Defending Guarantors Against Lenders' Lawsuits: Strength in Numbers
When Guarantors of bank debt are sued by the lenders owning the debt, they are often cast into a new awareness that they, along with a multitude of others, are financial victims of the Great Recession. It is one thing to see particular investments dissolve into worthlessness, but quite another to stare at a lender's lawsuit seeking a judgment that would take away a life's worth of earnings and savings.
Guarantors, faced with the surprise and shock of lender lawsuits, first and foremost feel isolated and targeted. They usually face a well-financed lender, well-organized and experienced lender's lawyers, a judicial system that can sometimes move lender's claims along at an unusual speed, and legal theories that can quickly hamstring the ability to provide an effective defense. Aggressive litigation at the beginning is often designed to break the guarantor's resistance without protracted fighting.
Litigation can be like warfare. For those guarantors whose status as defendants is shared with others, there can be strength in being united. Litigation has its own rules. There are hearings, discovery, legal briefings and argument of motions, meetings with adverse counsel, communications among parties and Court communications. These rules must be followed whether a guarantor is a sole defendant or one of several guarantor-defendants.
Whether representing dozens or hundreds of clients, the economies of scale predominate and can benefit those who must address common issues of law and fact that pervade the litigation landscape.
Multiple representations of guarantor defendants (with attorneys' fees allocated between those commonly represented) can benefit the Court as well as all the participants in the litigation process. Case management is made easier. Joint hearings on common legal and factual issues afford common defendants both a more economical and better-financed defense. The control and representation of a large number of plaintiffs or defendants is the same principle as the control of a small number; it is merely dividing tasks, identifying both common and individual issues, and planning and executing litigation strategy and supporting tactics.
Fee allocations for cases that involve common issues of law and fact can be done by a number of different methods. There are a number of ways that common benefit billing can be addressed. The particular types of allocation should be addressed early on in such cases. The most common methods of allocation are:
- Per Capita - Fee allocations using a per capita fee structure spread fees equally across the number of participants. As an example, if there are 100 clients each client would pay 1% of the fees related to addressing common issues of law and fact.
- Pro Rata - Fee allocations using a pro rata fee structure allocate fees on the basis of the size of the lawsuit's damage claims. Clients with lower damage claims against them pay less for legal services related to common issues of law and fact while participants with higher damage claims pay more for those same legal services. As an example, assume that there are three (3) clients with damage claims against them: Client A in the amount of $500,000, Client B in the amount of $300,000, and Client C in the amount of $200,000 ($1,000,000 in total claims). The fees allocated for legal services related to common issues of law and fact would be divided between Client A (50%), Client B (30%) and Client C (10%).
- Per Individual Issues - Whether using a per capita or pro rata fee structure for common issues, fees for legal services relating to client specific issues may be directly charged to the client to whom the specific services are rendered. As an example, client depositions and individual fact discovery are specific to the client to whom the discovery is directed. As such, the particular client is charged for those legal services.
Finally, Sun-Tzu, author of a timeless classic on strategy, The Art of War, once stated, "He will win who knows when to fight and when not to fight." This is a truth well-applied to litigation. A U.S. Justice Department study of state courts found that 97% of civil cases are settled or dismissed without a trial. While the settlement-dismissal rate in guarantor litigation was not specifically addressed, the same public interest in expeditious and efficient litigation applies. To that end, well-coordinated litigation actions often include opportunities for settlement and/or mediation - this can save both time and money. Michael Hackard is very experienced in the mediation and settlement process and views it as an essential tool in reaching consensual resolutions. Such mediations and settlement discussions are confidential and inadmissible in court proceedings. If the settlement discussions fail to resolve the case, the regular litigation process goes forward.
Our mass tort experience serves as a source of success in working cooperatively with law firms across the country. While the prospect of representing multiple defendants can be both daunting and exciting, it is something that provided the mass tort bar with a breadth of experience and knowledge that would otherwise have been unavailable. Joint representation works. If done effectively it provides clients with the benefits of experienced local counsel coupled with the collaboration of others with particularized knowledge.
We can help you evaluate your case and determine if mutual representation of clients might be beneficial. Our experience in complex litigation can help in the efficient litigation of a multitude of cases. If we decide to collaborate on a case, we can work with local counsel to have us admitted by way of a pro hac vice motion.
If joint venturing a complex litigation case might make sense, give us a call. We can help to identify the possible benefits that a team approach might bring.