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To Sue or Not To Sue: Managing Risk and Attorneys Fees Through Alternative Attorney Fee Arrangements in Commercial, Business and Injury Litigation

By Daniel E. Murphy, Managing Partner-Murphy & Murphy, 39 South LaSalle Street, Suite 720,        Chicago, IL 60603, 312.267.6900, d.murphy@murphymurphylaw.com.

Businesses faced with the prospect of defending or instituting a lawsuit or a series or class of lawsuits bear both the risk of outcome of the litigation as well as the risk of attorney’s fees. Effectively managing those risks may include consideration of alternative attorney fee arrangements to the standard hourly rate.  Such arrangements are as varied and creative as imaginable but must be fair and reasonable and permit counsel to zealously represent his/her client efficiently and effectively within the bounds of the rules of ethics. Examples of alternative fee arrangements are:

Contingent Fee- Attorneys fees are a percentage of the settlement, award or verdict contingent on the outcome irrespective of the number of hours worked with a loss resulting in no fees payable;

Retainer Fee- Periodic payment of a fixed amount of fees where a consistent volume of work performed and a discount provided as a result;

Flat/Fixed Fee- A set fee typically paid at commencement of the legal work;

Layered Contingent Fee- Contingent Fee with different layers of fees in one case (i.e. first $100,000 recovery at 33%; next $100,000 at 30%; next $200,000 recovery at 28%…);

Blended Contingent Fee- Contingent Fee at a lower rate plus hourly fees at a lower hourly rate;

Fee Phasing- Fees paid at completion of various phases of the work (i.e. pleadings joined, written discovery, oral discovery, trial, appeal);

Reverse Contingent Fee- Fees based on a percentage of the amount originally demanded by Plaintiff less the amount      paid to plaintiff;

Blended Reverse Contingent Fee- Lower Reverse Contingent Fee plus hourly fees at a lower rate;

Fee Collar- Agreed fees at a set amount or collar. An agreed percentage of fees paid or credited above or below collar upon completion;

Holdbacks- Agreed percentage or amount withheld until discrete point reached or case concluded; and

Bonuses- Bonuses paid for meeting targets.

The overriding principle is reasonableness and fairness to the client and counsel.  Counsel should review the governing rules of ethics to determine whether a particular type of alternative fee arrangement is appropriate. Alternative fee agreements can be an effective manner in which to manage risks attendant with litigation and should be considered at the commencement of litigation and reevaluated for fairness as litigation progresses and concludes.

Daniel E. Murphy is Managing Partner, Murphy & Murphy, 39 South LaSalle Street, Suite 720, Chicago, IL 60603, telephone: 312.267.6900, d.murphy@murphymurphylaw.com, focusing in litigation from trial through appeal.

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