Chicago Firm Settles Big Cases, Saves Clients Money, and Even—Gulp!—Refunds Fees
Twice Blessed. Litigation boutique Eimer Stahl maximizes client service on two fronts. The Chicago firm charges a fixed fee in advance and, if the case settles sooner rather than later, returns any money it wouldn't have earned on an hourly basis. At the same time, these lawyers specialize in negotiating faster settlements. No wonder the founding partners have developed a blue-chip client roster since departing larger firms!
Of Counsel Interview . . .
In the mid-1980s, Nathan Eimer, then with Chicago's Sidley & Austin, had been working hand-in-hand with David Chaifetz, an in-house attorney with Union Carbide, on a complex antitrust lawsuit that threatened the corporate health of the giant multinational.
After working on the case for seven years, going back and forth in their thinking about whether they could salvage any kind of victory, the two attorneys forged what's believed to be the first "Coupon Settlement."
"We negotiated what I feel was an extraordinary and creative settlement at that time," says Chaifetz, now general counsel and vice president of Connecticut-based Praxair Corp. "It was the first non-cash type settlement of a case like that. We offered all customers involved in the industry in which we compete, industrial gas, a discount on future purchases." Chaifetz adds that both he and Eimer more than earned their salaries while negotiating the deal, which was approved and even commended by the court for its ingenuity and for generating the kind of competition the court felt was appropriate.
And he gives Eimer much of the credit and has retained him as outside counsel ever since, even after Eimer left the Chicago megafirm in July 2000 to start Eimer Stahl LLP, a 25-person firm. "I don't know a more creative and harder-working attorney, and we use many outside law firms," Chaifetz says. "He's willing to do the kinds of things that you wouldn't expect of someone who has reached his level."
Eimer's litigation boutique has quickly become known as one of the first places that many companies across the nation turn to when trouble knocks on their door. What's more, Eimer's new firm continues to create innovative settlements that establish new courtroom precedents while saving its clients lots of money.
He spoke to Of Counsel about the firm's propensity to settle cases, alternative fee structures, which are one of the firm's hallmarks, refunding clients, his firm, and his career, among other things. What follows is an excerpt of that interview.
Of Counsel: You switched from economics to law after you won an award at the University of Illinois, graduating with the highest distinction in economics. What inspired the switch?
Nathan Eimer: Actually, while it may look like I switched my focus, I didn't. I started out in a joint JD-PhD program, which I did in my first year of law school. Then during my first summer in law school, I was doing research in the economics department at Northwestern. In my second year of law school, I decided that what I liked doing was practicing law, not the economics part. I tried to keep an economics bent but focused on being a lawyer. So I dropped out of the PhD side of it.
OC: What attracted you to law?
NE: For one reason, I like dealing with people. Over the years and in various ways in college, I liked being an advocate for people, speaking for them. That always intrigued me; so law seemed to be a natural outlet for that.
OC: After law school did you go right to Sidley & Austin?
NE: I did. I spent my second summer at Sidley at a summer associate, working in various departments of the firm. With my economics background, I went more toward the antitrust/regulated industry side of the firm during the summer. Then, when I joined the firm as an associate, I asked to be placed in what was then the antitrust group, and they were kind enough to do that.
OC: You were at Sidley for 27 years. That's a long time.
NE: That is a long time. I said to myself, "How can I go through my life with one job? There's something wrong with that."
OC: That sentiment was obviously one reason for your departure from Sidley. What else made you want to leave and start your own firm?
NE: I think it's important for people to take on new challenges in their lives. I realized that I wanted to do something different. The other reason was: I felt there was another way to [practice law] other than the way we had done at Sidley, which is great, and I think it's a wonderful firm with wonderful people. But I felt that by helping start a new firm I could give better representation, faster, cheaper and more effectively than the way we were doing it before. I didn't need a 1,000 lawyers around me to do it. I needed a group of 20 or so. So I wanted to try it.
Saving People's Livelihoods Most Satisfying
OC: When you look back at your career, which case or matter are you most proud of?
NE: A couple of things come to mind. I've done a fair amount of criminal antitrust work. I've done a whole series of criminal investigations and criminal trials and that stands out as the most challenging. It's the most stressful for the people involved. I feel the most satisfied when I'm representing someone and something of importance. I've placed the most value in those representations.
