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LawBiz® TIPS – Week of December 18, 2012

LawBiz(r) newsletter

Happy Holidays from Paula and Ed Poll Happy Holidays ... from all of our family to all of your family. Best wishes,

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Payment of Expenses Should Not Be a Contingency

"No fee unless we win."
Lawyers who bill using contingency fees have a personal financial stake in the outcome of a matter. Revenue and therefore personal compensation increases when the results for the client are positive. The risk for the lawyer is in not meeting the client's cost and business goals; the reward is in meeting them or even doing better than required. The billing dynamic for lawyer and client is summarized in the line often used in television advertising: "No fee unless we win."

Survival with Contingency Fees
Contingency fees are frequently used as the billing arrangement in such litigation engagements as personal injury and collection matters, structured as a flat percentage to the firm of the value recovered for the client. This creates a difficult dynamic for a firm of any size: until there is a recovery, the firm is spending money to resolve the matter and to operate the law firm, but not getting money in. These costs, whether to maintain operations or to handle the clients' specific matter cannot be avoided. As cases drag on through delays, the financial strain on contingency lawyers can be considerable and a challenge to address before matters are resolved.

Advances on Out of Pocket Costs
Lawyers charging contingency fees may wish to advance the costs for essential case management activities like depositions and filing fees. Such costs can add up quickly, and if the lawyer is not successful in the case and no value is recovered, getting the client to pay the out of pocket costs can be a challenge, at best. Certainly from the firm's perspective it is better for the client, rather than the lawyer, to advance the costs. This should be specified in the engagement agreement. If the client accepts but later refuses to pay, Rule 1.16 allows the lawyer to withdraw from the case as long as the client is given adequate warning and is not prejudiced.

How to Choose a Contingency Case
The better alternative is to carefully choose which contingency cases to accept, based on the size and complexity of the case, the amount that needs to be advanced, and the cash reserves that the lawyer has at hand. Providing in an engagement agreement that the client is responsible for expenses does not preclude accepting a case from a client who has limited means to pay. On settlement or judgment, lawyers may then reduce the client's share by the expenses advanced on behalf of the client and the lawyer can be reimbursed the advances when stipulated in the engagement agreement. It is not possible to change an engagement agreement once both parties have signed, so if payment of expenses is not stipulated up front it's too late to add such a provision retroactively. That makes advance planning a necessity when accepting a contingency fee.

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Keeping the financial side of your practice running smoothly requires a thorough knowledge of how generating the business, doing the business and collecting your fee intersect. Ed offers you insight on engagement agreements, pricing methods, and collection strategies to improve your firm's bottom line, as well as Disaster Preparedness to make sure your firm will be ready when the unexpected happens. Learn more.

In this issue:

Payment of Expenses Should Not Be a Contingency

Financial Management of the Firm...$40 OFF - Special price!

Video: Retainers: Do They Do Any good For You?

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Horan, Lloyd Law Offices

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Los Angeles, CA

Ed Poll, LawBiz® Management   |   |   |
©2011 LawBiz® Management. All rights reserved.

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