November 30, 2020
A recent Law.com story by Dan Roe, “Demand for Contingency Fees in Business Litigation Grows Amid Pandemic,” reports that contingency fees are not only confined to personal injury matters. In the midst of the recession and pandemic, some firms are increasingly taking on contingency fee matters in business litigation and commercial cases. Business owners who don’t have the cash on hand to front litigation costs are turning to law firms that work on contingency and are willing to absorb case costs, say firm leaders, who report a rise in contingency fee inquiries since the beginning of the pandemic.
Morgan & Morgan is one of the largest personal injury firms in the country, but it also has a 24-lawyer group dedicated to business disputes. William B. Lewis, the firm’s business trial group co-managing partner, said the practice has seen a 20% to 25% increase in contingency cases — the only type they do — since the pandemic began. The firm recently hired an associate out of law school to join the group and plans to hire three or four additional attorneys in the next six months.
The cost of hiring an hourly law firm or trying a case can exceed the cash positions of many businesses with legitimate disputes, said Lewis in an interview. “Trying a case can cost almost as much as everything leading up to it,” Lewis said. “Even in a two year litigation cycle, it could be $300,000 in attorney’s fees to try a case. There are pressure points for folks to settle even if they have a valid, strong claim. We allow clients to try cases because they don’t have to pay huge amounts to get cases in front of a jury.”
Commercial litigation boutique Cain & Skarnulis in Austin, Texas, is also taking an increased number of cases on contingency. “There are some good business contingency fee cases coming,” founding partner Steve Skarnulis said in an interview. “I’d estimate that over the last six months we’ve seen inquiries for at least twice as many contingent fee cases and have probably taken 25% more than we normally would.”
And in New York, the commercial litigation boutique The Stolper Group is also seeing more contingency fee questions than usual. “There’s definitely been an uptick in inquiries,” founding partner Michael Stolper said in an interview. “Those who do commercial contingency have to be very selective in cases so I wouldn’t say we’re doing more or less than before, but there have been a lot more inquiries now during the pandemic.”
Financial hardship and disputes that stem from it are driving demand for contingency fee arrangements, firm leaders say. “We’ve had investment loss cases, securities cases where brokers mismanage money and dump everything into an account after the pandemic when they didn’t have the authorization from the client to do so, an uptick in legal malpractice, and real estate commission cases,” Lewis said about the type of matters Morgan & Morgan has handled on contingency.
The firm’s business trial group is also representing community associations in construction defect claims because of the high costs involved in litigating and the fact that community associations hesitate to shift those costs onto their members, Lewis said. At Cain & Skarnulis, landlords are turning to the litigation firm to handle disputes with commercial tenants on a contingency fee basis, Skarnulis said.
Firms that specialize in commercial contingency may offer a number of fee arrangements, based on the details of the case. Tiered fee arrangements such as those at Morgan & Morgan’s business trial group may charge 25% to 35% for an early resolution, whereas a more time-consuming trial may net the firm 35% to 45% of a judgment. Other firms engage in hybrid arrangements, where attorneys charge a reduced hourly rate and a smaller percentage of a recovery.
Clients may look to firms to absorb case costs as well. Court costs and associated fees such as electronic document management can cost in the hundreds of thousands of dollars, Lewis said, so firms may also agree to front those costs in exchange for a higher percentage of the recovery.
Big Law firms may not be promoting contingency arrangements, but that doesn’t mean they aren’t doing them, said Davie, Florida-based legal consultant Joe Ankus. “I do think some of largest firms in the world will take on a contingency case if they believe at the outset the odds of recovery or settlement justify taking the risk,” he said. “Twenty-five years ago, that wouldn’t have happened at Am Law 100 firms. Now, people have adjusted to the new normal.” The prospect of collecting significant damages against a major corporate defendant — and the possibility of punitive damages — may entice large firms that have historically abstained from contingency cases, he added.
Meanwhile, Skarnulis said he’s seeing traditional plaintiff’s firms — more adept at selecting contingency cases than hourly firms — get involved in contingency business litigation, as well as mid-size firms that specialize in commercial litigation.
The 18-attorney Miami litigation boutique Podhurst Orseck is handling contingency cases related to the pandemic, such as business interruption cases against insurance companies. “It’s a huge financial and time commitment, putting our resources into claims on a complete risk basis,” partner Steven Marks said in an October interview. “On the opposite side, if we’re successful, it’s very good for the firm.”
Marks said the firm’s historical contingency revenues make up 70% to 80% of the firm’s total revenue, while comprising about 50% of cases. Overall, the economic downturn from COVID-19 has accelerated an ongoing trend, paved by personal injury firms, to extend the realm of contingency work, said Ankus. “If you were to talk to me 25 years ago and say, ‘Joe, how many law firms are doing contingency work?’ I’d have told you none or less than 5%,” he said. “Today, the number has exponentially increased to where many firms, more often than not, will readily take on a contingency matter.”