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Taking Care of Business on a Contingency Fee

By Gerald A. Klein, P.C.

Most lawyers specializing in personal injury cases would not hesitate to take a potentially strong personal injury case, even though the client might have a dubious background, the case has holes, and the investment cost of the case could be tens of thousands of dollars. But these same brave souls turn ashen white at the thought of taking a business case on a contingency fee basis – no matter how strong it might be. The purpose of this article is to make our members aware of profitable, interesting cases in an open field of practice – business cases. Business cases are often more profitable and less risky than personal injury cases, but few lawyers consider handling such cases on a contingency fee basis.

Traditional Reluctance of Attorneys to Handle Cases on a Contingency Fee

Historically, lawyers divided themselves in two groups. One group represented corporate entities, and another group represented private individuals. Corporate entities almost always had to pay fees for legal representation, whether they were plaintiffs or defendants. Ordinary individuals often relied upon the contingency fee structure to retain attorneys. Small companies, no matter how impoverished, often had no alternative but to hire attorneys on a fee basis, even if they could not afford the fees. Most contingency fee attorneys who specialized in tort practice were reluctant to venture outside their area of expertise, and felt more comfortable dealing with insurance companies than non-insurance corporate defendants. From a practical standpoint, contingency fee relationships were generally not available to business entities.

Despite the opinions of some of our members, not all corporations are evil. Likewise, not all corporations have unlimited sources of wealth. Unfortunately, because there are so few lawyers willing to take business cases on a contingency fee basis, there are a large number of corporate entities who have endured terrible injustices but have no way to seek compensation, because they cannot afford counsel.

10 Reasons Why You Should Consider Taking a Business Case on a Contingency Fee

There are a great number of reasons why you should consider taking a business case on a contingency fee basis, but the editor limited us to ten. The following are ten reasons why you might want to take a business case on a contingency fee basis:

1. The Stakes Are Often High and Often Easy to Prove.
One of the hardest things lawyers must prove in personal injury cases is damages. How much is a lost leg worth? How does one place a value on a woman’s five-year-old son who died? How much is fair compensation for someone who suffers chronic daily back pain? These are questions lawyers ask juries to answer every day, but unfortunately, there is no schedule of damages to help them. Two very different juries can come up with two widely disparate awards. Often, a lawyer does a brilliant job in proving liability, only to be disappointed in the amount of damages awarded.

In contrast, business cases often have a fixed amount of damages. A contract amount is fixed. Overhead costs are often fixed. One way or another, the amounts are quantifiable and real. Jurors who would balk at giving a plaintiff $100,000 as fair compensation in a personal injury case would not think twice about awarding $100,000 against a defendant for failing to pay a note that was due. Accordingly, business cases often take the “guesswork” out of what a case is worth.

2. Clients Often Will Advance Costs.
Often, businesses can afford to pay incidental costs, such as depositions, travel, meals, etc., but cannot afford Gibson, Dunn & Crutcher’s legal fees. Such clients would be thrilled to pay all out-of-pocket costs, so long as they are not staggered every month by legal bills they cannot afford. Accordingly, business cases often include clients paying out-of-pocket costs, which means the only thing the contingency attorney must invest and risk is his or her time.

3. Business Clients Often Make Outstanding Clients and Witnesses.
A great personal injury lawyer once said, “You takes your clients as you finds them.” All too frequently, contingency fee lawyers are required to invest staggering amounts of money in cases where liability is clear, the damages are horrific, but the client is less than ideal – much less. Few lawyers have gone their entire career without finding devastating information about their client coming out at deposition or in trial, which, had the lawyer known about these facts, the lawyer would never have invested in the case.

Conversely, many small business owners are dream clients. They make good appearances, they are smart, they work hard, and will do their assignments when requested. They often make excellent witnesses. These clients often take their cases very seriously and work arm in arm with their attorneys to win their case. They are a privilege to represent.

4. It’s the Documents, Stupid.
Any contingency fee lawyer who has won a major trial will tell you that the secret of success is almost always in the documents. Often, a critical document can make the difference between winning and losing a trial, or winning and winning big. Commercial cases tend to be document cases. Accordingly, credibility is often less an issue and the trail of proof easier to find. Sadly, documents can be too much of a good thing. Often business cases involve voluminous documents. Lots and lots of documents. Enough paper to kill an entire forest. However, buried in those documents is often the key to victory. Unfortunately, for every needle, there is often a lot of hay to sift through and examine.

