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"$7 million to sue Wal-Mart"?



Reuters unquestioningly accepts the claim of Joseph Sellers of Cohen Milstein Sellers & Toll that the firm "is in the hole by about $7 million" for its role to date on the Dukes v. Wal-Mart litigation. (Note also Reuters unquestioningly accepting the incorrect assertion that it is common for lawyers to get 33% contingency fees in large class actions.) But the actual breakdown is "$5 million in attorney hours and ... $2 million on experts and discovery," which does not translate into $7 million in cash. While the experts would be paid in full in advance, the $5 million figure reflects substantial markups in time: a $400/hour associate does not cost Cohen Milstein $800,000/year nor does a $200/hour paralegal cost them $400,000/year. The $800/hour partners don't get to collect $800/hour from the firm unless they win. There's opportunity cost, to be sure, but if Cohen Milstein believed they had more profitable opportunities available to them, they would be litigating those cases rather than Dukes. (It's also entirely possible that that $5 million figure includes $35/hour temp document-review attorneys being billed out at close to ten times that in a case with millions of documents.)

I can't tell you whether Cohen Milstein does it, but even on the expense side, many clever law firms have their partners holding stakes in the profitable outside discovery vendors, effectively vertically integrating when it comes to "expenses."

So don't cry for Joseph Sellers. The out-of-pocket cost to Cohen Milstein is likely much closer to half the $7 million figure. Given that a victory or settlement in the litigation would be rewarded with an attorney fee of hundreds of millions of dollars, it would be a profitable gamble for Cohen Milstein to take the case even if they believed they had well under a 10% chance of success. And a firm of Cohen Milstein's size has a diversified portfolio of litigation that gets them closer to the Law of Large Numbers when they engage in risky litigation. There's a reason they didn't sell off part of this case to a litigation finance company to protect their downside.

Wal-Mart, on the other hand, is paying full fare for its outside counsel (and experts), and the internal expense of producing documents is always greater than the expense of reviewing them. They're not going to recover their millions of dollars of costs for being subjected to an improper class action suit, even if they're completely vindicated. The effect of this is to hurt employees: if every employee hire is a potential lawsuit, the wise employer counts the expected expense as a marginal cost of doing business, and reduces wages accordingly. Given the ratio of large contingency fees and defense expenses to class-member recovery (I doubt that employees collect as much as fifty cents of every dollar spent on employment litigation and the human-resources apparatus employers establish to reduce the costs of employment litigation), it's doubtful that the average employee would prefer the "benefit" of being able to sue to the increased wages they could receive if their employment was at-will. This is why you shouldn't believe the hype about the Dukes case: the Supreme Court decision benefits employees in the long run.

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Isaac Gorodetski
Project Manager,
Center for Legal Policy at the
Manhattan Institute
igorodetski@manhattan-institute.org

Katherine Lazarski
Press Officer,
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.