The Disruptive Lawyer Series: The Deposition Money Pit

Money PitAs the legal defense industry grapples with cost cutting measures, there are certain measures that can be more effective than others. Sure, holding the line on legal rates and auditing legal bills can result in some savings. That said, the real savings are avoiding and/or controlling larger costs – like the Deposition Money Pit! Here is an example of how it is done.

The Disruptive Lawyer was sitting at his desk, reflecting on the fact that he lasted almost 60 days before throwing in the towel on all of his New Year’s Resolutions. Then, the phone rang. It was a claims examiner from an insurance carrier which just added the Disruptive Lawyer to its panel.

The claims examiner explained that she just got a new E/O lawsuit. The insured company and ex-employee had been in negotiations for several months over an alleged breach of contract on unpaid commissions. The insured company’s outside national counsel and the plaintiff’s counsel terminated the negotiations, with the plaintiff demanding $1.3 million and the defendant offering around $100,000. The claims examiner further explained that she issued a reservation of rights and her company strictly had a duty to defend. The claims examiner concluded that she was directed to send this “trial balloon” case to the Disruptive Lawyer and so, “Good luck!”

The Disruptive Lawyer reviewed the case and arrived at the following conclusions in the first 30 days. First, there was likely a breach Hence, this meant MSJ was not an option and the case would go all the way to trial. Second, the budget for this complicated case (government contracts, multiple layers of commissions, and about a dozen witnesses) would be at least $150,000 through discovery and trial. Third, given the first two conclusions, the case quickly became about finding leverage to get the plaintiff to be much more reasonable in the negotiations – and sooner rather than later.

The insured company wanted to resolve the case and so, the Disruptive Lawyer met with the client to come up with various leverage points to trigger the negotiations. What the Disruptive Lawyer learned was (1) the commissions calculation was more like $750,000, not the $1,500,000-plus number the plaintiff alleged, and (2) the company was in dire financial straits. However, neither of these two issues were ever shared with the plaintiff in any detail. Hence, with the company’s permission, the Disruptive Lawyer reached out to the plaintiff’s attorney.

The plaintiff’s attorney immediately lit into the Disruptive Lawyer, stating, “You guys have been jacking me around for months. We have over a million in damages. We want to take the executive team’s depositions in the next 45 days.” The Disruptive Lawyer responded, “I appreciate your frustration. But before you spend hundreds of hours fighting me, I think you should sit down with me so that you have a sober view of the case, and I can tell you in a meeting rather than you learn it over several depositions.” Reluctantly, the plaintiff’s attorney agreed.

And so, the following week, they met after signing a confidentiality agreement. At the meeting, the Disruptive Lawyer showed the plaintiff a detailed analysis of the commission calculation, explaining the “home run” was more like $750,000. Then, the Disruptive Lawyer shared with the plaintiff evidence that any verdict was likely not collectible. Specifically, the Disruptive Lawyer shared the ROR letter that the carrier would not be paying a dime. And, the Disruptive Lawyer also shared the company’s finances over the past three years, showing it was deeply in the red, as well as collections letters from major vendors and a loan document from an investor showing he had recently loaned money to the company to make payroll. The Disruptive Lawyer concluded that “You can get what you can now, or the company will simply let the insurance company pay me to fight you over the next two years and by then, who knows if there will be any entity to collect a judgment from!”

From there, the parties started to negotiate (without a mediator) and within three hours, had settled the case for $200,000 paid over 24 months. Further, by avoiding extensive depositions and opting for “lawyer mediation,” the legal fees for the case were under $25,000.

The Takeaway

  • Legal Fees Saved: $125,000
  • Not every case requires depositions; sometimes, information can be shared informally.