Alternative Fee Arrangements © CLM Litigation Management Institute All rights reserved. The course material presented herein does not represent the views or opinions of any of the individual faculty members or instructors or of any of the companies or entities with which they may be employed or affiliated. Nothing in the course materials presented should be construed as legal or professional advice or the rendering of a legal or professional opinion on any specific factual situation. Always seek appropriate legal and professional business advice in the context of specific cases. Erin Gleason Alvarez Michael Caspino

Background What is an AFA?

Background What do law firms think about AFAs?

Background What do clients think about AFAs?

Background What happens to defense firms that don’t adapt to a changing marketplace?

Changing Cultures  Specific adjustments by lawyers and law firms  Attitude  Practice  Associate expectations  Financial adjustments  Corporation and carrier considerations  Expectations  Performance management

Attributes of Successful AFAs  An objective greater than just reducing legal fees  High degree of organization/efficiency  Strong leadership “buy-in” on both sides  Close monitoring of case handling  Training and educating all participants  Flexibility for change  Attitude of mutual success rather than “control”

Erin Needs an AFA  A portfolio of 25 cases involving the failure of a certain type of hydraulic pump – design defect  The pump was used in all types of machinery, from ferris wheels to factories  Nineteen cases involve only property damage claims  Six involve personal injuries relating to pump failures  More cases are expected to come in over the next two years  Erin needs her AFA ASAP

Mike Needs to Respond to the AFA HELP!!!

Pricing an AFA Program Total Labor Cost Model X ÷ Y = Z Z ÷ C = A A X WB = LC LC + OA + PC = PN X = estimated yearly file count Y = estimated average file lifetime Z = average monthly file count C = allowable case load per attorney A = number of program attorneys necessary for program LC = labor cost WB = total wages and benefits OA = overhead allocations PC = profit/contingency PN = pricing numbers

Pricing an AFA Program Task and Time Model T − H = PN R = estimated average point of case resolution T = estimated total time necessary to complete tasks to R H = desired effectively hourly rates PN = pricing numbers

Pricing an AFA Program Experience Model T × H = PN R = estimated average point of case resolution T = historical time to R H = desired effectively hourly rates PN = pricing numbers

Ethical Considerations Avoiding buyer remorse — or worse — ethical considerations generally reviewed in hindsight  DOCUMENT! —Terms of Agreement should always be set forth in writing  Reduces risk, especially in situations contemplated under Rule 1.8  “Reasonableness” issues  What if it doesn’t work out?  “Unearned” fees?  What if client and firm interests not aligned?

Alternative Fee Arrangements Erin Gleason Alvarez Michael Caspino