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No benefit from contingency arrangement if your company has the cash to pay the firm

Marschall Smith, the General Counsel of 3M, explained his company’s policy about plaintiff’s contingency fees. Speaking at the SuperConference, Smith said, “We don’t favor contingency arrangements if we are the plaintiff because 3M has the cash to pay the firm. It lets the company reap the full reward of the recovery.” Smith’s logic is that contingency fees are for plaintiffs who can’t fund the litigation costs on their own.

Most of the references on this blog about contingency fees refer to plaintiffs’ lawyers (See my post of April 27, 2006: $22 billion war chest in 2003 for contingency-fee firms; Sept. 29, 2006: hedge funds that invest in paying for cases; Aug. 24, 2005: the flow of recoveries in securities cases; Oct. 22, 2005: contingency fee firms are choosy about the cases they accept; Jan. 20, 2006: patent troll and its contingency firms; and May 1, 2006: the signaling function among conditional fee firms.).

A smaller number of references look at contingency fee arrangements through the eyes of corporations (See my post of May 6, 2009: difference between “success fees” and “contingency fees”; Feb. 26, 2008: fee arrangement can unravel if the company changes its strategy; Aug. 28, 2005: rules of thumb for contingency arrangements; and Oct. 29, 2007: survey data on the frequency of contingent fees.).

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One response to “No benefit from contingency arrangement if your company has the cash to pay the firm”

  1. Stewart Weltman says:

    He is wrong. Contingency breeds efficiency on outside counsel’s part – particularly in plaintiffs’ cases. I have seen many large firms exceed the normal 1/3 contingency arrangment primarily because they are geared towards pyramid billing rather than doing what needs to be done to win. So if this GC wants to continue to overpay for his plaintiffs’ cases be my guest. He would do better to hire firms on a contingent basis [particularly plaintiffs’ commercial litigation boutiques that know how to do contingent matters] and negotiate an appropriate percentage based upon the risk of the case. He will know precisely what he will get if successful and the beauty is that if he wins the other side pays his legal fees and if he loses he will not pay a cent in legal fees.