It's very different representing an individual and his or her livelihood than a corporation and its money. That's not to say that I don't consider representing corporations and their money important. I do, and that's what I do day-to-day. But there's something particularly important representing the employees of a corporation in a criminal matter.
OC: Is there anyone of the cases that you feel is particularly remarkable?
NE: A couple of older ones were really quite good. The first one I did was a criminal trial in about 1980 that I second-chaired with Blair White, who is my mentor at Sidley. The client was International Minerals and Chemicals, and it was a long trial that lasted two or three months. It was my first major trial and the first time that I really got to see the impact that one of those proceedings could have on senior corporate executives. That had a huge effect on me and motivated me to fight the case, and ultimately we won that case [United States v. AMX, Inc.].
OC: You've also represented for years Union Carbide. What's been most satisfying about that work?
NE: Union Carbide and Dow merged in 2001, and the merger was done and everything was finished except the Federal Trade Commission work. I realized all that was at stake for a lot of individuals and shareholders. So finishing that merger after a long FTC investigation was very satisfying. We felt that we were very helpful.
OC: Sure, and that can get messy with the FTC poking around everywhere.
NE: Yes, it can and it also can get drawn out. It's very difficult, and the companies are writing press releases about how they expect to close in the first quarter and then the second quarter, and then we can't do it. Internally, there's a lot of stress on the senior executives from the board members who are asking, "Why aren't we closing yet? Why is this happening?" So helping them get through that period and working our way through that together was a great collaborative effort among many different [in-house and outside] attorneys and ultimately worked out well for both companies.
OC: Let's talk about the decision to form this firm. The name partners were all at Sidley and decided to leave and form this partnership. You've been at this for a few years now. What was the biggest challenge you had to meet in setting up a small firm and then navigating it?
NE: I think the hardest thing to overcome was our own reluctance to leave Sidley. That was not an easy choice. All of us had good careers there, and as I've said, it's a wonderful firm and a safe place to be, in a way.
Once we did it, we were surprised at the tremendous support from our clients and the willingness of our clients to be there and to give us new matters and pay on time and ask for advice and bring us all the work that they might have brought us before and more. That has made it easy to do this.
The other piece is trying to define the culture of a law firm. What are you going to be like? What's your mission? What's your vision? Where are you going? What do you stand for? How do you interact with your clients? Those things are hard, but they take time and effort by all the partners to sit down and try to develop a consensus as to what we want to be.
OC: So then how would you characterize the culture of Eimer Stahl?
NE: I think the culture overwhelmingly is focused on integrity and quality and on serving our clients in a way that we think other law firms don't. That relates to delivering the quality of work that we've always delivered from Sidley, but doing it with efficiency and with an eye to what's really in the clients' best interest. We pride ourselves on cutting through a lot of what's going on, realizing what the cases are about early on, and working hand-in-hand with the client in getting rid of the case somehow, either through trial or settlement.
OC: Your firm places a lot of emphasis on cultivating and maintaining relationships. Could you talk about that?
NE: One of the things that has struck me about our firm is that we believe that, to the extent that it's possible, we strive to do away with the hourly rate, and that requires strong relationships. Years ago, Union Carbide had a consultant who was analyzing its outside law firms. One of the things that the consultant told Carbide was to try to eliminate what he called "lawyers watching lawyers." When you think about it, it's enormously unproductive to have a staff of several in-house lawyers, one of whom had the job of policing their outside's lawyers, making sure that they didn't spend too much money doing whatever it is their doing.
And this is true. There's constantly this tension between inside lawyers and outside lawyers, in many relationships, over cost. I thought that one of the ways to get us past that is to put that behind us and get rid of that. The hourly method of billing gives the incentive to outside lawyers, theoretically, to work more so that they can bill more. It makes everyone suspicious of why you're doing everything.
OC: So is this the underlying philosophy for using what your firm calls the "basket strategy"?
NE: Yes. We try to go as often as we can with the "basket strategy"—a fixed fee for working on cases where everyone would conclude: "OK this is a reasonable sum for handling this kind of case and then charge that fee." Now we could be wrong or right [with the estimates], but hopefully on average, over a given number of cases, we're right.
Once that was agreed to for each case, then that's it. We're done, the client is done, and now we can do our work and do it well. No one needs to police us for cost anymore. If we need to write a brief and work until two in the morning and have five people do it, no one will say, "Why did you have five people working until two in the morning? That's on our nickel." Now it's on our nickel, essentially, and we don't have to defend it.
