In today’s volatile and uncertain economy, individuals and executives are searching for any measure of certainty in their personal and business affairs. This desire for certainty also applies when the need arises to hire legal counsel. Although lawyers cannot guarantee an outcome for their clients (especially in litigation), they should strive to provide their clients with certainty when it comes to legal fees.
DeBlasio Law Group, LLC prides itself on being at the forefront of the alternative fee movement. Several of our clients have embraced our firm’s various alternative billing formats with open arms and appreciate the flexibility offered by the firm in the current global economic crisis.
For many, there is a perception that litigation (especially complex commercial litigation) is not particularly suited for alternatives to the billable hour because of the many twists and turns such litigation can take. In our view, litigation offers a myriad of opportunities for clients to structure alternative fee arrangements that provide certainty to the client (and the firm).
One alternative fee structure offered by the firm involves agreeing upon a flat (or capped) fee for legal services related to different aspects of a lawsuit, such as: (1) the preliminary investigation of a matter, (2) filing an answer to a complaint or a motion to dismiss (3) evaluating the legal basis for potential counterclaims or claims against third parties, (4) court appearances, (5) drafting written discovery to the parties, (6) a fixed fee per subpoena issued to each third party for documents, and (7) drafting or responding to a motion for summary judgment. If the matter proceeds to trial, the lawyer and client also can agree upon a flat fee per day of trial preparation and per trial day. This format could even include a blended rate for the partner and associate on the case (e.g., one hourly rate for both attorneys) to prepare for and/or attend trial. The point is, at each phase of the case, clients will know upfront what the cost will be for the firm to perform these specific services.
Risk Sharing Approach – Minimum Flat Fee Plus Reduced Contingency
Pure contingent fee arrangments are often frowned upon in business litigation matters because of the many twists and turns a litigation matter can take. Moreover, a pure contingent fee arrangement places all the risk on the law firm — and lawyers, like their clients, are very risk averse.
One alternative fee structure that provides opportunities in complex business litigation matters involves a Risk Sharing Approach that establishes (a) a minimum flat fee to take a case through trial, plus (b) a reduced contingent fee paid upon securing a recovery.
Under a Risk Sharing Approach, the law firm and client agree upon a minimum flat fee – let’s say $40,000 – for the law firm to handle all aspects of the case through trial regardless of outcome. In addition, if a recovery is made, the client also agrees to pay a reduced contingent fee to the law firm – say 15% (as opposed to a traditional 35% contingency).
As shown below, under the Risk Sharing Approach, if the client is successful in the litigation, the client’s return on its $40,000 investment (“ROI”) ranges from 0% to 150%:
Risk Sharing Approach – Client Perspective
Gross Net Client Traditional
Recovery (Contingent Fee) (Flat Fee) Recovery Recovery Difference
| $200,000 | -$ 30,000 (15%) | -$40,000 | $130,000 | $130,000 | -$0 |
| $300,000 | -$ 45,000 (15%) | -$40,000 | $215,000 | $195,000 | +$20,000 |
| $400,000 | -$ 60,000 (15%) | -$40,000 | $300,000 | $260,000 | +$40,000 |
| $500,000 | -$ 75,000 (15%) | -$40,000 | $385,000 | $325,000 | +$60,000 |
For the law firm, the Risk Sharing Approach provides some assurance (the $40,000) that it will be paid for its legal services to take on the case. In return for this security blanket, the law firm agrees to a reduced fee arrangement if the case is successful, as shown below:
Risk Sharing Approach – Law Firm Perspective
Gross Traditional Fee Under Risk
Recovery (35% Contingent Fee) Sharing Approach Difference
| $200,000 | $70,000 | $70,000 | -$0 |
| $300,000 | $105,000 | $85,000 | -$20,000 |
| $400,000 | $140,000 | $100,000 | -$40,000 |
| $500,000 | $175,000 | $115,000 | -$60,000 |
Naturally, the Risk Sharing Approach requires an ability on the part of the lawyer to perform a certain degree of budgeting and forecasting. But then again, lawyers should always be upfront with their clients regarding the anticipated costs of litigation, and that requires the lawyer to forecast costs anyway. This approach provides some assurance of payment for the law firm, and allows the client to precisely budget for a particular business litigation matter.
There are many opportunities for clients and their lawyers to structure fee relationships that provide certainty for both the clients and their lawyers. Yes, it takes a bit of work, but very little in life doesn’t. DeBlasio Law Group, LLC welcomes the opportunity to discuss these and other arrangements with our clients. www.DGLLC.net.