From Cost-Containment to Profit-Center
Legal fees—the term strikes at the hearts of CFOs. On the transactional side, legal fees are often viewed as a necessary evil. While they help effectuate the objectives of the business and hopefully provide an ounce of prevention, they are frequently viewed as a regrettable cost of doing business. On the litigation side, legal fees are viewed even worse, breeding resentment and disdain. They are dead costs, contributing neither to the business’s objectives nor adding anything of value. And they seem to amass at breathtaking speed.
I recall being asked early in my career whether I was a plaintiff’s lawyer—I recoiled at the thought. I did not chase ambulances and viewed myself as a defender of clients against specious claims from this segment of the bar. However, as I represented more and more companies bringing suit or counterclaims to vindicate their rights, particularly in the antitrust and insurance coverage areas, I realized that I was indeed a lawyer who represented plaintiffs—otherwise known as a plaintiff’s lawyer. The fact that it has taken me fifteen years to acknowledge to myself that I am a plaintiff’s lawyer allows me to empathize with companies and individuals who cringe at the thought of considering themselves as plaintiffs.
I was recently approached by a hedge fund manager with nearly a billion dollars under management; the hedge fund has a deep pool of institutional investors. Its sole investment is litigation. The hedge fund finances companies and their lawyers in their pursuit of corporate claims. I asked this hedge fund manager what it promised its investors in terms of rate of return. The answer—25%. The hedge fund had obviously figured out what many companies are reluctant to do—capitalize on legal claims.
The Department of Justice figured this out decades ago. I started my legal career at the antitrust division of the Department of Justice, which was and remains a profit center for the federal government. Indeed, the antitrust division was the only section of the Department of Justice, and perhaps the only sector of the government, that put more money into the treasury than it took out. And it did so by pursuing redress against those that violate the country’s antitrust laws.
Long viewed as cost centers by their business counterparts, in-house counsel are seeking to convert ignored and discarded company assets—legal claims—into cash.
More and more general counsels are reaching the same conclusion. Long viewed as cost centers by their business counterparts, in-house counsel are seeking to convert ignored and discarded company assets—legal claims—into cash. When Visa and MasterCard agreed to pay $7 billion to settle antitrust claims brought by merchants, many CFOs took notice. In those cases, I had the privilege of representing large individual merchants who had already understood the potential value of their antitrust claims and through the litigation were able to convert those claims into cash to bolster the bottom line of their organizations.
Antitrust claims—which provide both treble damages and attorneys’ fees—are not the only types of claims businesses and professionals can monetize. Other types of claims arise in the areas of insurance coverage, consumer protection (which apply to businesses), federal and state false claims act, and common-law claims sounding in both tort and contract. I’ve come to grips with being a plaintiff’s lawyer. And many businesses are discovering the benefits of being a plaintiff. It is not only good business, but it can also transform an in-house legal department into a profit center. And what CFO (or CEO) can take issue with that?