Martin Chitwood - Partner, Chitwood Harley Harnes LLP

Martin Chitwood is one of the nation’s most successful litigators, and he has been able to accomplish this while working in areas of law that are considered to be among the most esoteric and challenging. From an early stage in his career, Mr. Chitwood recognized that to distinguish himself from other talented litigators he would have to develop special areas of expertise. He also realized that for his niche expertise to be most valuable, it would need to be in areas of law that many considered to be the most complex.

To be an accomplished litigator in a particular field, there are two fundamental areas of law the practitioner must master. The first is the substantive law, and the second is the procedural law. Because of his background and interests, Martin Chitwood chose to pursue securities litigation as the substantive area in which he would develop his expertise, and class actions as the procedural area in which he would practice. Both of these areas are considered to be among the most difficult and challenging in which to be successful. Not many attorneys have attempted to develop a practice that requires special knowledge and skills in both securities law and class actions.

Despite the complexities of the practice areas he chose, Martin Chitwood has been able to develop the requisite skills in each area, and by proving himself in such esoteric and challenging environments, he has been able to establish a national reputation as a successful securities class action litigator.

How did you get started? What inspired you to start this business?

Most firms that handle securities class action cases on the plaintiffs’ side have national practices. Usually such national firms have found that when undertaking a large case in a state other than where they have offices, it is necessary to associate a firm in that jurisdiction to assist them.

I got started handling securities class action cases by developing relationships with a large number of attorneys in firms in other states that have national practices and would need to associate a firm when they had cases in Georgia, which is the home state of my firm.

I was inspired to pursue this practice because I admired the personalities and success of the attorneys I knew who practiced in this field.

How do you make money?

In 1991, I started my firm after leaving another firm in which I was a partner.  An associate in my prior firm, who was several years my junior, came with me to start the new firm.  I enhanced our firm’s chances of making money on our cases by always being fully aware of the status of the most important aspects of every case in which our firm participated.  Large case litigation can be very complex, and when a firm is handling several cases at one time, it is very difficult for any attorney to be in command of every aspect of each case.  However, by committing the effort and time to be informed on the most important aspects of each case, I was able to provide the guidance the cases needed.

How long did it take for you to become profitable?

Litigation of plaintiffs’ securities class actions is necessarily always done on a contingency fee basis.  This is because the members of the plaintiff class cannot be identified until the court has certified a class and determined the recovery to which each class member is entitled.

For procedural reasons, class certification usually doesn’t occur until the case has gone through several stages, and a determination of the recovery to which each class member is entitled cannot be made until there is an actual recovery, and proof of claim forms from individual class members have been submitted.

For this reason, the plaintiffs’ attorneys cannot get paid until the case is over, and they also have to advance all the expenses of the litigation on behalf of the class.  Securities class actions typically take several years to resolve, and the expense advances in the largest cases can be millions of dollars.  For this reason, it was several years after the firm began that any income based on equity could be distributed.

The firm was able to show paper profits after the first five years, but we could not distribute those profits because we had to reinvest them into the expense advances for the new cases we had undertaken.

It was nine years after we started the firm that we were able to regularly take distributions from our ownership of partnership shares.  During much of this nine-year period, we had to live on personal savings or borrow money.  Obviously I lived very sparsely during the time the firm was becoming profitable.

When you were starting out, was there ever a time you doubted it would work? If so, how did you handle that?

As we were growing the firm during its first few years, we were reinvesting all of our profits into the business, and since the business was growing annually, there was a need to reinvest increasingly more each year.

As a result, our reinvestment needs matched our profits for the first several years, and we were not able to take any significant money away from the firm.  We were in our ninth year of operation before we were able to regularly take enough money out of the firm to provide ourselves with a reasonable standard of living.  During that nine-year stretch, there were many years when I wondered if the sacrifice was worth it.

I also wondered if we would ever make enough money to make up the years of sacrifice we had made.  What kept me going was that the business and paper profits (profits before reinvestment) were growing each year, and I could see the time was coming when we could have very substantial profits beyond what we would have to reinvest.

It was this vision of better years ahead that kept us going, but the highly profitable years came much more slowly than we had anticipated.  We could make money only by being successful in litigation, and the time it took to resolve our cases usually depended on factors we could not foresee.

Our typical case lasted three years, and we had two cases that lasted three times that long.

How did you get your first customer?

I got our first client because I had developed relationships with out-of-state law firms that were successful in the same area of law in which we were trying to develop a practice.

When one of those firms was retained to handle a large case in our jurisdiction, they called and asked us to work with them and serve as a local counsel (a firm located in the city where the case will be filed) for the litigation.  As were getting started, we were more than happy to accept almost every offer from out-of-state firms to work with them on cases.

What is one marketing strategy (other than referrals) that you’re using that works really well to generate new business?

The marketing strategy that works best for us is to be successful with the cases we already have.  Of course, being successful in cases allows the firm to build a good resume, and litigation firms that handle large cases watch the results of other firms working in the same field.

Oftentimes, firms invite other very successful firms to participate with them in their largest cases for the purposes of sharing risks and improving their chances of success.

What is the toughest decision you’ve had to make in the last few months?

