A recent Law.com story by Abgail Adcox, “Big Law Takes Bigger Bet on Contingency Fee Practices”, reports that, in a quest to maximize profitability, Am Law 200 law firms have grown their share of business tied to contingency fees, a gamble that has paid off for some firms in recent years. Kirkland & Ellis, Crowell & Moring, Quinn Emanuel Urquhart & Sullivan and Susman Godfrey are among the firms that have represented plaintiffs on a contingency fee basis, agreeing to take on certain litigation in return for a portion of any recovery in a settlement or judgment.
And it’s not just these firms, say litigation funders. ”It’s fair to say we’ve seen a noticeable increase in interest in building out plaintiff side practices among the more traditional defense-oriented law firms,” said Evan Meyerson, director at Burford Capital, in an interview. “There’s a growing desire to become—and comfort level with becoming—truly the one-stop shop for their institutional clients.”
Last year, Burford executed multiple portfolio-style transactions with first-time counterparties in the Am Law 50, Meyerson reported. Firms are seeking new ways to “differentiate their businesses,” with plaintiff-side litigation being a “pretty powerful differentiator in the marketplace,” according to Meyerson. ”We’re definitely seeing an increase in appetite among what were traditionally the more risk-averse law firms in growing their contingency practices.”
Law firms such as Kirkland & Ellis have trumpeted a concerted effort to expand its contingency docket in recent years. In 2021, Kirkland brought home a $200 million contingency fee for its representation of client Huntsman Corp. in a dispute. Overall, in 2022, Kirkland said it had secured more than $2 billion in recoveries in trials for clients such as Motorola and Trizetto.
“We launched what’s now a very successful plaintiff-side practice on the view that we’re uniquely positioned in the market to arm our top trial lawyers with unlimited resources and a willingness to invest whatever it takes for the right cases,” Andrew Kassof, a leader of Kirkland’s litigation practice and a member of its executive committee, said in a statement this week. “This practice has remained really active, with a number of new litigation matters filed last year and more coming in 2024,” Kassof added.
Other firms are also seeking out more contingency fee work. For instance, at DLA Piper, the firm is “looking to exploit contingency fee opportunities more. That’s part of our strategy for the firm. We’re not going to do it wholesale, but where the opportunity works for our philosophy, we’re going to do it,” said global co-CEO, co-chair and Americas chair Frank Ryan.
Financial Swings
However, due to the unpredictable nature of when cases lead to recoveries, firms’ contingency practices have sometimes resulted in sharp swings in financial performances over the years for some. A slow year for contingency collections contributed to Fish & Richardson’s 2.4% decline in gross revenue, firm president and CEO John Adkisson said.
“At a high level, I’m thrilled with where our business levels are,” said Adkisson, noting that the firm’s “core” or non-contingent revenue rose for the seventh year in a row. “On the contingent side, our principals here recognize that that is going to ebb and flow. We have a number of very exciting opportunities in the pipeline but 2023 was a slower year in terms of contingency fee recoveries.”
Crowell & Moring’s gross revenue growth slowed last year, inching up 0.9% to $595.5 million, as receipts from the firm’s contingency docket returned to lower levels in 2023.
In previous years the firm has reported hefty contingency fees supporting double-digit percentage revenue growth. In 2020, a year in which the firm recovered more than $2.2 billion for clients in affirmative recoveries, the firm posted an 18.7% increase in gross revenue.
Crowell chair Phil Inglima said in an interview that the firm is “balancing prudently how much we’re investing in contingent docket versus how much we’re deriving from the traditional strengths of the firm.”
Inglima reported that the firm only factors a “small amount” of contingency matters into the firm’s budget each year and that attorneys spend no more than 10-12% of their time overall on the matters. “We do anticipate with some precision when the claim funds will be paying, when distribution events will occur from that. So that’s the only part that we really budgeted at all,” Inglima said about 2023. “We did achieve at the level that we expected in the budget last year, but we didn’t have extraordinary receipts to have a windfall of any kind in 2023 for the contingent docket.”
Meanwhile, at Quinn Emanuel, gross revenue increased nearly 28% to $2.07 billion in 2023. Approximately 8% of the firm’s revenue came in the form of contingency fees, a slightly higher proportion than 2022, but not materially, Michael Carlinsky, one of three co-managing partners at the firm, told The American Lawyer in an interview.
Trial firm Susman Godfrey nearly doubled its revenue in 2023 and more than doubled its profits per equity partner. According to Kalpana Srinivasan, co-managing partner at Susman, 71% of the firm’s fees in 2023 came from contingent-fee work, compared with 43% contingent-fee in 2022.
Those percentages reflect the lifecycle of litigation, Srinivasan said. “We have 40-plus years of experience in contingent-fee matters. We know you can’t precisely designate when a case is going to resolve or generate revenue, but that’s OK, because we have so many of them in the pipeline,” she said.
King & Spalding and Dorsey & Witney leaders also said contingency fee cases contributed to their firm’s financial gains last year. For 2022, Lowenstein Sandler cited litigation and contingency fee work as a driver of a double-digit percentage gains in revenue and profits that year.
Lit Funding Terms
In light of the risks that come with contingency work, firms have increasingly sought out funders such as Burford Capital, which will fund a portion of their fees and expenses. “Our deals are what we call non-recourse,” said Meyerson, adding that means, “if a case we finance loses, our counter-party on that deal keeps that financing and has no further obligations to repay Burford.”
“Probably unsurprisingly, our pricing reflects that risk,” he added. “We’re usually seeking some combination of a multiple on our investment amount, percentage of the outcome or an interest rate that in aggregate typically resembles a law firm contingency rate.” As a result, there is not a “one-size-fits-all model” for Burford’s pricing, Meyerson said.
“It is typical for firms to come to us asking for something close to full coverage on expenses, whereas on fees, there’s greater variability with firms who are willing to take on more or less of that risk,” Meyerson later said. While, overall law firms typically only see a small portion of their revenue derived from alternative fee arrangements, which includes contingency work, the percentage has grown in recent years.
The Citi Law Firm Leaders Survey found that 20.6% of 2022 revenue came from AFAs, which is the highest average the survey has recorded. In 2023, similar proportions are expected, according to the 2024 Citi Hildebrand Client Advisory. By 2025, 72% of law firms expect revenue from AFAs to increase, the advisory said.
