A risk-based fee arrangement with your law partners can help mitigate costs of action.
Most companies at some point in their development will face a legal challenge that will likely shape the future of their business. High-stakes, “bet-the-company” cases threaten the existence of a business; these conflicts can jeopardize core products, core relationships or a company’s ability to stay in operation.
When it comes time to protect your business’ assets in court or arbitration, it’s essential to be prepared. Bet-the-company cases are often complex and can involve multiple jurisdictions and litigation forums. Enlisting an experienced, highly qualified trial lawyer to identify the desired outcome and to implement a litigation strategy to achieve that outcome is imperative. However, this can be extraordinarily expensive and time-consuming, often requiring the case to be litigated aggressively through trial or arbitration and appeal over many years.
Typically, experienced commercial litigation attorneys charge fees by the hour. In a bet-the-company dispute, these costs grow quickly—adding to the financial risk at stake in the litigation. In these circumstances, companies should consider alternative fee methods including contingency or “risk-based” fee arrangements. Risk-based fee arrangements substantially reduce the risk that the company will be forced into a settlement by mounting litigation costs. They also align your interests with the interests of experienced counsel who will get paid based on the result they achieve for you, rather than the number of hours spent on multi-year litigation.
While contingency or alternative fee arrangements may be best known for their use in personal-injury cases, they can be creatively and effectively deployed in business litigation. How can you employ a risk-based fee arrangement in a bet-the-company case? Here are three real-life examples:
1. A new physician-owned specialty hospital believed that its survival and growth potential were threatened by its inability to secure any provider contracts in the relevant market. The hospital was open to an alternative fee arrangement because it understood that hourly fees could hamper its efforts to aggressively prosecute its antitrust claims against several well-financed defendants. Under this risk-based fee arrangement, the firm would be compensated only if it was able to secure provider contracts for the hospital and/or cash recovery. The case settled after many years of intensive work, including 100 depositions and exchange of nearly 4 million pages of documents, delivering a great result for the hospital and for the firm.
2. A Fortune 500 company’s international division was severely harmed when one of its former officers and directors (using highly confidential information) attempted to raid the division of several key employees—efforts coordinated by a large competitor. The company wanted to pursue an aggressive litigation strategy that included substantial damages as well as other non-cash relief. While it could have used a traditional hourly arrangement, it wanted its counsel and the company’s interests to be aligned based on a variety of agreed outcomes. Discovery in the lawsuit spanned multiple continents over multiple years and appeals. The case resulted in a substantial recovery for the company, and the firm was compensated based on that result, not the time it spent on the case.
3. A franchisee had operated his employment agency for more than 30 years when the international franchisor decided to force him out of business. The franchisee understood that his life’s work and family business was at stake and that he had no choice but to litigate to enforce his rights under the franchise agreement. Because he was worried that he could not pay hourly lawyers of the same caliber as those employed by the well-financed franchisor, he hired experienced counsel who were willing to be paid based on a number of different outcomes including various cash recoveries as well as acquisition of the franchise. A long and contentious arbitration process ultimately led to a confidential settlement with the franchisor. It was a huge win for the franchisee and the law firm.
Bet-the-company cases are likely whether you are a Fortune 500 company or a small family business. According to a recent survey of corporate legal departments by BTI Consulting Group, companies say their high-stakes disputes have quadrupled over the past four years. If you are facing a legal threat that puts your company at significant risk, consider a fee model that ensures your lawyers share the same risk and incentives to achieve the outcome you need.
Patrick Stueve is a partner at the Stueve Siegel Hanson law firm in Kansas City.
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