Plaintiffs’ securities class action cases usually take years to resolve, and litigation of plaintiffs’ securities class actions is necessarily always done on a contingency fee basis. In contingency fee litigation, the plaintiffs’ attorneys cannot be paid unless (and until) they are successful in obtaining a recovery for the class, which by definition means they cannot be paid until the case is over. In the interim, the plaintiffs’ firm also has to advance all the expenses of the litigation.

For these reasons, plaintiffs’ firms have to be very selective about which cases they will undertake. Once appointed lead counsel for a case, withdrawal is not a reasonable option, and being lead counsel in a case that is not productive can cost a firm millions of dollars in unpaid time, as well as in unreimbursed expense advances.

Losing a large class-action case would challenge the ability of many firms to survive. Contradistinctively, if a firm is successful in pursuing a securities class-action case, it can earn millions of dollars in fees.

The toughest decisions for a plaintiffs’ class action firm are what cases to take. The largest cases may provide the best opportunity, but they can also cause the firm the largest losses. Before undertaking a securities class-action case, the firm must evaluate every possible consequence of the case. Many hours of research and discussion are almost always necessary before a reasonable decision can be made.

The toughest decision I have had to make in the last few months is whether to take or turn down a potentially large case.   In this instance, I turned down the case on behalf of the firm, and another firm is prosecuting it on behalf of a class.  I will watch the progress of the case over the next several months or years to see if I saved or cost my firm millions of dollars.

What do you think it is that makes you successful?

There are two things which I believe have primarily attributed to my success.  The first is maintaining good quality control.  When we were first starting out, I could be hands-on in every development in our cases.

However, as our firm grew it became too large for me to be involved in all the important decisions in our cases, and the volume of work also dictated that a single person could not review all the firm’s work product.

Nevertheless, I have found it possible to ensure that all the work that needs to be done is being done, and that those working on important cases are thinking ahead and planning for problems that might arise.

For me, the most effective way to accomplish this has been to call regular meetings of the persons working on each case.  When I call such meetings, I usually include not only the senior attorneys, but also the junior attorneys, including the most junior associates.

In addition I include the paralegals, if they are fully integrated into the case.  During these meetings, I have found it is important to start by asking what the current status of the case is and to follow up with very specific questions about important aspects of the status.

Once the group has agreed on a current assessment of the most important aspects of the case, the next questions I usually ask have to do with what is coming up on the schedule.

Of course, I also ask which person or persons in the group is going to be responsible for each of those things that are coming up, and how he or she plans to handle them.  Asking how he or she plans to handle these issues usually forces a discussion that allows others in the group to participate and can lead to the development of a consensus plan for addressing upcoming needs and deadlines.

Such early development of plans also allows for quicker recognition of the resources and time that will be needed.  In my experience, insuring that large tasks are conceptualized at an early time almost always improves the quality of the ultimate product.

The second thing which I believe has contributed to my success in a primary way is that I always try to answer my clients’ difficult questions.  In large case litigation, our clients are almost always sophisticated, and they often ask penetrating questions.

I have found that many of these questions deal with prospective matters for which there is no obvious answer.  In my experience, I have found that many attorneys often find a way to avoid responding to these types of questions because answering them usually requires consideration of a several step process, and they don’t want to either think it through or admit that they don’t already know the answer.

However, I make it a practice not to avoid a client’s questions simply because it is difficult to provide answers.  Sometimes I must laboriously think through several possible scenarios to arrive at a reasonable answer, and sometimes the best answer I can give is to admit that I just don’t know and cannot come up with a reasonable response, but I always try to give the best answer I can.  I believe my clients appreciate that I never avoid their questions, even when the best answer I can give is that I cannot provide a good answer.

What has been your most satisfying moment in business?

From the moment my firm was formed in 1991, our goal was to be successful in securities class action litigation. My most satisfying moment in business came four years later when my firm was first appointed to be a lead counsel in a securities class action case.

In a securities class action case, the judge to whom the case is assigned is a fiduciary to the class as a matter of law, and judges often believed the best way for them to ensure they are fulfilling their fiduciary duty to the class is to appoint the most seasoned and successful securities class action firm as lead counsel.

As reasonable as this tendency to appoint the most successful firm was, it nevertheless created a very significant barrier to entry for a firm such as mine that was only beginning to establish itself in the field.

When my firm first began to practice in securities litigation, we sought opportunities to assist the larger, more established firms in their cases as a way to gain knowledge and experience.  However, because none of the attorneys in our firm had previously worked in a firm that did securities class action litigation, our learning curve was very steep.

Nevertheless, by committing ourselves to our new practice, and taking every opportunity to educate ourselves in our new avocation, we were able to develop the skills that were necessary to serve as a lead counsel in a securities class action case. Also, by having been very helpful when assisting other firms with their cases, we earned their respect and support.

In 1995, when a significant case developed in Atlanta (which was our home base), and we were retained by a major mutual fund to pursue the case, we believed we were qualified to be lead counsel, and we submitted an application to the court. However, several firms with national practices and proven records of success also applied to be lead counsel in the case. Searching for the best opportunity to be appointed, we teamed with two firms with more experience than ours, and requested to represent the court as a three co–lead counsel team. After viewing all the applications, the court appointed our team, and we had our first appointment as a lead counsel in a national securities class action case.

By being appointed as a co-lead counsel in a significant case, we had broken the barrier to entry in the field, and when we obtained a good result in the case, we were soon able to be appointed in other important securities class action cases.

Connect With Martin Chitwood: