Contingent Fee Intake Guidelines

Taking on a contingent fee case holds the promise of substantial financial benefit for your firm. It also holds substantial economic risk. Therefore, in deciding whether to accept a contingent fee case, your firm should approach this issue as it would any other decision regarding an investment of the firm's resources. It can do this best by adopting clear guidelines on the intake and management of contingent fee cases, including not only definitive standards by which the firm determines the risks and rewards of accepting the matter, but also a process for periodic review and monitoring as well.

Intake Guidelines

Contingent fee opportunities that appear attractive upon a first look often tell a different story upon closer scrutiny. Accordingly, before committing to any such matter, the firm should analyze several factors as part of the review process. These factors include:

• The identity of the client and completion of an appropriate conflicts check. If the request is to represent the client as a plaintiff in a personal injury case, also important is information concerning the age and earnings history of the plaintiff, the injuries suffered and prognosis for recovery (particularly as it may affect permanent disability, earning capacity, future pain and suffering and loss of consortium) and claims of family members arising out of the injury.
• Information on all possible defendants, both current and potential. If full information is not available, obtain as much information as possible.
• In addition to the “standard” conflicts check, a determination whether any current clients have a significant stake (pro or con) in the legal issues to be presented in the case. Consider, for example, whether any precedent likely to be established could affect adversely the interests of known clients.
• What is the estimated level of firm resources required and what is the estimated cost of those resources (stated in terms of a range where necessary)? This estimate should include legal hours, investigation fees and any other costs or expenses that can be anticipated.
• How likely is it that experts will be needed, and what disciplines will be drawn upon? Has anyone at your firm already consulted with an expert and, if so, what is that expert's opinion?
• What are the merits of the case, that is, what is the likelihood of liability being established? If contributory negligence is likely to be a factor, how might that affect the overall outcome of the case? Finally, what defenses or counterclaims might be asserted and how effective might they be?
• In light of the estimate of legal hours, expert fees and costs, etc., what is the estimated range of damages, including a “best case” scenario and a “worst case” scenario, assuming liability is found? It is great to establish liability, but it is equally important that the damages awarded provide a fair return to both the plaintiff and the firm that has invested its time and money in the case.
• Assuming a favorable outcome and significant damages, are the damages collectible? This analysis involves a number of issues. Is there insurance available to cover the claim and, if so, what are the amounts of coverage, retention and the known reserves and identities of the insurance carriers? Are other plaintiffs likely to be tapping into the same funds? What suspected resources does the defendant have (Has a credit check been done?) and what other known facts might bear on the potential for collecting a judgment?
• Finally, what intangibles are involved in the decision to take on the case? Is further business expected from the contingent fee client or others similarly situated, or is there a potential for useful publicity for the firm or even the potential for fulfillment of a pro bono objective?

The Approval Process

A lawyer seeking approval to take on a contingent fee case should be required to submit the request to an independent client intake committee of the firm (some firms use their financial practices committee for this purpose). The request should include the information described above, together with a proposed budget for services (with detail as to billable hours by partners, associates, paralegals and others, each stated separately) and for disbursements. It also should include confirmation by the appropriate practice group manager whose lawyers will be staffing the case that the manager has concluded that appropriate resources will be available to handle it. It may be prudent also to require a list of the lawyers expected to work on the case and over what chronological period.

The role of the intake committee is to serve as a gatekeeper and evaluate the likelihood of success in the matter, the likely “value” of the case from a damages perspective, the financial ability of the defendant to pay damages, and any other factors the committee deems relevant.

For contingent fee cases where the estimated legal budget for services and disbursements exceeds a certain level, management committee approval may be appropriate as well.

Managing a Contingent Fee Case

Maximizing the return from a contingent fee case does not stop at intake. After a matter is accepted, managing it will be equally important to assure that the firm's investment stays on track. Among other things, it should be made clear that the lawyer in charge of the matter will be responsible for all aspects of the case to the same extent as would be the case for a full fee-paying client. His or her job should be to manage the case (and other lawyers working on the case) with a view to delivering the best results at reasonable cost.

