This is a terrific article by Crowell and Moring’s Paul Haskel on the use of alternative fee arrangements, particularly contingency fee arrangements, by large law firms to supplement the revenue generated by traditional billable hour defense work. The author makes three points: first, that large firms have been doing this for years but it is now growing (and in my view, larger firms are now more open about it than they used to be); second, the tactic can significantly boost firm revenue in years where a case returns a recovery, but creates inconsistent revenue streams because in other years, no revenue is generated from the cases; and third, some firms are using litigation finance to smooth out the impact on revenue of that volatility.
Most of my work has always been based on the billable hour, and much of it has always been in the capacity of a defense lawyer. However, I have always been open to, and in many ways preferred, alternative fee arrangements, whenever they are feasible and the client is interested, including flat fee arrangements. I like the extent to which they align client and attorney interests, result in both having “skin in the game,” and allow me the freedom to closely investigate or study strategies or theories that might not pan out without concern that I am impacting the client’s finances by doing so since the flat fee or other alternative fee arrangement has already capped the client’s financial responsibilities.
Much like the scenario presented in Paul Haskel’s article, I have often used contingency arrangements when representing plaintiffs in ERISA litigation, and have found that, as Paul notes, they can significantly boost firm revenue in years where there is a recovery. As Paul also hints at, however, the key is being very good at evaluating and selecting the cases to bring, so that the odds of eventual recovery are sufficient to justify the time invested in the action and the carrying cost of that investment.
In ERISA actions, though, there is one additional variable that comes into play, which is the availability of a fee award to a prevailing plaintiff. If properly factored in by counsel at the outset, the possibility of such an award can allow for different ways of structuring alternative fee approaches to representing plaintiffs, beyond simply traditional contingency fee awards of the type addressed in the article.
A significant fee award can also reduce the impact on the plaintiff or plaintiffs of a contingency agreement. In at least one case I handled on contingency, the attorney fee award, combined with pre- and post-judgment interest, resulted in the plaintiffs recovering over one hundred cents on the dollar of their losses, even after paying counsel. Granted, that’s a “perfect storm” type scenario, but it can happen, although only thanks to the fee shifting provision of ERISA.