The Federal Short Process as Proposed vs Bank of America Federal Litigation For Example
Impacts of our Short litigation Cycle for Bank of America
We expect a prevailing rate for Federal Litigators is 500.00 on an al la carte menu for general support, and 2X for court time (1000.00/hr). Furthermore, most law firms will not go to court without two litigators, and a legal assistant so the effective trial rate is about 2250.00/hr al la carte. Most law firms charge court time for depositions as well as the trial team also has to sit through the depositions in most cases.
Top Down Forecast
We Took Bank of America's legal causes (about 30K per year) and divided by their published legal spending of 10B dollars a year for more than 10 years. Thus Bank of America is spending on average (including settlements) is 333K dollars per cause.
Lets make some assumptions -> each cause averages 10 hours of court time -< 22,250 dollars, but depositions may easily be 5X more. So lets assume 50 hours of depositions for 10 hours of court time or 60 hours total at the higher rate of 2250.00. Thats 135K dollars per cause.
That means the company is preparing the balance of about 200K dollars. Divided by 500/hr this is about 400 hours per cause billed to a Sr. Counsel attached to the account. This is a reasonable amount. In practice however most causes are dismissed so the ones that go to trial could easily be 1200-1600 hours per cause. In other words, Bank of America is essentially hiring a lawyer for a year for each cause in Federal District Court. And by extension that means that for 30K lawsuits, the company would have 30K virtual or real lawyers on the payroll every year. Now compare that with Citigroup, Wells Fargo, and Chase and you have a vastly different situation.
Bottoms Up Forcecast
With the Changes in Pre-Trial (Aka The Short Format), we will be expecting not to do that in most causes. We expect a high percentage will be dismissed, and only a few will have to go to trial and when they do they will be shorter.
In this cause we expect 50% of causes to be dismissed (So Bank of America could expect at 50% improvement in litigation costs).
And when they do proceed 25% of causes would be handled in 3.15 hours instead of 10 hours, and with only 1/2 of the pre-trial needed. So we sit at 2250.00 for 13.15 hours as the baseline. This means Bank of America's average cause would be about 30K dollars instead of 330K for the causes which go to trial.
So for 75% of the causes, our average expense lets say is 30K dollars in general allowing for a generous preparation for the short time.
The Other 25% will be intensive. They will be well formed, and well plead, and there wont be the usual routs from a poorly represented counsel. Judges will have most of the evidence in the short form, and that prevents blowouts in trial settings which a single attorney cannot usually handle. IE its almost impossible to try your own cause without legal assistants. The production alone takes several months for a big cause. So although the trial may not go to the moving party, they will have had a reasonable chance in the short form to get an argument on the table, and that will prevent innuendo, surprise sanctions, and maybe even jail time for the indoctrinated who have never faced a senior judge before. They tend to be not very pleasant as they spend most of their day with people who have committed serious crimes. (Except in Texas which has a separate criminal court system). But I do know that Federal Judges do have civil days which I am sure are a joy compared to their usual dockets.
In other words, the causes will be more fairly presented rather than less, and even under-represented parties will have sixty days to cure. The pluses appeals will be not very frequent as most causes will have had a real trial, and that means discretion of trial judges will mostly be enforced. That means if 2% of causes get remanded or changed today(the 5th Circuits statistic from their website), perhaps only 1% of causes with the changes to pre-trial. That means Bank of America's appellate charges should also be less as well. Why?
I know most appellate judges look to see if issues have been brought forward, and the parties have made an effort to cure (See FRCP54) before allowing an appeal on the merits. Procedural appeals are almost never upheld in our experience.
We think because of the format the 25% of causes which do go to trial might require the same amount of time, but at 2X the cost of a normal proceeding due to better preparation on both sides. So here's our breakout:
Today Each of 30K causes at 330K or 10B dollars.
Our Plan: .75 x 30K causes at 30K, and .25 x 30K causes at 660K (including settlements).
But the structure will prevent re-trials in all 12 legal districts and so perhaps a reduction of 10% is possible as a bonus.
Lets do the MATH
So the net with our plan is Bank of America should pay 675M for causes which are tried in the short form including dismissals, and 4.95B for those which go to trial. This is a grand total of 5.6B which is a 4.4B annual savings. This should relate to a 44B improvement in market cap, or more than $4.00 per share.
