The Challenge of Litigation Costs
Business Litigation in the United States is expensive, really expensive. While other countries have rules that allow the winning party to get its attorney fees from the loser, the U.S. does not have this rule (except in specific cases where statutory or contractual provisions allow fee shifting). As a result, business owners often bear all the risk and financial burden of legal disputes.
Business owners must choose between paying potentially huge legal fees, settling the matter for less than they deserve, or abandoning the claim – even when they’ve suffered financial losses due to someone else’s wrongful acts.
A Better Approach: Contingency Fees
A contingency fee agreement allows clients to pursue justice without paying attorney fees upfront. It’s a retention agreement between the lawyer and the client where the lawyer does not get paid an attorney fee unless a recovery is won through judgment or settlement. In other words, the lawyer’s attorney fee is “contingent” on the outcome of the matter. If, for some reason, the case does not result in a recovery, the attorney does not get paid any fee. When a recovery is secured, the attorney is paid a percentage of that amount.
Contingent fees are used extensively in personal injury litigation, but they can be equally valuable in business litigation, where traditional hourly billing can be cost-prohibitive. Law firms should offer this option to clients if it fits the clients needs and the law firm believes this is a risk worth taking.
The Benefits
For businesses involved in litigation, contingency arrangements offer several key advantages:
- With a contingency case, the client can control its budgeting and costs and not have huge attorney fees impacting its cash flow.
- It does not carry the financial risk of investing considerable dollars in attorney fees for a costly legal battle with an uncertain outcome that may be years later.
- The attorneys have an incentive to work hard and perform well, because if they do not win, they do not win their fees, either.
- The client still makes all the calls on any settlement decisions, and the case cannot be resolved by the lawyer without the full consent of the client.
The Considerations
While a contingency arrangement eliminates or defers the payment of attorney fees, the client would still need to pay third-party costs – outside costs that are necessary for the case but do not go to the attorneys or their overhead. These include filing fees, transcript fees, travel expenses, subpoena and records costs, expert witness and other consultant fees, and trial exhibit preparation fees. Attorneys can agree to advance these costs, but the client must ultimately be responsible for them under most jurisdictions’ professional responsibility rules.
These costs are minimal compared to the monthly bills for attorney fees, but they remain the responsibility of the client.
Not every case qualifies for a contingency fee structure. When evaluating whether to take a case on contingency, attorneys must consider:
1. The strength of the case – Is there a solid legal and factual basis for winning?
2. Amount of potential recovery – Is the potential judgment or settlement significant enough to justify the investment?
3. Collectibility – Can the opposing party pay if a judgment is awarded?
4. Complexity and workload – How much effort and time will be required to obtain a judgment and collect it?
The Bottom Line
The contingency fee structure can be a great alternative for both clients and attorneys. Even sophisticated businesses which could easily afford hourly legal fees often prefer to share the risk with their law firm, giving up some of their recovery in exchange for financial predictability. Clients should ask their business litigators about contingency fee arrangements, and quality attorneys should not be afraid to “put their money where their mouth is” and offer this win-win opportunity to their clients.
At August Law, PLLC, we offer contingency fee structures for select business cases because we believe in our ability to win. Our firm serves clients across all of Michigan – including Oakland, Wayne, Macomb, and Washtenaw Counties – as well as the entire state of Florida.
We take on cases we believe in, and bet on ourselves to win them. This is part of what sets us apart in the legal community, and why our local business community trusts us to deliver results.