While many law firms seem to be bracing for disaster in this market, I see an excellent opportunity to generate new clients while also building an upside into your fee agreements. Although the current economic conditions are causing an explosion of litigation, many clients are experiencing extremely tight cash flow and cannot afford the usual fee structures.
Under these circumstances, how do you turn this to your advantage? The answer is multiple types of flexible-fee agreements that both new and existing clients will greatly appreciate. Firms that refuse to be flexible and creative in a down market risk losing clients and enhanced fees. I have already seen a number of clients that have been turned away by other firms because those lawyers are not taking the long-term view regarding client relationships and the economy.
Although current budget conditions may preclude clients from paying typical initial retainers and monthly fees, I have found that you can solidify your relationship with both new and existing clients by negotiating an upside reward for taking a risk to help clients through these difficult times.
I have accomplished this by using a variety of creative and flexible-fee agreements. I have recently taken on a number of new clients that were quoted fees which had basically forced them to decide not to pursue meritorious claims until I offered them a more flexible agreement. If structured correctly, these types of agreements will actually generate better fees in the long run by rewarding the lawyer for sharing some risk with the client. I have set forth some basic examples of agreements I have used successfully below. These can be modified depending on the client and the type of case.
THE MULTI-PHASED FEE AGREEMENT
These fee agreements are broken down into pre-litigation (Phase I) and post-litigation (Phase II).
This type of fee agreement allows the law firm to comfortably earn an initial "flat fee" to better analyze the case and develop an initial game plan with a realistic budget. During Phase I, the lawyer can determine how strong the clients’ claims are, what the likely defenses are and what type of an upside recovery or bonus is possible. (I make it clear in my agreement that there is no requirement that either party continue beyond Phase I.)
During Phase I, the lawyer and the client can develop the most cost-effective strategy for meeting the clients’ goals and for setting a monthly budget that will become due during Phase II of the agreement. I see many lawyers who lose clients because they ask for a very large retainer because they cannot accurately estimate monthly costs as they have not spent the time to analyze the case in detail. This causes many clients to walk away because they are not presented with a realistically affordable budget. Using a Phase I agreement will benefit both the client and lawyer before they have committed to filing a lawsuit in Phase II.
In my opinion, the Phase I agreement should always be a flat-earned fee to reasonably compensate the lawyer for analyzing the documents, meeting with the client and preparing initial draft pleadings. The goal in Phase I is to try to bring the other side to the table before suit is actually filed to achieve a prompt business resolution. In my practice, this often leads to mediation with a retired judge or an off-the-record meeting with opposing counsel and the respective clients to attempt a prompt business resolution. (A bonus can be worked into the agreement if there is a prompt resolution during Phase I.)
If Phase I fails and suit must be filed, Phase II should be a mix of hourly, flat fees or a blend of contingent fees as discussed in the next section below. During my 20 years of practice, I have found that clients greatly appreciate a phased-in fee agreement because it allows them to pay their legal bills in affordable stages. This also works well for the law firm because they can earn a reasonable fee while making a more informed decision on the best way to move forward for the client and the law firm in Phase II.
I have had many cases settle in Phase I and been paid either a percentage of the recovery or three times the normal hourly rate as a reward for a prompt, cost-effective resolution. I have also had clients commit to paying more on a monthly basis in Phase II once they actually see how the game plan during Phase I has been implemented by me.
If the case is one where a recovery of funds for the client is likely and the client has a limited budget, a blended contingent fee may be used.
THE BLENDED CONTINGENCY FEE AGREEMENT
I have found that "blended, contingent-fee agreements" work especially well in down markets. I begin by telling the clients if they want me to be committed financially to the case, I need a financial commitment from them. I believe the best way to do a blended, contingent-fee agreement is that the client pay an initial flat-earned fee that will cover evaluating the claims and defenses and drafting the lawsuit.
Thereafter, the client only pays litigation costs and the firm gets a contingent bonus of 25 percent to 35 percent of the gross recovery at the conclusion of the case. In my experience, if you select your cases correctly, these agreements will result in much better fees than a standard hourly fee agreement.
I have used multiple variations of these agreements over many years with great success. I have also found that the clients appreciate law firms who work with them in tough economic times by allowing for flexible payments within a monthly budget. The end result is usually better for both the lawyer and the client.
is the president of Bochetto & Lentz. He specializes in business litigation.