This really makes for a strong partnership between us and our clients. This strategy has been very successful.
OC: What percentage of your cases and matters are handled this way?
NE: Probably 40 percent.
Lawyers Who Give Back Money?
OC: Would you like that to be even higher, and what gets in the way from making this fixed-fee arrangement?
NE: Yes, I'd like it to be even higher. It's not a question of us. I think that some clients are uncomfortable with it, and it takes a certain rapport between clients and their outside lawyers that develops over time. It also takes an assortment of matters. It's hard to do with one case, particularly with one large case because it's unpredictable.
But with several clients we've been able to say, "OK there are enough cases here, enough variability, that on average we hope to be close." Some years I'm sort of behind. We hadn't asked for enough. You want to get the fee close to what you think is fair.
There's also a handshake that says, "Look, no one's going to get hurt." If we predict that this is going to go through trial, and we're going to be paid as though it's going to trial, and then we win a summary judgment out of the blue, we're going to sit down with the client and work things out. We would then refund money to them. We'd say, "We won this case faster than we ever thought we would, and you paid us as though we were going to work on this for six more months. That's not fair to you."
OC: How often have you given back money?
NE: A lot of times.
OC: Do you remember the first time you did this and what the reaction was of the client?
NE: Yes, they were surprised at how much money we were giving back. This was for Union Carbide, back when I was at Sidley; it was the first of these arrangements at Sidley. We would set a budget for the year that was essentially for 50 percent or so of their litigation nationwide. Well, we were fabulously successful at the work and did it for a lot less money than it had been done in the past. We walked away from a huge amount of money at the end of the year. I said, "I'm not keeping this. This is yours."
OC: That's got to foster the kind of goodwill you were alluding to earlier. To move onto another topic, as you know it's not easy being a small firm or a midsized firm in today's market, in this age of consolidation. Have you been approached by larger firms that wanted to acquire your firm? If so, have you ever been tempted.?
NE: Several times. No, I've never been tempted. I didn't leave Sidley & Austin, which I consider to be one of the best firms in the country, to merge with another firm. I don't want to do that at all.
OC: What's the biggest challenge for you and your partners to overcome as members of a small firm?
NE: Well first, I don't think it's all that difficult to be a small firm in this market. I think we have one huge issue that we're constantly confronting, and that is: It's very easy for a general counsel to report to the CEO or the board, "I've hired Sullivan & Cromwell for this matter" and feel as though he or she will never be criticized for that. It's much more difficult to say, "I've hired Nate Eimer for this matter because I think his firm will be really good at this" and not later be second-guessed if something goes wrong.
So we have to convince the general counsel that nothing is going to go wrong so they won't have to worry about covering themselves. That's our challenge. And the longer we're here and continue to succeed, the easier it'll be .
OC: You spent nearly three decades at a huge law firm, so you understand the megafirm world. What do you think is the most significant challenge for large firms, in terms of law firm management?
NE: Just to speak parochially here for a minute. I think the closing of (Chicago's now-defunct firm) Altheimer & Gray is a result of a management trend gone amok. The feeling that firms need to nationalize and internationalize and amalgamate themselves into larger and larger groups of lawyers is ultimately not going to be successful for a large number of law firms. I think that it's too difficult to put together large law firms and have real synergies in it and a coherent culture. Some work well, but I just don't think that most of these merged large firms will be successful.
OC: To get back to this perception problem that some clients may have about hiring a small firm like yours, do you ever find that you don't have enough attorneys to handle a big case? If so, what do you do about it?
NE: When Dave Stahl and I were in charge of the anti-regulatory group in Chicago for Sidley, we were 25 attorneys. So we have essentially the same deployable assets now that we had then. When we'd get into a big production that required a lot of [document retrieval and management], I might flex up to 75 lawyers, as I did for one big merger. Of those 75, 60 might be scrounging around looking for documents. The thing that I found discouraging is that for the most part we had to use people who didn't want to be there, people who were underemployed and too expensive for that task.
What I do now, and what I wanted to do all along, is to hire temporary lawyers who we train and who we now have a cadre of and who instead of $375 an hour are $75 an hour. These are people who want to do [document work] because this is their livelihood. They come from fine law schools and are fine attorneys but have chosen alternative lifestyles; they don't want to be in a law firm 365 days a year. I've flexed up to 75 lawyers several times here at our firm, and the next cost is a fraction of what it was at Sidley. We like operating this way and it works for us.