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The Case for an Evidence Based Law Practice and Some Good Guy Guaranty Case Resolutions

February 28, 2021 

One of the challenges of administrating your own boutique law practice is managing an ever-growing caseload. During the Pandemic, I have been busier than perhaps at any other time in my law practice. Also, Pandemic-defaults present landlord and tenant practitioners with a whole new set of issues and challenges. Nevertheless, when a surge hits like this, one must be mindful not to prioritize new matters over existing matters. Everything needs to keep moving. 

This post is about the settlement of two pre-Pandemic lease guarantor cases, where I represented the landlord. Both matters settled in 2020. Both concerned restaurants.

Case “A” (as we will call it) began in February 2019 and the guarantors were sued for $530k. The case took 21 months to settle. After paying my legal fees (I never take these matters on contingency, my clients pay straight hourly), the landlord collected 16 cents on the dollar.

Case “B” began in November 2019 and the guarantors were sued for $296k. The case took eight months to settle. After paying my legal fees, the landlord collected 44 cents on the dollar.

These two cases brought my firm’s guaranty collections average, which I have been tracking since 2018, to 36 cents on the dollar (net to client) and an average resolution time of nine months.

What is the lesson?

I am so forthright about this data because I believe that law can and should be an evidence-based practice. An evidence-based practice shifts the basis for client and lawyer decision making from traditional, intuitive, and unsystematic experience to firmly grounded data. In other words, I can look at my commercial-landlord-clients in the midst of a lease default and tell them this – based on my last four years of experience, if you hire me to seek $250k from a guarantor, you will pay me about $25k to do so, your net recovery will be around 36 cents on the dollar, and it will take about 9 months. Those are not guaranties; they are averages. Clearly, if you reexamine Case A above, that case netted the landlord only 16 cents on the dollar and took 21 months, which was below my averages. Case B, however, exceeded my averages.

Nevertheless, the commercial landlord in Case A was happy with me. It got $84k (net) that it would not otherwise have had. The landlord was also happy with me because I did not tell it to expect 100 cents on the dollar in 10 seconds. The decision-makers expectations were managed. It is also important to note that each of these cases was undertaken against guarantors who the landlord had reason to believe had assets somewhere. I would not expect my stats to be a good predictor of an outcome for a guarantor whom early investigation shows is and will remain broke.

If there is a lesson here for would-be commercial-tenant-guarantors, it is this. Sign guaranties with great caution. The only guaranty an individual should ever sign should be a “good guy guaranty” (search this phrase in the search functionbox on this website and you will find a great deal of material thereon) and the good guy guaranty should not require the guarantor to be current through the date of vacatur.

Respectfully submitted,

Michelle Itkowitz

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