Plaintiffs’ Lawyers and Rainy Days

I read an interesting article in the Washington Post yesterday about the downfall of big Washington, D.C. law firm heavyweight Howrey, who closed its doors earlier this month. It is an unbelievably steep fall for a law firm that had $570 million in revenue in 2008.settlement2

In my heart, I really wished and wish this law firm and all of the people in it the very best. It’s true, scout’s honor. But every plaintiff’s personal injury lawyer gets a little feeling of validation for their career path as news continued to percolate about the demise of big defense law firms.

But that validation got stopped in its tracks when I read this sentence:

Revenue in the litigation business tends to be lumpy. You get paid only when there is a case to be tried and then often only after the trial is over. Howrey, in particular, had come to rely increasingly on revenue from such contingency fee cases, which rose to $35 million in 2008 and then fell to $2 million a year later.

Quickly, I had to jump off my high horse. That’s our business model.

When you look at a plaintiffs’ law firm like ours, you can’t help but be struck by how bizarre the business model is. On a cash flow basis, we lose money in a given month more often than not. The settlement of very large cases is what sustains our economic engine. It is a crazy way to run a business when you think about it.

For me, the take home message is that plaintiffs’ lawyers should always be preparing for the rainy days. Law firms like ours that handle exclusively personal injury cases should take particular heed because we are not – to use the business parlance which really applies here – diversified.

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  • Zeb Snyder

    The question I have is, how do you ever get off the ground in the first place? Short of taking on other work that provides more immediate fees (but takes you away from doing the P.I. work you want to focus on), it seems like you’d have to have a very, very large war chest going into it. That is rather daunting to this young associate with a family who’d love to have his own firm one day.

  • Zeb,
    I think your best solution would be to co-counsel with an experienced PI attorney that will be able to fund the costs associated with trying cases.

    I’d be leery of getting bank loans (line of credit) for that type of thing, but a lot of plaintiff’s attorneys do that as well.

  • Good advice. I’m not sure I like the defense firms model either. Bill Bill Bill deny! At least there is some nuance in what we do..

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