Contingency Fee Representation: Hourly fees contingent on winning.


            We all know that many clients cannot afford to pay the hourly fees of a good lawyer.  In a plaintiff’s case, if there is a good argument for liability, the potential damages are substantial and the defendant can probably pay a judgment, some lawyers will take the case on a contingent fee basis.  That is, the client pays a percentage of what is collected.  No recovery – no fee.  This arrangement is common in personal injury cases and sometimes in business cases.


            Similarly, some defense cases can also be handled on a contingency basis.  If the plaintiff’s demand is much higher than the value of the case, and if the defendant can afford to pay, a “reverse contingent fee” may be possible.  The lawyer receives a percentage of the savings between the plaintiff’s demand and what the defendant ultimately has to pay.


But what about cases where those requirements are not met?  Suppose the client has a plaintiff’s case with good liability, the defendant can pay, but there are small or nominal damages?  If the law allows a successful plaintiff to recover attorneys’ fees, a contingent fee representation may still be possible.


Take, for example, In re Thompson, Bankruptcy No. 08-02560, United States Bankruptcy Court, N.D. Illinois, Eastern Division, March 19, 2010.  Mr. Thompson was in bankruptcy.  GMAC wrongfully repossessed his car, in violation of the automatic stay under 11 U.S.C. § 362.  Like most folks in bankruptcy, Mr. Thompson had no money to pay lawyers to go after GMAC. 


The law provides, however, that an individual injured by a willful violation of the automatic stay may recover "actual damages, including costs and attorneys' fees.” 11 U.S.C. § 362(k)(l).   Importantly, the debtor need not have actually paid the fees before they can be recovered. Recoverable fees can even be contingent upon the attorneys' success in the litigation!


The Thompson Bankruptcy Court suggests how a fee contract can be written to allow this.  The Court says that the parties may enter into a clear written agreement providing that the fees are to be due from the client, but contingent upon success of the matter and collection from the defendant.   Don’t say that the lawyer “waives” the fee.  The client must be obligated to pay the fee, although that obligation may be conditioned on collection from the defendant.


            Sometimes a case can be funded with a business arrangement.  For example, our firm once defended a “David” business against potentially ruinous litigation by a “Goliath” corporation trying to stop David from competing.  Although “David” could not afford to pay us during the litigation, we won the lawsuit, “David” was acquired by a much larger corporation, and we were then paid for our work.


            In other cases, a lawyer might agree to handle litigation for a business, whether as plaintiff or defendant, in exchange for an equity interest in the business.  There are numerous other creative ways to accomplish the same result.


            So, don’t assume that you cannot have competent lawyers merely because you can’t pay their hourly rates.  Whether you are a plaintiff or defendant, where there is a will there may be a way.