We expect a prevailing rate for Federal Litigators is 500.00 on an al la carte menu for general support, and 2X for court time (1000.00/hr). Furthermore, most law firms will not go to court without two litigators, and a legal assistant so the effective trial rate is about 2250.00/hr al la carte. Most law firms charge court time for depositions as well as the trial team also has to sit through the depositions in most cases.
Top Down Forecast
We Took Bank of America's legal causes (about 30K per year) and divided by their published legal spending of 10B dollars a year for more than 10 years. Thus Bank of America is spending on average (including settlements) is 333K dollars per cause.
Lets make some assumptions -> each cause averages 10 hours of court time -< 22,250 dollars, but depositions may easily be 5X more. So lets assume 50 hours of depositions for 10 hours of court time or 60 hours total at the higher rate of 2250.00. Thats 135K dollars per cause.
That means the company is preparing the balance of about 200K dollars. Divided by 500/hr this is about 400 hours per cause billed to a Sr. Counsel attached to the account. This is a reasonable amount. In practice however most causes are dismissed so the ones that go to trial could easily be 1200-1600 hours per cause. In other words, Bank of America is essentially hiring a lawyer for a year for each cause in Federal District Court. And by extension that means that for 30K lawsuits, the company would have 30K virtual or real lawyers on the payroll every year. Now compare that with Citigroup, Wells Fargo, and Chase and you have a vastly different situation.
Bottoms Up Forcecast
With the Changes in Pre-Trial (Aka The Short Format), we will be expecting not to do that in most causes. We expect a high percentage will be dismissed, and only a few will have to go to trial and when they do they will be shorter.
In this cause we expect 50% of causes to be dismissed (So Bank of America could expect at 50% improvement in litigation costs).
And when they do proceed 25% of causes would be handled in 3.15 hours instead of 10 hours, and with only 1/2 of the pre-trial needed. So we sit at 2250.00 for 13.15 hours as the baseline. This means Bank of America's average cause would be about 30K dollars instead of 330K for the causes which go to trial.
So for 75% of the causes, our average expense lets say is 30K dollars in general allowing for a generous preparation for the short time.
The Other 25% will be intensive. They will be well formed, and well plead, and there wont be the usual routs from a poorly represented counsel. Judges will have most of the evidence in the short form, and that prevents blowouts in trial settings which a single attorney cannot usually handle. IE its almost impossible to try your own cause without legal assistants. The production alone takes several months for a big cause. So although the trial may not go to the moving party, they will have had a reasonable chance in the short form to get an argument on the table, and that will prevent innuendo, surprise sanctions, and maybe even jail time for the indoctrinated who have never faced a senior judge before. They tend to be not very pleasant as they spend most of their day with people who have committed serious crimes. (Except in Texas which has a separate criminal court system). But I do know that Federal Judges do have civil days which I am sure are a joy compared to their usual dockets.
In other words, the causes will be more fairly presented rather than less, and even under-represented parties will have sixty days to cure. The pluses appeals will be not very frequent as most causes will have had a real trial, and that means discretion of trial judges will mostly be enforced. That means if 2% of causes get remanded or changed today(the 5th Circuits statistic from their website), perhaps only 1% of causes with the changes to pre-trial. That means Bank of America's appellate charges should also be less as well. Why?
I know most appellate judges look to see if issues have been brought forward, and the parties have made an effort to cure (See FRCP54) before allowing an appeal on the merits. Procedural appeals are almost never upheld in our experience.
We think because of the format the 25% of causes which do go to trial might require the same amount of time, but at 2X the cost of a normal proceeding due to better preparation on both sides. So here's our breakout:
Today Each of 30K causes at 330K or 10B dollars.
Our Plan: .75 x 30K causes at 30K, and .25 x 30K causes at 660K (including settlements).
But the structure will prevent re-trials in all 12 legal districts and so perhaps a reduction of 10% is possible as a bonus.
Lets do the MATH
So the net with our plan is Bank of America should pay 675M for causes which are tried in the short form including dismissals, and 4.95B for those which go to trial. This is a grand total of 5.6B which is a 4.4B annual savings. This should relate to a 44B improvement in market cap, or more than $4.00 per share.
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