Value Pricing for Business Litigation

When lawyers talk about alternatives to the billable hour and value pricing, business litigators are usually among the ranks of those that say that hourly billing is the only fee structure that makes sense for their practice. But ABAJournal.com reported earlier this week about an Ohio firm that is using 'success billing' in defending corporations in securities and antitrust litigation.

The purpose of the success fee is to better align the law firm's interests with the interests of the client for a true 'win-win' outcome. The law firm of Waite, Schneider, Bayless & Chesley is seeking to meet its clients' aims of resolving litigation efficiently and economically. Some of the factors that might figure in to the firm's compensation include:

• Settlement or dismissal of the case within a specified time period;
• Settlement or payout less than a specified amount;
• "Savings" to the corporation;
• Settlement within the corporation's policy limit;

The reality is that the large majority of cases don't get tried. But firms that focus more on early settlement don't necessarily preclude the potential of trial where appropriate. And even the cases that do get tried give the lawyer an opportunity for a success fee or bonus. After all, savings don’t necessarily only occur with a pre-trial settlement. And some cases settle after a verdict is rendered - with some of those settlements being less than the verdict amount (to avoid appeal, etc.).

Going to trial doesn't necessarily mean the firm doesn’t get paid anything at all. Instead of getting paid hourly, the lawyer’s fee may be partially dependent upon whether the corporation 'saves' money, and how much.

An example of how this might work:

Let’s say the plaintiff’s last demand before trial is $1,500,000 and the policy limit is $1 million. The defendant thinks the case is only worth $800,000, and decides to proceed with the trial. If the lawyer brings in a verdict of $800,000, the lawyer might be entitled to a success fee based on the $500,000 out of pocket "savings" to the corporate client. (If the case had settled for $1.5 million and the first million was paid by the insurer, the corporate client's payout would have been $500,000).

Another component of the lawyer's compensation package may be the result of bringing the case in within the insurance coverage ($800,000 is less than the available $1 million in coverage).

An additional 'bonus' might be calculated based upon the $200,000 that was saved off of the policy limits.

Will this work? Some firms (and clients) seem to think so. Whether these kinds of billing arrangements will gain in popularity remains to be seen. At the very least, these lawyers and their clients are willing to try something different to get away from hourly billing and the conflicts it creates.

For another take on pricing options for lawyers, see last week's post, Moving Past the Billable Hour - How do you do it?

Do you want to talk about how you might create a new pricing structure for your firm? Email me to schedule a consultation.