Law firm contingent fees can create problems

Conflicts can be created when traditionally transaction – commercial litigation law firms, paid by the hour, enter into the contingency fee arena. The Wall Street Journal, in its March 7th edition, delineates several of these, and more are discussed below.

One conflict is between those lawyers working on the contingency matter and the other lawyers in the firm. 

Normally, compensation is based on hours worked and dollars collected. How can you compensate lawyers who bring no money into the firm, and, in fact, are responsible for many dollars "flowing out of the firm" in the form of their compensation and expenses advanced to sustain the lawsuit.  How can you determine bonuses?   When you speak in terms of millions of dollars, the tension can become palpable.

Then, when the firm is successful, and many dollars flow into the law firm, who gets what? How much should the lawyers working on the matter receive? What kind of bonus should they receive, if any? Isn’t the matter the "property" of the firm? Didn’t the firm advance the costs, not the lawyers?  What is fair?  What will keep all the lawyers happy and in place? What will reduce the urge to leave and go to another law firm or start their own?

And what should departed lawyers, who worked on the contingency matters, receive? A belated bonus? A payoff on their departure?  How would you value the matter, before knowing even if the firm won the case?

And, of course, this discussion doesn’t even address the potential conflict of interest between the law firm and the client in settlement discussions when the law firm wants to settle before the client does (because of differing perspectives concerning the future of the case) in order to get at least its costs returned.

Conflict, conflict, conflict. The better approach is to attempt, in advance, to discuss these issues and resolve them (or as many as possible) before they arise.


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