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Unusual contingency fee based on costs advanced by a firm and the eye-popping result

The American Lawyer, June 2010 at 15, exposes the plight of King & Spalding in the aftermath of a seeming triumph in an international arbitration. The arbitration awarded the firm’s client (one Waguih Siag) $133 million. Siag settled for less, pocketed $80 million, and “decamped to the French Riviera without paying King & Spalding a dime.”

It turns out that K&S’s contingency fee “called for Siag to give his lawyers an extra 1 percent of the award for every $50,000 in costs the firm advanced to him, beyond the first $500,000.” According to Siag, the law firm must have advanced more than $4.5 million in costs because its share of the recovery exceeds 80 percent, more than $106 million.

This is a stunning example of how a large law firm can use an alternative billing method – absorbing out-of-pocket costs on behalf of a client in exchange for a larger contingent fee – to increase revenue. It is also a stark example, perhaps, of taking advantage of asymmetric knowledge. And, what corporate client needs third party litigation funders if huge law firms are willing to invest such sums (See my post of May 21, 2009: lawsuit financing by groups with 8 references.)?