Atlanta Attorneys at the Forefront of the Alternative Fee Movement
For decades now, traditional law firms obtained fees from their business clients based upon the billable hour. The ugly truth behind the billable hour model is that the longer the lawyer works on a matter (whether necessary or not), the more the lawyer is paid. The overreliance on billable hours by the profession has led to inefficiency, unpredictability in costs, and billing for mechanical functions rather than the value of progress or success.
With the recent economic downturn, more and more businesses have sought alternatives to this traditional billable hour model. PMKM&N has led the way in working with its business clients to reach Alternative Fee Arrangements that are beneficial to both the company and the law firm, and have spoken on the topic at multiple corporate counsel seminars. Click here to see a video of the Corporate Counsel Seminar Presentation and here to view a copy of the handout material. There are many alternative fee arrangements available, and PMKM&N is pleased to work with you to determine which is best for your business in a particular situation.
1. Flat Fee
Description: PMKM&N will perform the specified legal work related to the litigation for a set fee.
Example: With litigation threatened against the Client, PMKM&N was retained to renegotiate a supply contract. Client communicated its goals for the contract with PMKM&N, including lower costs, joint marketing efforts, and better service, but timely resolution was the overriding factor. Client and PMKM&N agreed to a flat fee arrangement to negotiate the contract terms as specified by the Client. The Client’s negotiating posture improved by having a respected trial litigator negotiate the contract, and the Client was exceptionally pleased with the renegotiated contract.
Advantages: Fee is not based on time and the Client knows at the outset what the fee will be. This allows the Client to budget accordingly and avoid billing surprises.
2. Contingent Fee
Description: PMKM&N will perform the specified legal work with no guaranteed fee. Instead, PMKM&N is entitled to a percentage of recovery if the litigation is successful.
Example: Competing company tortiously interfered with Client’s contractual rights. The Client communicated its goals to the PMKM&N, foremost of which was to prevent such an occurrence in the future. PMKM&N was retained, on a contingent fee basis, to bring tort action. After extensive discovery, and just prior to trial, the litigation with competing company settled for a sizeable amount and a promise to refrain from similar conduct in the future. During the lengthy discovery period, Client paid nothing in attorneys’ fees. If the case had been unsuccessful, Client would have owed no legal fees.
Advantages: Client only pays when successful results are achieved and does not pay for time. This approach allows the Client to pursue litigation without costs during the pendency of the litigation. It perfectly aligns the interests of the Client and Law Firm as they are both interested in one thing only – success.
3. Reverse Contingent Fee
Description: A Reverse Contingent Fee is useful in a limited number of cases. In essence, the Client has expressed a dollar amount that it would be willing to pay, or it believes is reasonable to pay, to resolve a pending suit against it. PMKM&N receives its compensation based on a percentage of the amount it is able to save the Client off of that amount.
Example: Client was prepared to settle a pending securities action for $20 million. PMKM&N was retained to defend the Client. PMKM&N agreed to receive a percentage of any amount less than $20 million the Client ultimately paid to resolve the action. If Client was required by settlement or judgment to pay in excess of $20 million, PMKM&N would receive no fee. The pending cases resolved within months of PMKM&N being retained. As a bonus, PMKM&N later recovered all amounts paid in settlement in an action against the Client’s insurance carrier, which action was handled on a contingent fee basis by PMKM&N.
Benefits: As with a Contingent Fee, the Client does not pay any legal fees unless the litigation is successful.
4. Incentive Based Fees
Description: An Incentive Based Fee is just what it sounds like. PMKM&N is compensated based on achieving agreed upon goals in litigation. This can be calculated in a myriad of ways before the litigation. It can also be determined at the conclusion of the case through a retrospective agreement on value.
Example: Company purchased competitor and included in the purchase agreement a non-compete clause with the owner of the company. Upon discovering that the former owner had started another competing business, PMKM&N was retained to enjoin former owner’s conduct. PMKM&N ’s compensation was structured based upon the results achieved with an agreed upon fee for: (1) obtaining a temporary restraining order; (2) obtaining a permanent injunction; and (3) obtaining a monetary judgment. With the threat of litigation, the company and former owner reached a business arrangement financially beneficial to both parties.
Benefits: Shifts focus from time spent to the value of the results. The Client does not pay any legal fees unless PMKM&N achieves one or more of the various goals agreed to prior to litigation. This facilitates staying within a budget, with the caveat that excesses are explained by results. The Client is also able to obtain certainty as to future legal fees which are valued prior to litigation based on their importance.
5. Hybrid Fee
Description: A Hybrid Fee is a combination of a Flat Fee, a Contingent Fee, a Reverse Contingent Fee, and/or an Incentive Based Fee.
Example: Client retained PMKM&N to pursue commercial litigation action for a flat fee up front, plus future fees based on the achievement of stated goals in the lawsuit. The case resolved with PMKM&N having achieved all of the levels of success contemplated by the contract.
Benefits: Easy to negotiate and administer. Shifts focus from time spent to the value of results, and the amount of the fee is based on the value to the Client as defined by the Client. The Client is able to obtain certainty as to legal fees which are valued prior to litigation.