Each month, a copy of the work-in-process report for the case should be delivered to the lawyer in charge, as well as to the practice group manager whose lawyers are principally handling the matter. That manager should review the report and discuss with the lawyer in charge where the case stands, actual performance to budget and any new expert or legal services required. Monthly review may seem burdensome, but it is only through frequent monitoring that management can stay fully informed and head off possible problems.

Not less often than semi-annually, the lawyer responsible for the case should submit a written report to the intake committee. That report should include, without limitation: 1) a brief summary of legal activity on the case during the immediately preceding six months, 2) a projection of legal services (and estimated costs) to be provided during the next following six months, and 3) any material changes in any of the information submitted to the intake committee with the original request to take on the case, including any changes to the proposed budget. At the request of the intake committee, the lawyer should be prepared to meet with the committee to discuss any questions the committee may have.

Firm-Wide Coordination

What one lawyer sees as a good thing may not be viewed quite as favorably by management if it means that too many of the firm's lawyers would be occupied with contingent fee cases at the same time. To avoid this, the firm should monitor its inventory of contingent fee cases to assure that they do not constitute too large a percentage of its total work-in-process at any time. While all work done is an investment in future revenues, revenues from contingent fee cases are deferred until the matter is completed and the outcome has been determined. It will be management's job to be certain that the amount invested in these deferred revenue cases at any time is not made at the expense of reasonable distributions to the partners on a current basis.

As firms become more creative in their billing practices, contingent fee arrangements can be one way of meeting the needs of both the client and the firm. Provided that a careful process is followed in deciding which (and how many) contingent fee cases to take on, the firm can benefit from them. Best practices dictate, however, that the firm accord such cases the same oversight and attention it would give to a fully billable matter.

Michael E. Mooney, a member of this newsletter's Board of Editors, is the managing partner of Nutter McClennen & Fish, LLP, in Boston. His firm maintains an active tax and business practice, representing and advising domestic and international corporations in a broad range of tax issues, reorganizations, business combinations and divestitures. He can be reached at [email protected].

Taking on a contingent fee case holds the promise of substantial financial benefit for your firm. It also holds substantial economic risk. Therefore, in deciding whether to accept a contingent fee case, your firm should approach this issue as it would any other decision regarding an investment of the firm's resources. It can do this best by adopting clear guidelines on the intake and management of contingent fee cases, including not only definitive standards by which the firm determines the risks and rewards of accepting the matter, but also a process for periodic review and monitoring as well.

Intake Guidelines

Contingent fee opportunities that appear attractive upon a first look often tell a different story upon closer scrutiny. Accordingly, before committing to any such matter, the firm should analyze several factors as part of the review process. These factors include:

• The identity of the client and completion of an appropriate conflicts check. If the request is to represent the client as a plaintiff in a personal injury case, also important is information concerning the age and earnings history of the plaintiff, the injuries suffered and prognosis for recovery (particularly as it may affect permanent disability, earning capacity, future pain and suffering and loss of consortium) and claims of family members arising out of the injury.
• Information on all possible defendants, both current and potential. If full information is not available, obtain as much information as possible.
• In addition to the “standard” conflicts check, a determination whether any current clients have a significant stake (pro or con) in the legal issues to be presented in the case. Consider, for example, whether any precedent likely to be established could affect adversely the interests of known clients.
• What is the estimated level of firm resources required and what is the estimated cost of those resources (stated in terms of a range where necessary)? This estimate should include legal hours, investigation fees and any other costs or expenses that can be anticipated.
• How likely is it that experts will be needed, and what disciplines will be drawn upon? Has anyone at your firm already consulted with an expert and, if so, what is that expert's opinion?
• What are the merits of the case, that is, what is the likelihood of liability being established? If contributory negligence is likely to be a factor, how might that affect the overall outcome of the case? Finally, what defenses or counterclaims might be asserted and how effective might they be?
• In light of the estimate of legal hours, expert fees and costs, etc., what is the estimated range of damages, including a “best case” scenario and a “worst case” scenario, assuming liability is found? It is great to establish liability, but it is equally important that the damages awarded provide a fair return to both the plaintiff and the firm that has invested its time and money in the case.
• Assuming a favorable outcome and significant damages, are the damages collectible? This analysis involves a number of issues. Is there insurance available to cover the claim and, if so, what are the amounts of coverage, retention and the known reserves and identities of the insurance carriers? Are other plaintiffs likely to be tapping into the same funds? What suspected resources does the defendant have (Has a credit check been done?) and what other known facts might bear on the potential for collecting a judgment?
• Finally, what intangibles are involved in the decision to take on the case? Is further business expected from the contingent fee client or others similarly situated, or is there a potential for useful publicity for the firm or even the potential for fulfillment of a pro bono objective?

