If your law department has a juicy lawsuit to be filed against a deep pocket, give some thought to a method a judge used to choose the lead counsel in a 2000 price-fixing class action. As described in Fortune, Nov. 1, 2010 at 92, “an inventive federal judge set up a blind bidding contest. Each firm [vying to be selected as lead counsel] had to state a floor amount that victims would receive before lawyers saw a dime; the lawyers would get to keep 25% of the excess.” The winning floor, by the way, was no pittance: $405 million.
A law department could use the same auction method. “Firms, how much of the recovery will we – the client – get to keep before you take a piece of the action.” Confident firms, who understand the dynamics and economics of the suit, will propose higher floors (and perhaps lower percentages for themselves above the floor). It sounds to me like a creative framework (See my post of May 21, 2007: auctions with 7 references.).