The Boat, Part IV: Can Willing Buyers Find Willing Sellers?

The last major insight from the Boat roundtables was the incredible difficulty inside counsel seemed to have finding lawyers who would pursue litigation on a contingency or other alternative fee arrangements.  For the most part, big firms simply will not engage on the topic and when someone does, he or she frequently does not have the experience to assess price risk, cut fat from the defense or prosecution of the case in order to make the alternative something other than a glorified hourly rate, or to be able to determine what the lawyer’s margin is or will be on the engagement.

This difficulty dovetails quite nicely (and unexpectedly) with an article in the June issue of Corporate Counsel that suggests in-house counsel use contingency fee arrangements for certain kinds and sizes of litigation.  One of the benefits the authors attribute to such arrangements is better and earlier case assessment: “be prepared to engage in a brutally honest, rigorous, and thorough pre-retention assessment of your case with potential contingency counsel. Qualified business attorneys presented with a potential contingency case are going to take a long, critical look at the merits and the potential recovery before agreeing to handle the case. This can be difficult and stressful. Business litigation, like any litigation, can be very emotional.”

This somewhat counter-the-mainstream view is justified because “even business plaintiffs often come to a lawyer with a very one-sided view of their case colored by anger and the desire to exact retribution.”  While “hourly lawyers learn the details of the case as the representation progresses, contingent fee lawyers need to make a reliable assessment and valuation before beginning. The client can also learn from this intensive pre-retention assessment.” 

The better assessment?  According to the authors, “the contingent fee lawyer is likely to be much more candid about the strengths and weaknesses of the case than an hourly attorney who is paid regardless of the outcome.”

If the inside lawyers participating in the roundtables are representative, the real problem is not the willingness of inside counsel to cede the kinds of cases discussed to lawyers on a contingency fee basis, but rather finding suitably qualified business litigators who will work on a contingent fee basis.  Perhaps this site could become a clearinghouse matching interested buyers with interested sellers.  Those who have read any of my entries on fees know well my interest (and my firm’s) in litigation of this sort.  Perhaps we should market ourselves as a one-firm pilot project.

Seriously, there should be a way by which willing sellers can be introduced to interested buyers.  Suggestions?

Comments

[Traverse Legal]

Patrick: Once again you have hit the nail on the head. I have always believed that the traditional hourly firms could use a good dose contingency work for their own professional benefit. It would help firms start thinking about efficiency, value and risk in ways that the hourly billing model simply doesn’t encourage. I have always handled civil litigation, both injury and commercial, on a contingency fee basis. The interesting thing about the commercial cases is that you can readily quantify economic loss. The lost profit component is often into the six or seven figure range.

Personal injury cases in that range are much more difficult to come by. The other interesting thing is that you are not stuck at a one third contingency rate in business litigation. There is a lot more flexible for sliding fee scales and the like.

I think the reason why the big hourly firms don’t do contingency fee work is because they are too comfortable and profitable with their hourly rate system. They are not looking for any risk. They are making a ton of money simply billing clients by the hour.

I would encourage commercial litigators who have worked strictly on a hourly fee basis to consider contingency fee work. It is enlightening, rewarding and offers potential return on investment way beyond the hourly billing system. The feeling of having your interests completely aligned with the clients is also professionally refreshing.

Enrico Schaefer, Traverse City Lawyer