When people think of contingent fee cases, they often think of cases involving personal injuries or some sort of physical or emotional harm. As far as the numbers go, most contingent fee cases are personal injury cases. But more and more, businesses are turning to contingent fee arrangements to protect their legal rights without hurting their bottom line. With a contingent free arrangement, the lawyer assumes the risk of a non-recovery, since they are only paid if the litigation is successful (they are paid a pre-set percentage of the recovery). Resources that the business might otherwise spend on legal fees can be spent on things to help the business grow. This can make a huge difference to the health and prosperity of the business, as cases often take two years or more to resolve. The lawyer, in turn, benefits from the opportunity to earn legal fees well in excess of what they might earn on an hourly basis. In the right case, this can be a true win-win.
So what is the right case? In the business context, the most important consideration is collectability. With personal injury cases, the plaintiff often looks to an insurance carrier to pay any judgment that is awarded. With business cases, insurance coverage is much rarer. Therefore, the plaintiff must rely on the defendant’s ability to pay. If the defendant cannot pay, a contingent fee arrangement will not work. Beyond that, the amount in dispute must be significant enough to warrant the risk. A lawyer cannot spend $50,000 in billable time trying to collect $20,000 in damages. Related to this point, the dispute must involve money damages. Because the lawyer is compensated based on a percentage of the recovery, a contingent fee arrangement is ill-suited for the situation where a client seeks an injunction or some other form of non-monetary relief. Finally, it helps if there is a genuine dispute. It does not make sense for a business to give a lawyer a percentage of the recovery on a case where recovery is near-certain. Likewise, it does not make sense for the lawyer to accept a percentage of the recovery when there is virtually no chance the claim will succeed.
Thoughtful consideration at the outset of the representation can help both parties—the client and the lawyer—identify whether a contingent fee arrangement is a viable option in light of the nature of the dispute and the client’s stated concerns and objectives.
