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Paying for Litigation- Hourly, Contingency, Third Party Financing & More (Series: Newbie Litigator School 101 - Part 2)

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Paying for Litigation- Hourly, Contingency, Third Party Financing & More (Series: Newbie Litigator School 101 - Part 2)

As the cost and duration of litigation continue to increase, clients have begun demanding fee arrangements that deliver maximum value and best mitigate risk. This webinar explores the mechanics and pros and cons of various fee arrangements, from hourly to contingent to mixtures of the two. We also discuss the increasingly popular option of third-party litigation finance.

To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/paying-for-litigation-hourly-contingency-third-party-financing-more-2021/

As the cost and duration of litigation continue to increase, clients have begun demanding fee arrangements that deliver maximum value and best mitigate risk. This webinar explores the mechanics and pros and cons of various fee arrangements, from hourly to contingent to mixtures of the two. We also discuss the increasingly popular option of third-party litigation finance.

To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/paying-for-litigation-hourly-contingency-third-party-financing-more-2021/

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Paying for Litigation- Hourly, Contingency, Third Party Financing & More (Series: Newbie Litigator School 101 - Part 2)

  1. 1. 2 Practical and entertaining education for attorneys, accountants, business owners and executives, and investors.
  2. 2. Disclaimer The material in this webinar is for informational purposes only. It should not be considered legal, financial or other professional advice. You should consult with an attorney or other appropriate professional to determine what may be best for your individual needs. While Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate, Financial Poise™ makes no guaranty in this regard. 4
  3. 3. Meet the Faculty MODERATOR: Joelle Shabat - Sugar Felsenthal Grais & Helsinger LLP PANELISTS: Brian Borchard – GoodSmith Gregg & Unruh LLP Jeffery Lula – GLS Capital, LLC 5
  4. 4. About This Webinar – Paying for Litigation- Hourly, Contingency, Third Party Financing & More As the cost and duration of litigation continue to increase, clients have begun demanding fee arrangements that deliver maximum value and best mitigate risk. This webinar explores the mechanics and pros and cons of various fee arrangements, from hourly to contingent to mixtures of the two. We also discuss the increasingly popular option of third-party litigation finance. 6
  5. 5. About This Series – Newbie Litigator School – 101 Part II 2021 This series is one of several series (together with the other “Newbie Litigator School” series) that Financial Poise designed specifically for attorneys who are just starting to get involved in civil litigation or who could use a refresher on some litigation fundamentals. The purpose is to introduce different components and phases of litigation, from the basic rules of civil procedure and evidence, to dispositive motions, through trial, and on to appeal and post-judgment collection work. Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and executives without much background in these areas, yet is of primary value to attorneys, accountants, and other seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that participants will enhance their knowledge of this area whether they attend one, some, or all episodes. 7
  6. 6. Episodes in this Series #1: Appellate Practice - 101 Premiere date: 10/5/21 #2: Enforcement: Post-Judgment Proceedings & Collections Premiere date: 11/2/21 #3: Paying for Litigation- Hourly, Contingency, Third Party Financing & More Premiere date: 12/7/21 8
  7. 7. Episode #3: Paying for Litigation- Hourly, Contingency, Third Party Financing & More 9
  8. 8. TYPICAL ATTORNEY FEE ARRANGEMENTS • Hourly Fees • Contingent Fees • Limited Scope Engagements • Fixed Fee Arrangements • Performance bonuses • Hybrid Agreements
  9. 9. ABA Model Rule 1.5 governs attorney fee agreements with clients.
  10. 10. ABA Model Rule 1.5(a) A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. The factors to be considered in determining the reasonableness of a fee include the following: (1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; (3) the fee customarily charged in the locality for similar legal services; (4) the amount involved and the results obtained; (5) the time limitations imposed by the client or by the circumstances; (6) the nature and length of the professional relationship with the client; (7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and (8) whether the fee is fixed or contingent.
  11. 11. ABA Model Rule 1.5(a) (cont’d) Written fee agreements for hourly work are strongly preferred: Model Rule1.5(b): The scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation, except when the lawyer will charge a regularly represented client on the same basis or rate. Any changes in the basis or rate of the fee or expenses shall also be communicated to the client.
