Attorney's Fee Agreements in the New Economy
In the middle of my career, while with a large regional firm, I found that obtaining approval for any fee agreement, other than on an hourly basis, remained, in a word, difficult. In the past 20 years, as the managing partner of small to mid-sized firms, I have urged my partners to explore creative fee structures and think outside the box to implement a win/win scenario for our clients and our firm, and have done so with great success. At the risk of being ostracized by my peers, hourly billing, while appropriate for many cases, needs to be revisited for the benefit of the consuming public, law firms and large corporations who consume legal services.
Anyone who picks up a newspaper or surfs the Internet knows about the foreclosure crisis. Real estate, however, did not suffer alone. Cargo ships lost shipping contracts thereby carrying large expenses with no income. Luxury products declined as even the uber wealthy cut back on spending. Construction came to a virtual standstill. And, as net worth plummeted, so did the desire to pay large attorney’s fees on an hourly basis. However, even with all of these negative factors my firm increased revenue in each of the last five years. Why? Because we invested time up front to truly learn our client’s case and we structured fee deals with the amount of damages in mind.
Recently, a long-standing client came to me with a case against a major automobile manufacturer involving brand certification revocation if after-market products were placed on the automobile. The two cars in question recently appraised for several million dollars but would have been worth millions more with the brand certification. We researched the issues, determined the proper cause of action, and prepared a budget anticipating the amount of discovery needed by both sides. After determining what we believed to be our maximum exposure for fees (about $300,000) we agreed on a flat fee of $75,000 paid up front plus 5% of the increase in the value of the automobiles if we prevail. To seal the deal, we agreed to give our client five years to sell the cars, and if he fails to do so, we will be paid the 5% based upon the appraised price at the end of the five-year period.
In another recent case, we represented a cargo shipper who had a partnership dispute and sought damages against his partner for breach of a note, secured by an interest in the vessel. Although we would have preferred hourly rates, we took the case on a 40% contingency fee.
In yet another case, we met with a client who complained of damages by his engineer and architect for failing to properly oversee construction of his high-rise condominium. We agreed to accept $10,000 up front and 30% of the damages we recover. We met and reviewed all contracts, change orders, reports, and correspondence between the parties to determine our probability of success. The client kept meticulous records, making our job less time intensive.
Investing time up front saves both the attorney and client aggravation later on, and we find that our clients come to better understand the case, acknowledge the risks and have a more realistic expectation of the outcome.
In this very tough economy, our clients have become litigation-savvy. They come to us much more informed about the risks and the possible rewards. A few clients who purchased real estate on a pre-construction basis during the condo boom asked us to file suit against the developer for the return of their deposits. When they came to talk to us, they knew that their contracts contained prevailing-party attorney fee provisions that could subject them to payment of the developer’s attorney’s fees in the event they lost the litigation. They also did not want to spend more on attorney’s fees then they stood to gain through settlement. So, for these individuals, after carefully explaining the risks and investigating the merits of their claims, we modified our standard fee agreements so that we would receive non-refundable retainers of between $5,000 and $20,000, plus 30% of any amounts recovered.
In the business world, it never hurts to be creative. Explore blended hourly rates, combination contingency and hourly fees, or fixed rates. Clients often times like to know and prefer that their attorneys have “skin in the game.” Remember, in these tough economic times, now more than ever everything is negotiable, look for the win/win scenario to create a loyal, lasting relationship.
By Gary S. Phillips
Phillips, Cantor, & Shalek, P.A.
4000 Hollywood Blvd.
Hollywood, FL 33021
South Florida Legal Guide 2012 Edition