Contingent Fee Arrangements – Danger Areas

While alternative billing arrangements certainly create a greater degree of shared destiny between lawyer and client, they are not without ethical danger areas. The more closely the lawyer is financially aligned with the client’s legal matter, the more room there is to have conflicting views on settlement terms or on the value of a transaction. Early in the process the lawyer is more inclined to settle or sell because it represents a greater profit opportunity while the firm has less invested.

On the other hand, what might be very satisfying terms for a client who has been involved in a protracted case or transaction might be very unappealing to a law firm that has invested considerable resources in the engagement and has reason to believe that it can generate a higher settlement number or purchase price by holding out for better terms.

Though simply stated, the conflict in this scenario is very real, as the ethical rules give the client control over the objectives of the attorney-client relationship and the law firm decision-making authority over the means to achieve those objectives. If the client’s initial goal is the best possible results for the money under any circumstances, the law firm has every legal basis to hold out for higher dollars. On the other hand, if the client establishes parameters that include time, corporate impact or any other consideration that combines financial considerations with other business interests, the law firm will likely lose the benefit of its contemplated bargain.

Alternative billing certainly offers a more dynamic approach for structuring the financial relationship between lawyer and client. But like all good partnerships, the terms of the relationship should be constructed while everyone still likes each other.

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