While many law firms bill clients by the hour, some, including The Patterson Law Firm, offer rates that are contingent on the outcome of the case. In certain cases, if we think that there is a good chance of a positive outcome in a large lawsuit, we will withhold from billing by the hour in exchange for being paid a percentage of the monetary win at the conclusion of the case. So, if we don’t win, we don’t collect. The percentage varies, but it usually is between 33% and 40%.
Contingent fees are common in personal injury cases. Litigation financing, however, has not been common. What is litigation financing? Essentially, investors finance litigation in the hopes of a win (and thus 30-60% of a win or settlement). Last week marked the opening of one such firm in Chicago, Gerchan Capital, LLC.
This type of investment firm is controversial. Some believe it increases litigation in an already overly litigious society. It is also viewed as very risky due to the unpredictability of judges’ and jurors’ decisions. However, according to Ashley Keller, one of the four founders of the firm who holds a law degree, the risks with litigation financing lie in the fact that the average investor lacks the legal knowledge necessary to navigate the nuances involved in litigation.
Gerchan Capital plans to invest in lawsuits between institutions, with an average investment of about $5 million. While often these investment firms finance plaintiffs, some also pay defendants’ legal fees and collect if the case is successful. None of this funding is considered lending because the investors never collect unless the case is won.
It will be a while before we can judge the success of the well-funded Gerchen Keller Capital. However, what can be taken from this new model is not necessarily that all clients should run to these firms to obtain funding for their litigation, but that there are alternatives to the traditional bill by the hour model that all firms provide.
To learn more about our billing options click here, or call one of our experienced attorneys at (312) 223-1699.
Source: http://dealbook.nytimes.com/2013/04/08/new-firm-plans-to-invest-in-lawsuits/