Big Law:A Novel(6)By: Ron Liebman
And while Carl was studying Dipak, Dipak was studying Carl. This American senior partner dressed to the nines behind his massive desk in this mausoleum of an office.
Dipak had something Carl wanted. So Carl switched on his patented charm.
“I’ve read your e-mail and the case-file attachments you sent along with it,” he said, beaming, as Dipak replaced his teacup on the edge of Carl’s desk.
Carl reached into a side drawer, retrieved a coaster, and slid it under Dipak’s saucer. Dipak’s smile of thanks seemed more in tune for a servant’s actions than for a law firm chairman’s. This was not lost on Carl.
“It is, I assure you, a very good case,” Dipak said.
“Of that I have no doubt,” Carl assured him, adding, “We are pleased that you have chosen us for this assignment.”
The fact was that Carl Smith desperately needed to bring in some substantial legal fees. The recent recession had upended things. Corporate clients had begun questioning their legal expenses, many requiring reductions and discounts if their law firms wanted to keep their business. Client loyalty had disappeared. Legal work went to the lowest bidder. Carl’s law firm was hurting, though none of this was public yet.
Carl Smith guarded Dunn & Sullivan’s books like a sentry in a combat zone.
“You are wondering perhaps how I acquired this case?” Dipak asked.
Not only didn’t Carl wonder, he didn’t give a shit.
But he should have.
As we all later learned, Dipak took the case on what we American lawyers call a contingent fee. Meaning that Dipak was paid nothing by these dirt-poor peasant workers and their families. He would take his fee as a percentage of any and all money recovered. The problem was that in India contingent-fee arrangements between lawyers and their clients were strictly forbidden.
Our enterprising Dipak Singh had circumvented this prohibition by on paper fictitiously “lending” his clients the money with which to hire him. He also had a secret side agreement for a percentage share of the award. Fifty percent of every rupee/dollar recovered. Totally unacceptable in the U.S., where a third of any recovery was the norm, and for cases of this magnitude the percentage would be even smaller. Carl would have been shocked had he known that Dipak stood to receive fifty cents on every dollar collected.
Can you imagine? Dipak becomes a billionaire off one case? And he, too, needed the money. Dipak’s family might have enjoyed Indian high-caste status, but when it came to actual earnings, a string of careless investments had drained the coffers of his father and each and every one of his uncles. The kid was broke and overly ambitious. Sometimes a good combination. Sometimes not.
While contingent-fee arrangements were commonplace in the U.S., the major law firms did not normally take on such work. Their clients paid by the hour, and that was what funded the firms’ day-to-day operations. Carl knew there was no money here until GRE’s assets were seized by court order and then liquidated. But he knew how to handle the pay-as-you-go problem.
Hedge funds, always in search of new markets to score outlandish profits, had focused on litigation financing. Lending money to law firms to finance cases where up-front money simply wasn’t available and at interest rates that were sky-high and therefore unlawful if the loan had come from a bank.
But hedge funds weren’t banks. Regulatory Washington was once again asleep at the wheel. Litigation finance was the new next-best thing for law firms.
So Big Law took a high-board dive into the deep waters of OPM (other people’s money) to bet on legal case outcomes. And the hedge funds showered money on the law firms in what was called “non-recourse” financing. Meaning if the case was lost, the law firm owed nothing further on the money it borrowed. The loan was wiped off its books, and the hedge fund took the hit.
How could they do this and survive? Sky-high interest-rate payments were demanded and regularly remitted by the law firms as the cases wound their often years-long slog through the courts.
There was more.
On increasing occasions big law firms took to adding a kicker to their hourly rates. It was in the form of what was called a “success fee.” A bonus earned for a favorable result. The hedge funds would take a portion of that success fee. So between monthly interest payments and their share of success fees, incoming money was large enough to offset any funds lost on unsuccessful cases.