Contingent Fees v. Fee Shifting

Fee shifting mechanisms can lift the burden of litigation costs if you win. Contingent fee agreements lift the burden of litigation costs if you lose, and limit the size of the litigation costs if you win so as to greatly increase your chances of a net positive recovery on the litigation. Such a comparison, at the cursory level, seems to make the contingency fee arrangement very attractive. A more nuanced comparison, however, shows that a straight fee arrangement can be better, even without fee shifting.

Typically, a contingency fee agreement provides that the attorneys for the plaintiffs will not collect a fee unless the plaintiffs win. If the plaintiffs win, their attorneys will take a percent of the recovery. It will be a big percent—typically between a third and just less than half. The attorneys will also take out the costs they advanced for copying, postage, filing fees, etc. and for third party litigation support (expert fees, for example). Whether they take those costs out of the amount recovered before or after they take their percent of the recovery depends on the deal they struck with the client. That is the cost of litigation where all the risk in bourn by your attorneys.

Clearly, if the client has no money to pay for an attorney, the contingent fee route is a lot better than walking away from a meritorious claim. However, clients that can pay a straight hourly fee may be better off doing just that. It all depends on the chances of winning, the likely size of their attorney’s bill, and whether they will be able to avail themselves of a fee shifting mechanism if they win. For example a $1,000,000 dispute in a very strong case with $100,000 in estimated attorney fees might be better litigated on a traditional hourly basis than on a contingency basis. Keeping everything else the same, if potential litigation costs on an hourly basis are $500,000, a contingency fee arrangement (if available) might be more attractive than paying the hourly rate—and the less strong the chances of winning, the more attractive it will be. Now, add in the availability of a fee shifting mechanism, so that if you win those attorney fees are added to your damages. If you can afford the hourly rate, the hourly fee option may have become the better choice.

These are some of the options and scenarios a client may want to discuss with their attorney before their case gets started.




The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.