  12. 12. ABA Model Rule 1.5(a) (cont’d) Model Rule 1.5(c) governs contingent fee agreements, which must be in writing: (c) A fee may be contingent on the outcome of the matter for which the service is rendered, except in a matter in which a contingent fee is prohibited by paragraph (d) or other law. A contingent fee agreement shall be in a writing signed by the client and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal; litigation and other expenses to be deducted from the recovery; and whether such expenses are to be deducted before or after the contingent fee is calculated. The agreement must clearly notify the client of any expenses for which the client will be liable whether or not the client is the prevailing party. Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement stating the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination.
  13. 13. HOURLY FEE AGREEMENTS • Standard agreement: attorney is paid $x/hour for work. • Typically memorialized in retainer agreement • Advance retainer payment often required
  14. 14. BENEFITS AND DRAWBACKS OF HOURLY FEES • Incentivizes responsiveness • Incentivizes thoroughness • Incentivizes attorneys to favor senior lawyers and clients to prefer junior lawyers with lower hourly rates • May encourage file “churn,” i.e. unnecessary work
  15. 15. CONTINGENT FEE AGREEMENTS • In a contingent fee agreement, the lawyer agrees to work for a plaintiff in exchange for a percentage of any recovery. • The attorney will often bear the burden of costs as well, with costs to be reimbursed out of recovery. • Contingent fee agreements often must be in writing- check your jurisdiction’s rules.
  16. 16. BENEFITS AND DRAWBACKS OF CONTINGENT FEES • No money required up front from client • Attorney shares risk of losing case; aligned interests • Attorney incentivized to be quick more than thorough • May skew decision between settlement and proceeding to trial
  17. 17. LIMITED SCOPE ENGAGEMENTS • A “limited scope” engagement is one in which the attorney agrees to represent the client for only a discrete portion of the dispute or deal. • Now expressly provided for in rules of professional conduct • Allows client to limit “mission creep” and keep fees down • Allows attorney to limit liability for legal issues outside scope of engagement
  18. 18. FEE BUDGETS • Most common for hourly fee agreements • Clients tend to ask for a budget or estimated fees • In litigation, estimating fees can be difficult because opponent and judge are independent actors that have significant effects on scope of litigation
  19. 19. FIXED FEE AGREEMENTS • A fixed fee agreement is one in which the attorney agrees to perform a discrete task for a fixed price • Fixed fee agreements tend to be popular in non-litigation contexts: divorces, bankruptcies, routine corporate filings, etc. • Fixed fees are possible in litigation, but require sophisticated cost and risk analysis by both client and lawyer • Fixed fees may be joined with fee caps for duration of engagement
  20. 20. FEE CAPS • A fee cap is a fixed number over which fees will not be paid • Sophisticated clients often request fee caps • In competitive legal market, caps may be offered to win business • Caps are an excellent deal for clients, who can fix costs at the outset of uncertain litigation • Risk falls on attorneys if dispute requires their time in excess of anticipated hours
  21. 21. GENERAL RETAINER • A “general retainer” is where a lawyer is paid a fixed amount per month (or year, etc.) for all of a client’s legal work. • A good choice for clients with regular but unpredictable legal needs. • A good way for a client to fix legal costs and avoid runaway bills • Lawyers reap benefits from quiet periods or litigation prevention work
  22. 22. HYBRID AGREEMENTS • Mix of other fee arrangements • Reduced hourly rate plus contingent “kicker” • Fixed fee plus results bonus • Opportunities for creative agreements
  23. 23. EXAMPLES OF HYBRID AGREEMENTS • “50/50.” Plaintiffs’ lawyer will work for half his or her typical hourly rate, along with a reduced contingent fee, typically around 15-25% • Defense win bonus. Defense counsel agrees to work for reduced hourly rate, with fixed bonus earned if case is dismissed or resolved for less than a predetermined amount. • Cap w/kicker. Attorneys agree to cap their fees, with the possibility of a contingent portion of any recovery.
  24. 24. THIRD PARTY LITIGATION FINANCING • Broad term; generally means someone not a party to the litigation paying the attorneys’ fees • Third party litigation funders typically will get paid only if their side prevails • Third party litigation funders will typically demand (and receive) a premium in exchange for their acceptance of the risk of losing the case
  25. 25. THIRD PARTY LITIGATION FINANCING (CONT’D) • Available for all size claims, from slip-and-falls to multi-million dollar commercial litigation • Active and still-developing market • Funders can make deals with the clients, the lawyers, or both
  26. 26. THIRD PARTY LITIGATION FINANCING (CONT’D) • Law is still developing on whether third party financing information is discoverable. Discoverability will depend on particular circumstances of each case • Care should be taken in communicating with third party litigation funders; non-disclosure agreements are standard
  27. 27. CONTINGENT FEE INSURANCE • Contingent Fee Insurance is an insurance policy taken out by plaintiffs’ lawyers on a contingent fee case • For a small premium, the lawyers can insure against the downside, i.e. against no recovery.
