Pros and Cons of Hiring a Lawyer to Handle a Business Case on a Contingency Fee
Certain advantages and disadvantages exist when a client seeks to have a lawyer handle a business case on a contingency fee basis. So what are the advantages and disadvantages for the client?
Advantages of a Business Contingency Case
Access to a Lawyer
Many small businesses and individuals cannot afford to litigate or arbitrate a business dispute by paying a lawyer an hourly fee. This is, in part, because business cases often will require lawyers to invest hundreds, if not thousands, of hours to litigate a complex case. Thus, the benefit for a client in hiring a lawyer on a contingency fee (when the client is a plaintiff), is that the client may obviate the risk of paying hundreds of thousands of dollars in attorneys’ fees that is not dependent on the case result. A contingency fee, instead, only compensates the lawyer if the case results in a settlement or collected judgment. As a result, many clients may gain access to a lawyer they otherwise could not afford to hire.
Efficiency and Speed
When a lawyer handles a business case on a contingency fee, the lawyer’s financial interests are directly aligned with the client’s. This is because the lawyer does not get paid until the case resolves. A contingency fee also encourages the lawyer to be efficient in performing tasks and to expedite the case to trial or settlement.
Lower Risk for the Client
When a lawyer handles a business case on a contingency fee, the client’s overall risk is decreased for several reasons. First, the lawyer does not get paid if the client loses the case. In an hourly-fee arrangement, however, the lawyer gets paid regardless of the outcome. Second, in an hourly-fee arrangement, the attorneys’ fees incurred can exceed a settlement or judgment, even when the client has received an affirmative recovery, creating a net recovery of zero for the client. In contrast, with a contingency fee, the lawyer is only paid a fixed percentage of the recovery, so the attorney’s fees cannot exceed the recovery.
Advancement of Costs
Many lawyers will advance client costs in a contingency fee case. This can be a tremendous benefit for the client in cases that may have significant expert-witness fees and related discovery or trial costs. While the reimbursement of costs ultimately will be reimbursed to the lawyer out of an affirmative recovery, the lawyer usually will bear the burden of such costs if no such recovery occurs. Therefore, the prospect of a lawyer advancing costs for the client’s benefit may allow the client to bring a case with little, if any, out-of-pocket expense.
Disadvantages of a Business Contingency Case
Contingency Fees Usually Apply to Plaintiffs, not Defendants
While it is possible for a defendant to hire a lawyer on what is called a “reverse contingency fee,” those arrangements are rare. A reverse contingency fee usually is limited to large-dollar cases where the defendant faces significant exposure and the defendant is willing to pay the lawyer a set percentage of the difference between the amount in controversy and the ultimate judgment or settlement amount. Few firms, however, are willing to handle cases on this type of arrangement and, likewise, usually only wealthy defendants have the means to avail themselves of this option because a zero verdict or judgment usually requires the defendant to pay a seven-figure fee to the lawyer. In sum, contingency fee agreements are usually limited to plaintiffs and not available to defendants.
An Hourly Arrangement May Work Out Better for the Client in Larger Cases
When a case involves a significant amount in controversy, is a strong case on liability and damages, and/or is likely to settle quickly, the client may prefer to pay the lawyer an hourly basis instead of a contingency fee. When clients opt for an hourly arrangement, however, they may be missing the opportunity to request a staggered contingency fee agreement that may work better for them than an hourly arrangement. A staggered contingency fee usually will have a lower contingency fee tied to an early settlement and increase the longer that the litigation continues. Likewise, a staggered contingency also may be tied to the recovery amount, where the contingency percentage decreases the larger the recovery.
Business contingency fee agreements often may be attractive for a client if the client can find competent counsel to handle the case on such an arrangement. If you know a prospective client who is seeking a lawyer to handle a significant business dispute on a contingency fee, please have the client contact us. Referral and co-counsel fees are paid consistent with Florida Bar rules.