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Several comments on an actual budget-based fee agreement

Expensive litigation and a cost-oriented arrangement led me to make several points. As described in Litigation 2011 at 40, Medela, a Swiss-based company that is the world’s leading maker of breast pumps, hired Dechert to defend it in a 2006 class action. Three years later, “with Dechert’s fees piling up and no end to the litigation in sight, Medela president Carr Lane Quackenbush persuaded [the Dechert partner in charge] to switch to an alternative fee arrangement.”

For each of the half-dozen key tasks remaining, the partner created a budget. Under the fee arrangement, if the firm’s costs exceeded the budget for a task, Medela paid 35 percent and withheld the rest in a hold-back pool, “to be paid out later if the firm met various success metrics in the litigation.”

Of note, the client negotiated this fee arrangement three years into the case. The article does not indicate whether the client threatened to shift the remaining work to another firm or what leverage it exerted, but the fact remains that clients do have the ability to alter terms mid-course. Clients are not locked in.

Also of note, there is no reference to the general counsel of Medela. The President of the U.S. company struck the deal. It is likely that Medela’s headquarters has a legal staff, but they might not have been involved. I could not find a reference to in-house counsel on the Medela U.S. website.

The fee arrangement specified different levels of potential results and attached premiums to those levels. This step, an outcome listing, is very important in many alternative fee arrangements.

The theme of the article is about project management and it was experience with that discipline that allowed Dechert to manage its fees in line with the budgets. Presumably the budgeted amounts for the various tasks were more palatable to the client than the free-spending that had prevailed.

Finally, creative fee arrangements should have plausible potential to allow both the law department and the law firm to feel good. Evidently, the outcome pleased the client and the firm came away with full payment for the budgeted amounts plus a 30 percent premium.