In "Piece of the Pie", InsideCounsel reporter Melissa Maleske highlights this month how contingency fee arrangements have "become increasingly commonplace–and not just among plaintiffs in slip-and-fall cases, but in corporate America as well."  She also goes on to discuss problems that may arise in contingent fee deals.

The first case involved a client whose enthusiasm for a claim took a dive after the government started investigating it for criminal fraud.  The court held that the client could reasonably "assessment that there is no ‘no chance of recovery.’"  King & King, Chtd. v. Harbert Int’l, Inc., 503 F.3d 153, 157 (D.C. Cir. 2007) (quoting Univ. Acupuncture Pain Servs. P.C. v. Quadrino & Schwartz, P.C., 370 F.3d 259, 265 (2d Cir. 2004)).

The other case arose out of a long-running fight over a large estate.  The widow paid counsel upwards of $20 million in hourly fees between 1983 and 2004.  To stanch the flow, she entered into a new agreement that limited her exposure to $1.2 million in hourly fees per year but also gave counsel a 40 percent contingent fee interest in any recovery.  Five months later, the case settled–for $104 million.  The widow sued to set aside the contingent part of the new fee contract, but the appellate court, with a justice dissenting, upheld the contact.  Lawrence v. Miller, 2007 WL 4178506 (N.Y. App. Div. Nov. 27, 2007).

These examples strike Blawgletter as aberrations.  In both cases, the lawyers and clients appear to have assessed the value of claims differently.  Together, though, the decisions hold that the client normally gets to decide whether to abandon a claim and not pay a fee on a highly speculative recovery but that the client may not back out of a contingent fee contract after the recovery hits the bank account.

Plus, the possibility of disagreement over the value of claims exists in every contingent fee case.  A beauty of the arrangement consists in the fact that the lawyer and client share an interest in maximizing recovery.  The parties’ agreement should spell out what happens in the event the joint interest in recovery-maximization vanishes — as it did in King & King after the client got into criminal hot water.  The agreement might provide that the client may abandon the claim, for instance, (1) without consequence, (2) if it reimburses the lawyers’ expenses, (3) if it pays the lawyers for their hourly time, or (4) another reasonable arrangement.

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