  28. 28. CONTINGENT FEE INSURANCE (CONT’D) • If the case results in no recovery, the insurer will pay the lawyers the insured amount • If the plaintiff prevails, the insurer will recover a premium portion of the recovery
  29. 29. FUTURE OF LITIGATION FINANCING • Litigation financing is a relatively new market • Norms and players are still developing • Market is relatively unregulated • Old legal doctrines of “champerty” and “maintenance” are being re-asserted and re- evaluated in modern contexts
  30. 30. About the Faculty 32
  31. 31. About The Faculty Joelle Shabat - Jshabat@sfgh.com Joelle is currently a litigation associate in Sugar Felsenthal Grais & Helsinger LLP’s Chicago office. She has represented a variety of business entities and individuals throughout the life of a case, from inception through trial and appeal. Throughout her practice, Joelle works to develop close relationships with her clients, guide them through every step of litigating a case, continually evaluate their objectives, and collaborate with them to obtain positive results. The versatility and resourcefulness Joelle has gained by litigating a wide variety of matters has brought insight that spans across diverse industries and subjects. To read more about Joelle, please visit: https://www.financialpoise.com/financial-poise-faculty/joelle-shabat/ 33
  32. 32. About The Faculty Brian Borchard - BBorchard@ggulaw.com Brian Borchard is a litigation attorney with broad experience representing a diverse set of high-value clients across a wide range of general commercial litigation matters—including complex state and federal commercial and antitrust disputes, employment issues, and government investigations. His subject matter experience includes breach of contract (outsourcing agreements, software implementation agreements, supply agreements, joint ventures, etc.), fraud and fraudulent inducement, products liability, breach of fiduciary duty, professional negligence, antitrust and anticompetitive conduct, state and federal False Claims Act violations, intentional and constructive fraudulent transfer, employment disputes (age/gender discrimination, non-competes, etc.), tax increment financing, unjust enrichment, and consumer fraud. Brian also provides prelitigation and non-litigation advisory counseling to clients on litigation risk, liability avoidance, and dispute resolution. Before joining GGU, Brian practiced for more than a decade at Kirkland & Ellis LLP, where he served as a litigation partner for five years. Prior to his time at Kirkland, Brian clerked for the Honorable Cornelia G. Kennedy in the United States Court of Appeals for the Sixth Circuit. Brian received his law degree, with honors, from Georgetown University Law Center in 2009, where he served on the Georgetown Law Journal. He received his undergraduate degree, summa cum laude, from the University of Notre Dame in 2004. Brian has been named to the Benchmark Litigation Under 40 Hotlist five consecutive years (2017, 2018, 2019, 2020, 2021). He was also named to the BTI Client Service All-Stars List in 2018. 34
  33. 33. About The Faculty Jeffery Lula - jlula@glscap.com Jeffery Lula serves as a Principal at GLS and is responsible for due diligence and monitoring of commercial litigation and arbitration-related investments. Prior to joining GLS, Jeff was a litigation partner at Kirkland & Ellis LLP in Chicago. During his nine years at Kirkland, Jeff’s practice focused on a wide variety of complex commercial litigation, including contract disputes, bankruptcy litigation, corporate mismanagement, fraudulent transfer litigation, and insurance litigation. His experience extends to all stages of litigation and appeal, and he also counseled clients during internal investigations prior to litigation or arbitration. He has represented clients in a variety of fields, including private equity firms, insurance carriers, and large Chapter 11 debtors. Jeff holds a J.D. from the University of Chicago Law School, where he served as an Articles’ Editor of the University of Chicago Law Review, and a B.S. from University of Illinois. 35
  34. 34. Questions or Comments? If you have any questions about this webinar that you did not get to ask during the live premiere, or if you are watching this webinar On Demand, please do not hesitate to email us at info@financialpoise.com with any questions or comments you may have. Please include the name of the webinar in your email and we will do our best to provide a timely response. IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education. 36
  35. 35. About Financial Poise 37 DailyDAC LLC, d/b/a Financial Poise™ provides continuing education to attorneys, accountants, business owners and executives, and investors. It’s websites, webinars, and books provide Plain English, entertaining, explanations about legal, financial, and other subjects of interest to these audiences. Visit us at www.financialpoise.com Our free weekly newsletter, Financial Poise Weekly, updates you on new articles published on our website and Upcoming Webinars you may be interested in. To join our email list, please visit: https://www.financialpoise.com/subscribe/

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