streamlining Litigation” (the latter with Steve Susman) in the ABA’s definitive treatise on Business and Commercial Litigation in Federal Courts, 5th, and commented on How Antitrust Enforcers Might Think Like Plaintiffs’ Lawyers.

Clients and other hard graders have praised Barnett for his courtroom skills and legal acumen.

A client in a $100 million oil and gas case, which Barnett’s team won at trial and held on appeal, said Barnett and his team “presented a rare combination of strong legal intellect, common sense about right and wrong, and credibility in the courtroom.” David McCombs at Haynes and Boone said Barnett “has a natural presence that goes over well with juries and judges.”

Even former adversaries give Barnett high marks. Lead opposing counsel in a decade-long antitrust slugfest said “Barry is a highly skilled advocate. He understands what really matters in telling a narrative and does so in a very compelling manner.”

Barnett relishes opportunities to collaborate with all kinds of people. At the Center for American and International Law (CAIL), founded by a former prosecutor at Nuremberg in 1947 and headquartered in the Dallas area, he has served on the Executive Committee, co-chaired the committee that produced CAIL’s first-ever strategic plan, supported CAIL’s Institute for Law Enforcement Administration and other development efforts, and proposed formation of a new Institute for Social Justice Law. CAIL’s former President David Beck said “Barry is extremely bright” and is “very well prepared in every lawsuit or professional task he undertakes.”

Barnett is also a Trustee of the New-York Historical Society, a Sterling Fellow at Yale, a member of the Yale University Art Gallery’s Governing Board, a winner of the Class Award for his work on behalf of his college class, and a proud contributor to the Yellow Ribbon Program at Harvard Law. Barnett’s pro bono work includes leading the trial team representing people who are at greatest risk of severe illness and death as a result of being exposed to the novel coronavirus SARS-CoV-2 while being detained in the Dallas County jail—work for which he received the NGAN Legal Advocacy Fund RBG Award.

At Susman Godfrey, Barnett has served on the firm’s Executive Committee, Employment Committee, and ad hoc committees on partner compensation, succession of leadership, and revision of the firm’s partnership agreement. He also twice chaired the Practice Development Committee.

Barnett understands that clients face many pressures. Managing the stress is important, especially in matters that take years to resolve. He encourages clients to call him whenever they have a question or concern and to keep the inevitable ups and downs in perspective. He wants them to know that he will do his level best to help them achieve their goals. He also strives to foster trust and to make working with him a pleasure.

Cyrus “Skip” Marter, the General Counsel of Bonanza Creek in Denver and a former Susman Godfrey partner and client, said Barnett is “excellent about communicating with clients in a full and honest manner” and can “negotiate for his clients from a position of strength, because he is not afraid to take a case through a full trial on the merits.” Stacey Doré, the President of Hunt Utility Services and a former client, said that Barnett is “an excellent trial lawyer and the person you want to hire for your bet-the-company cases. He is client focused, responsive, and uniquely savvy about trial and settlement strategy.” A New York colleague said, “Barry is a joy to work with as co-counsel. He tackles complex procedural and factual hurdles capably, efficiently, and without drama.”

Barnett’s wide-ranging experience and calm, down-to-earth approach enable him to connect with clients, judges, jurors, witnesses, and even opposing counsel. He grew up in Nacogdoches, Texas. He co-captained his high school varsity football team as an All-East Texas middle linebacker while also serving as the Editor of Key Club’s Texas-Oklahoma District, won the Best Typist award, took the History Team to glory, and sang in the East Texas All Region Choir. As Dan Kelly of client Vistra Corp. put it, Barnett is “a great person to be around.”

Barnett is steady and loyal. He has practiced at Susman Godfrey his entire career. He and his wife Nancy live in Dallas and enjoy spending time in Houston and New York. Their daughter works for H-E-B in Houston, and their son is a Haynes and Boone transactions lawyer in Dallas.

As a member of Ivy League championship football teams in his junior and senior years at Yale and a parent of two Yalies, Barnett has no trouble choosing sides for “The Game” in November. And he knows how important fighting all the way to the end is. On his last play from scrimmage, in the waning minutes of The Game on Nov. 22, 1980, he recovered a Crimson fumble.

Yale won, 14-0.