Tag Archive for contingency fee

Contingency Fees for Commercial Litigation

blue-money-graphicContingency fees are usually associated with plaintiff’s attorneys who litigate cases pertaining to personal injury, employment discrimination, civil rights, and many other case types. The contingency fee was born from a variety of issues like better aligning the interests of plaintiff and attorney, helping the destitute obtain justice even in the face of financial hardship, and making justice more accessible overall.

Most plaintiffs involved with civil litigation go in with the expectation that their attorney will work on a contingency fee basis. This means that they don’t have to pay their attorney upfront. Instead, their attorney covers all expenses necessary to litigate the case. The plaintiff only pays the attorney from the proceeds of a favorable outcome, whether it be in the form of a settlement or verdict.

Commercial litigation is when a business sues another business over a grievance, which could be breach of contract, bankruptcy, or a host of other types of lawsuits. Most people assume that commercial litigation wouldn’t be a good fit for the contingency fee model, as the attorneys are usually paid on an hourly basis. Their fee has no correlation with the outcome of the trial, but rather is a fixed fee based on the total number of hours worked.

However, according to an article by Steven Susser published in the Michigan State Bar entitled Contingency and Referral Fees for Business Disputes, contingency fee arrangements are appropriate for all types of lawsuits, including commercial litigation. He points out that the key to any contingent arrangement is to find that common ground between the lawyer and client.

With the traditional billing model for commercial litigation, law firms would bill by the hour and their motivation might be to prolong the trial for as long as possible. After all, the more hours they work, the more they get paid. The contingency fee model promotes quality work and efficiency. If the law firm’s fee is contingent upon a favorable outcome, they are motivated to negotiate the best possible settlement as quickly as possible, or litigate the trial with speed and efficiency. The law firm has the potential to make more money assuming there is a substantial settlement or verdict, of which they receive a percentage, compared to a flat hourly fee.

In his article, Stusser explains why contingency fees for commercial litigation are beneficial. Some reasons include the current economy, common ground between the attorney and client, access, and money. Since the recession of 2008, companies have been looking to cut costs, demanding that their attorneys reduce their fees. In terms of money, Stusser writes that there is a ceiling for hourly fees, but a percentage of the settlement or verdict can equate to a higher hourly fee. Common ground would apply to the way the attorney and client see the case, which keeps both of their motives aligned.

Stusser also points out the drawbacks of the contingency fee model. For example, law firms must have a cache of money to bridge their cash flow issues while fighting a case. In addition, because this model is riskier compared to the traditional hourly fee structure, the firm may require that the client pay for all costs, including expert witnesses, which can really add up if the litigation is complex. Other firms request a large upfront retainer, which they rebate to the client assuming a favorable outcome. According to Stusser, such obstacles make the litigation appear less attractive to the potential client.

Commercial contingency fee litigation will likely become more popular with time. Furthermore, there are some law firms that have created modified contingency fee arrangements. For example, with the hybrid model, the client pays the attorney a discounted hourly fee and assuming a favorable outcome, the lawyer receives a percentage of the plaintiff’s award. The bonus model has the client pay the attorney a reduced hourly fee plus a bonus contingent upon a favorable outcome. There is even the reverse contingency fee model, which can apply to a defendant. With this arrangement, the attorney’s fee is inversely proportional to the amount the defendant is assigned to pay.

Written by Lulaine Compere.

Reverse Contingency Fees and How They May Affect the Relationship between Clients, Plaintiff’s Attorneys, and Defense Attorneys

reverse contingency feeMany civil litigation attorneys have contingency fee agreements setup with their clients, mainly because their clients cannot afford the hourly rate they would otherwise charge. A contingency fee agreement is a great way for both the client and the attorney to get what they want. With such an agreement, the plaintiff’s attorney receives a percentage of the client’s award.

There are however some situations where new arrangements are being made. The reverse contingency fee could be a trend that catches on, especially on the defense side of the ledger. It basically involves an attorney getting paid a percentage of the money they save the client through negotiating a settlement. So if a company is being sued for one million dollars and the defense attorney negotiates a settlement of $400,000, the defense attorney would receive a percentage of the $600,000 he saved the client.

According to some articles about the subject, there are those who believe that the reverse contingency fee aligns the client and attorney more closely, which would limit conflicts of interest. The reverse contingency fee arrangement is fairly new, but the idea has been around since at least 1993. In that year, the American Bar Association’s Standing Committee on Ethics and Professional Responsibility released their formal opinion on the practice.

