Posted on May 29, 2009 by Aaron Morris

It's OK to Question Litigation Costs

After more than 20 years I can’t believe this sort of thing is still going on.

On-line legal research offered by Lexis and Westlaw used to be very expensive.  These services charged by the hour and according to the database being used.  Printing out what the research revealed was also expensive, with the services charging by the line.  An intensive research session for a major motion could cost thousands of dollars. 

The profits being realized by the research services were so high that at the first mega-firm I worked for they offered a free trip to Hawaii to the attorney at the firm that spent the most time using the service.  The firm gladly passed along word of the contest and the associates obliged by signing on and staying on for days at a time.  Only after I pointed out the conflict of interest in such an arrangement did the firm cancel the contest.
 
Flash forward a few years and the competition between LexisNexis and Westlaw – the two major services – became intense.  They both began offering flat fee arrangements for law firms.  For around $200 per month, an attorney can perform unlimited searches in specified databases and print to his heart’s content at no additional charge.  But in a throwback to the earlier times, the services continued providing invoices that showed the charges under the old hourly system.  The attorney would pay just $200 for the month, but the invoices would reflect, say, $8,000 in search fees, perhaps to make the attorney appreciate the incredible deal he was getting.
 
This proved too tempting for many large firms.  Ignoring the actual cost, big firms continued to bill their clients at the rates reflected in the invoices, turning legal research into huge profit centers.  Any other business would recognize that as highly unethical – like a contractor charging a home builder hugely inflated prices for materials – but the big firms just saw it as another in a long line of fictional charges, like billing for faxes.
 
Apparently the practice has not abated.  In an action filed in Los Angeles Superior Court, the firm of Chadbourne & Parke is alleged to have engaged in this practice.  According to court records, the firm’s client was billed $108,000 for the law firm's services, of which roughly $20,000 was for legal research fees.  At the rate my firm pays for legal research services, it would take nine years to incur those fees.
 
Lesson for all businesses:  If you find yourself embroiled in litigation, don’t be shy about questioning charges, and consider having another attorney audit the legal bills you are receiving.  Most clients quite understandably have no point of reference for how long an activity should take or what is a proper amount for the costs.  Clients are free to agree to any cost arrangement, but a firm cannot turn costs into a profit center without disclosing the costs in the fee agreement.
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Posted on May 27, 2009 by Aaron Morris

Trade Secret Claim Costs Company Over $17 Million

A case that illustrates how NOT to deal with company secrets.

An RV sales manager – we’ll call him Trealoff because that’s his name – was hired by Forest River, an RV company. Forest River was apparently on the cheap side, because it didn’t even provide Trealoff with a computer, forcing him to use his own laptop. According to Trealoff, the company also did not provide him with a promised raise, so he went looking for another job.

When the company got suspicious that Trealoff was looking for greener pastures, it was decided that Trealoff really should not be permitted to leave with all the data residing on his personal laptop computer, gained while he was an employee of Forest River.  Reasoning that the data was, after all, the property and trade secrets of Forest River, the president of the company, according to the case, decided that the best course of action was to temporarily steal Trealoff’s laptop and erase the hard drive.  Trealoff took exception when his erased hard drive was returned to him, especially given that it contained years of contact information that he acquired independent of Forest River, so he sued.

The San Bernardino jury took exception to the conduct as well, and in addition to awarding Trealoff damages for unpaid commissions, the jurors tacked on punitive damages of $7 million against the RV company and $8 million against the president.  (Personally, despite the egregious conduct, I would have found Trealoff contributorily negligent for not backing up the data in the first place.)

Lessons for all businesses:  First, get over this concept of trade secrets unless you really do have trade secrets. In many instances, when a company calls me ready to go to the mattresses over alleged trade secrets, I find that the information is not at all secret.  For instance, I once represented a company that was being sued by one of their salesperson’s former employers, because the salesperson had contacted their customers.  There was no non-solicitation or non-disclosure agreement; the entire basis for the suit was that the customer list was a trade secret.  I went on-line and found that the company’s entire customer list was proudly displayed on its website.  Case dismissed.

Second, proceed with caution when pursuing trade secret claims.  Many companies file groundless lawsuits in an attempt to frustrate a former employee’s efforts to work for a competitor. They reason that even if the action ultimately fails, it may be sufficient to persuade the competitor that the employee is just too hot to handle.  If the company decides to call your bluff and hires a firm such as ours, then you will likely be taken to the woodshed, as was Forest River.

Third, provide your employees with computers so that the information contained thereon remains yours.

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