5. The Absence of Competition.
There are over 200,000 lawyers licensed to practice in California, but, amazingly, there are very few lawyers willing to pursue business cases on a contingency fee. True, business cases often involve fascinating aspects of the Commercial Code, the parol evidence rule, and other exciting areas that put you to sleep in law school and almost caused you to leave the law entirely for something more interesting – like insurance actuary work. Also true, the most exciting part of a business case may be illustrating your spreadsheet on the television screen. Nevertheless, because so few lawyers are willing to venture into “business land” in taking a contingency fee case, there are few lawyers available for this type of work. You can be very selective. Pick a case more exciting than library paste.

6. Despite What You Read in the Last Paragraph, Business Cases May Not Be As Boring As You Think.
Many contingency fee lawyers who specialize in personal injury feel their eyes glaze over when lawyers discuss business cases. Often, a business case may hinge on whether the wire cable rusted in Hong Kong or Singapore. How exciting! The case may hinge on whether the court will apply the parol evidence rule (no, it has nothing to do with criminal law). Nevertheless, while they are not common, many business cases read like spy novels. There is often a good reason why the parties want to seal the records of a lawsuit, rather than risk having the public find out what is going on inside all those corporate boardrooms. While there is almost never the type of emotional drama one would find when representing a young woman rendered a quadriplegic as a result of an accident, this does not mean that business cases have no sense of drama. Often, the same “David vs. Goliath” themes used in personal injury cases are also present in business cases. Attorneys who believe there is no honor in representing a company have never represented someone in a business case who spent his or her entire life building a business, developing loyal customers, giving people fulfilling employment, only to watch dreams crumble due to the wrongful conduct or dishonest act of an unscrupulous company. Representing these types of people is an honor.

7. Collection Is Not As Hard As You Think.
While business cases notoriously are among the hardest cases to settle, the overwhelming majority of business cases still do settle. To settle, one party must usually pay the other party (your client) money, and therefore, there is no issue of collection. Moreover, defendants who are “not in the business” of litigating (like insurance companies) see litigation for what it is – a terrible waste of time, money, and resources. Businesses, which prefer to focus their efforts on doing business, are not like insurance companies, who consider stringing along a plaintiff to be part of their business (the fun part). Accordingly, while reason often plays no role in settling with insurance companies, reason is often an important tool in settling with a business defendant. Unlike with insurance companies, rational thought is often an effective settlement tool.

8. Business Clients Often Can Serve As Their Own Consulting Experts.
One of the biggest investments any contingency lawyer must make in a case is hiring expert consultants. Very frequently, personal injury lawyers must venture into areas about which they know nothing. They have to hire experts who can tell them about the nuances of a product or its defect. Many of these experts – especially the good ones – are very expensive and very busy. It is hard to get them to focus on a case, and even harder to get them to bill reasonably. In business cases, the client can often provide tremendous expertise and consulting advice. While often it might be a bad idea to use a client as an expert at trial (although there are exceptions), the client can at least provide broad knowledge for purposes of investigation and finding the experts you need.

9. Diversification
Companies, such as Kodak, can tell you about the dangers of being a one trick pony. Make no mistake about it – the insurance industry is out to get you. While it is unlikely the public will ever be completely taken in by insurance company propaganda, it is likely that the personal injury field will get tougher before it gets better. Like any good business, consider diversifying your practice.

10. It Is The Right Thing to Do.
While the focus of our organization has always been on “the little guy,” the little guy is not always human. Sometimes, the little guy is a company made of the hopes and dreams of people who wanted to build a better life for their families or just wanted to build a better mouse trap. The overwhelming majority of jobs in today’s society come from small business. Almost everyone reading this article is an owner or part owner of a small business. How would you feel if you were denied representation simply because you were a business rather than an identifiable “little guy”?

Unless lawyers are willing to take up the challenge of representing businesses that have been cheated, defrauded, or simply squashed by companies larger than them, these small companies may have no recourse but bankruptcy. It is incumbent upon our organization to look upon small business as an under-represented group that needs the services of our talented membership in order to obtain justice.

This article first appeared in the OCTLA Gavel, April 2003.