Individuals from Bass, Berry & Sims authored an article published in the October issue of The Corporate Counselor providing insight on alternative fee arrangements (AFAs) in complex litigation. The article was co-authored by Bass, Berry & Sims litigation member Overton Thompson and the firm's managing director of strategic pricing and client value David Rue.
As introduced in the article, legal departments are increasingly pressured to bring value to their companies and when hiring outside counsel, clients are not looking for hours, they seek value. Therefore, it's important for legal departments to consider the available AFAs when outsourcing complex litigation matters.
There are a number of benefits AFAs bring for both legal departments and the law firms they hire. One is that they drive improved communication and higher levels of client satisfaction – leading to a better attorney-client relationship. Additionally, AFAs lead to more predictable fees than straight hourly billing.
For a complex defense case, there are a number of different AFAs that can be used, including blended rate arrangements, fixed fees, collar arrangements and pure contingency. These types of arrangements have their pros and cons, however, there is another arrangement that works particularly well in defending complex litigation called a "holdback arrangement." With a holdback arrangement, an agreed upon percentage of fees generated within a budget is set aside to create a pool of fees which can be used to encourage ideal outcomes. These arrangements incentivize results, efficiency and predictability.
"A holdback arrangement would work particularly well in the following scenario: a dispute involving a post-closing consideration in a purchase transaction. The seller sues a company (the outside firm's client) demanding damages for failure to pay certain earn-out payments allegedly owing under the purchase agreement, despite seller having failed to satisfy the conditions necessary to receive the payment. The amount at stake is relatively modest and can’t sustain an unbridled approach to defending the case."
The full article, "Alternative Fee Arrangements in Complex Litigation," was published online and in the October 2017 issue of The Corporate Counselor and is available in the PDF below.