The Approval Process

A lawyer seeking approval to take on a contingent fee case should be required to submit the request to an independent client intake committee of the firm (some firms use their financial practices committee for this purpose). The request should include the information described above, together with a proposed budget for services (with detail as to billable hours by partners, associates, paralegals and others, each stated separately) and for disbursements. It also should include confirmation by the appropriate practice group manager whose lawyers will be staffing the case that the manager has concluded that appropriate resources will be available to handle it. It may be prudent also to require a list of the lawyers expected to work on the case and over what chronological period.

The role of the intake committee is to serve as a gatekeeper and evaluate the likelihood of success in the matter, the likely “value” of the case from a damages perspective, the financial ability of the defendant to pay damages, and any other factors the committee deems relevant.

For contingent fee cases where the estimated legal budget for services and disbursements exceeds a certain level, management committee approval may be appropriate as well.

Managing a Contingent Fee Case

Maximizing the return from a contingent fee case does not stop at intake. After a matter is accepted, managing it will be equally important to assure that the firm's investment stays on track. Among other things, it should be made clear that the lawyer in charge of the matter will be responsible for all aspects of the case to the same extent as would be the case for a full fee-paying client. His or her job should be to manage the case (and other lawyers working on the case) with a view to delivering the best results at reasonable cost.

Each month, a copy of the work-in-process report for the case should be delivered to the lawyer in charge, as well as to the practice group manager whose lawyers are principally handling the matter. That manager should review the report and discuss with the lawyer in charge where the case stands, actual performance to budget and any new expert or legal services required. Monthly review may seem burdensome, but it is only through frequent monitoring that management can stay fully informed and head off possible problems.

Not less often than semi-annually, the lawyer responsible for the case should submit a written report to the intake committee. That report should include, without limitation: 1) a brief summary of legal activity on the case during the immediately preceding six months, 2) a projection of legal services (and estimated costs) to be provided during the next following six months, and 3) any material changes in any of the information submitted to the intake committee with the original request to take on the case, including any changes to the proposed budget. At the request of the intake committee, the lawyer should be prepared to meet with the committee to discuss any questions the committee may have.

Firm-Wide Coordination

What one lawyer sees as a good thing may not be viewed quite as favorably by management if it means that too many of the firm's lawyers would be occupied with contingent fee cases at the same time. To avoid this, the firm should monitor its inventory of contingent fee cases to assure that they do not constitute too large a percentage of its total work-in-process at any time. While all work done is an investment in future revenues, revenues from contingent fee cases are deferred until the matter is completed and the outcome has been determined. It will be management's job to be certain that the amount invested in these deferred revenue cases at any time is not made at the expense of reasonable distributions to the partners on a current basis.

As firms become more creative in their billing practices, contingent fee arrangements can be one way of meeting the needs of both the client and the firm. Provided that a careful process is followed in deciding which (and how many) contingent fee cases to take on, the firm can benefit from them. Best practices dictate, however, that the firm accord such cases the same oversight and attention it would give to a fully billable matter.

Michael E. Mooney, a member of this newsletter's Board of Editors, is the managing partner of Nutter McClennen & Fish, LLP, in Boston. His firm maintains an active tax and business practice, representing and advising domestic and international corporations in a broad range of tax issues, reorganizations, business combinations and divestitures. He can be reached at [email protected].