General economic conditions have forced corporations to consider ways of reducing overall litigation costs and have compelled dialogues with outside counsel about alternatives to standard hourly billing. Percentage discounts are invariably sought, but those are not particularly effective at reducing costs, and do not take into account concerns about efficiency, the overall work effort, staffing and the strategic direction of the lawsuit. Alternative fee arrangements should reduce cost relative to the value achieved by the representation, increase predictability of spend, and incentivize outside counsel to provide zealous, creative advocacy while maximizing efficiencies.
Here are a few creative alternatives designed to achieve these goals:
1. Corporation as Plaintiff in Substantial One-Off Litigation: If significant damages are sought, and are likely achievable, a serious discussion about a pure contingency arrangement should occur. However, if the law firm is averse to contingency work, if damages are less certain, or if injunctive relief or some provisional remedy is a primary goal, fees are necessary. Two very good options are:
Monthly or matter capped fee with law firm "carry": For example, assume that the client and law firm agree that the fees for a substantial case are approximately $30,000 per month. It is agreed that the client will pay 80 percent of the anticipated monthly fees ($24,000) through the conclusion of the case. Any overage is allocated to a "carry" or "success" pool with a running total. If the total fees for a particular month are less than $24,000, the client either pays the actual amount or the difference is deducted from the success pool after each month. At the conclusion of the litigation, the client pays some percentage of the "carry," depending upon such factors as the assessment of the performance and the result relative to the value. Under this scenario, an up-front agreement on allocation of the "carry" is key.
Blended flat rate/success fee: Under this arrangement, the law firm agrees to discounted hourly rates, but a favorable outcome commands a success fee. The calculation of the success fee can vary by contract or be left to the discretion of the client. I have entered into arrangements very successfully in which predefined outcomes yield payments that either bring the matter back to 100 percent of the rack rate, or result in the payment of a percentage of the collected amount.
2. Corporation as Defendant:
Flat fee for portfolio of work: In this example, it is assumed that the corporate client has a good sense of its historic spend for certain types of predictable litigation (and not necessarily as a defendant). In order to promote predictability, the agreement sets a fixed price per year for all representations in that category. The key to making this arrangement work is to have certain, previously negotiated carve-outs for both sides that relate to cases that are within the defined subject scope but are unanticipated in terms of severity or complexity.
Fixed or capped fee by phase: Experienced litigators can provide a budget within a range of accuracy for anticipated phases of litigation--pleadings, initial motion practice, written discovery, depositions, dispositive motions, experts, trial preparation and settlement efforts. Fixing fees by phase accomplishes the goal of certainty for both sides and provides incentives to the law firm to staff and manage the case appropriately. If a fixed or capped fee cannot be agreed upon, clients should still insist on accurate budgets by phase.