There are some issues with the reverse fee arrangement that would require flexibility on behalf of both the attorney and client. There are issues with disclosure, along with possible tiered outcomes which would increase or decrease the fee. This is an issue to which civil litigation attorneys should pay especially close attention. Many times during trial, the motives of plaintiff’s attorneys are questioned because of the fee they will earn. Questions of conflicts of interest are mentioned as well, but if reverse contingency fees become popular on the defense side, that may lead to accusations and questions about their motives.

Written by Lulaine Compere.

Upcoming Changes to the British Legal System

The Blake Lapthorn law firm published a blog post about some of the changes that are coming to the British legal system. Some of the changes include moving from what is known as conditional fee agreements to contingency fee agreements.

This is huge for the U.K. attorneys because they have been accustomed to this way of working for a long time. Contingency fee, which is generally associated with the American legal system, is one where the rewards are capped at a certain percentage. The new changes are something U.K. lawyers will have to get used to.

Written by Lulaine Compere.

Sexual Harassment and Lawsuit Funding

Sexual harassment occurs when a person of power uses their position to get sexual favors. The workplace is where people spend a majority of their time, and in this environment is where a large amount of sexual harassment takes place. Sexual harassment can be a huge problem in the workplace. It upsets the synergy of what may possibly be a cordial working environment and makes it very uncomfortable. One recent example is an MTA bus driver who claimed her supervisor licked her on the face.

Sexual harassment affects all aspects of a person’s life. It can often have a negative effect on the victim of either sex and can ruin relationships. People are trained to go and report any kind of sexual harassment whether it is from a co-worker or a boss. However, the pressure to report those allegations can be overwhelming, and when it does, that can have a deleterious effect on the victim and their reputation. If the accused is a well-liked person, that can make the situation worse.

Sometimes the work environment is actually tolerant of the harassing behavior. One example of this would be on Mad Men. Mad Men is a show on AMC that shows how a fictional advertising agency would function in a specific time period. One of the themes it dealt with and still deals with is sexual harassment. Being a victim doesn’t help anyone and when a person finds the work environment to be tolerant of the behavior, they have the right to sue both the person and the company.

A lawsuit against a large company takes a lot of money, time, and resources. Fortunately, there are some lawyers who specialize in that practice and many times they are contingency-fee lawyers-so they don’t get paid until the damages are paid to the plaintiff.

This is where lawsuit funding could play a role to help the victim. If a person is suing a company over sexual harassment, they may take a leave of absence or quit in protest. That would mean they have no money coming in. A lawsuit funding company could help fund their case through what is called pre-settlement funding. The victim would get funds advanced to them before the case is resolved. This would provide the victim with some breathing room financially. If they lose the case, they would not be required to repay the advance since most pre-settlement funding is non-recourse.

Another way lawsuit funding companies could help fund cases is via post-settlement funding. In this situation, a lawsuit funding company would provide financing on a settled case, advancing the funds to the plaintiff so they could get back on their feet. Post-settlement funding would be appropriate if the lawsuit was settled, but there was a delay in payout of the settlement for any given reason.

Sexual harassment can ruin the reputation of the victim. In some places, it’s looked at like being a whistle blower, which some people find reprehensible. If the sexual harassment victim has that stigma, it can be pretty hard for them to find or keep another job. Lawsuit funding can’t help them find a job, but it can help them get justice.

Written by Lulaine Compere.

Post Settlement Lawsuit Funding For Plaintiff Attorneys

Many banks and alternative lenders are facing new and tougher regulations since the recession and in turn are making tougher lending standards for small businesses to borrow money. If a law firm is lucky enough to get money, the time period between applying for the loan and getting it can be extensive, which can leave the firm in a bad financial situation. Furthermore, because banks do not consider a law firm’s case load as collateral, it is almost impossible to get the full amount of money a firm requires.

Small law firms generally face cash flow problems and need people who understand their situation. Many lenders do not know the complexities that a plaintiff attorney faces and are hesitant to loan the money. Plaintiff attorneys need these funds because they defer their fee until the case is settled and have to vigorously pursue the case to win. Working on a contingency fee basis often leads to gaps between legal fees.

Post settlement funding involves a finance company purchasing a legal receivable and advancing a portion of this fee. This differs from pre-settlement funding, where an advance is made on a case before there is a settlement.

There are certain types of cases where post settlement lawsuit funding is appropriate, as there is often a gap between the time of settlement and when the legal fee is actually paid to the plaintiff or attorney. Due to court delays and administrative issues, class actions, mass torts, and personal injury cases sometimes have a gap between settlement date and payment date. Therefore, post settlement financing makes sense as a cash flow management solution to bridge this gap and provide cash when it is needed.

Written by Lulaine Compere.