Alternative-Billing Arrangements: Handling a Legal Dispute Without Breaking the Bank
Litigation can be astronomically expensive. In addition to the high cost of discovery, filing fees, and experts, the rates of attorneys who specialize in complex civil litigation can be as much as -- or even more than -- $1000 an hour. Alternative-billing arrangements can make all the difference.
Mixed Billing and Hold-Back ArrangementsMixed-billing arrangements enable the client to pay only a fraction of a firm's ordinary hourly billing rates in exchange for an agreed-upon percentage of the recovery from a lawsuit in which the client is a plaintiff. For example, the law firm agrees to prosecute a case on behalf of the client at reduced hourly rates in exchange for a percentage of the amount the client ultimately recovers. If the client does not recover, it owes the firm nothing.
Hold-back billing arrangements provide similar advantages. Here, a law firm "holds back" a percentage of its normal hourly billing rate in exchange for the amount held back (and, perhaps, a multiplier) if the client prevails. For example, if the firm agrees to bill the client at one-third of its normal hourly rates and the case is resolved in the client's favor, the firm will receive the other two-thirds of its hourly rate, which may or may not be multiplied by an agreed-upon number (e.g., 1.5 or 2). Again, however, if the client does not prevail, it owes nothing more to the firm.
Both mixed-billing and hold-back fee arrangements enable the client to retain highly experienced litigation counsel at rates that might otherwise be unaffordable. At the same time, it creates a situation in which the law firm has skin in the game: If the law firm does not win the case, it receives only a fraction of its hourly billing rate; but if it does win, both the client and the law firm share a tangible reward as a result of the victory.
Contingent-Fee AgreementsContingent-fee agreements apply to litigation in which the client cannot or will not accept the financial risk associated with prosecuting a case, so the law firm agrees to bear that risk in exchange for a fixed or a scaled percentage of the monetary (or monetizable) recovery, because the firm believes it can and will prevail.
Contingent-fee billing arrangements are used most often in personal-injury cases, where the injured plaintiff simply cannot afford to bear the cost of litigation, particularly if the injury has prevented the plaintiff from earning a living. Contingent fees also apply to class actions, where a defendant may have wrongfully obtained millions of dollars by violating the rights of a large number of people who comprise the class, but each individual class member's claim amounts to a few hundred dollars. As one court has observed, in light of the enormous cost of prosecuting a class action, "only a lunatic or a fanatic would litigate the claim individually." Mullins v. Direct Digital, Inc., 795 F.3d 654, 665 (7th Cir. 2015). Accordingly, the attorneys representing the class bear the cost of prosecuting the claims in exchange for a percentage of the total recovery.
Contingent-fee billing applies to business disputes as well. For example, if a company has had valuable trade secrets stolen by a larger competitor, contingent-fee billing would allow the company to enforce its rights without regard to its financial condition -- even if the competitor's resources are unlimited. At bottom, alternative-billing arrangements can free individuals and businesses from having to choose between hiring a second-rate law firm or giving up their rights entirely by enabling them to retain highly-skilled, experienced counsel -- without destroying their budgets.