Pay More Get More: Part I in a Series Re Debt Recovery’s Universal Issues 

Ross Head Shot - smallThis week’s guest blog is written by Ross Spector, Managing Shareholder and Founder of Spector & Bennett. His firm has recovered many millions of dollars for international business enterprises.

Contingency Fee Inquiries

Several times per week we receive inquiries from potential new clients asking about our contingency fee rates. It is not uncommon for the inquirer to propose an unacceptably low rate combined with a phase-down, i.e., as the amount of the recovery rises the fee rate declines. Most of the time the low rate/phase-down accounts sought to be placed are of poor quality, whether because of age, sustainable defenses or collectability issues.

Regardless of the size of the law firm involved and the related economies of scale, the handling of a high volume of poor quality claims will result in a lack of profitability for the law firm and poor rates of recovery for clients who actually place good quality accounts, given the significantly reduced attention their matters will receive.

Successful Contingency Fee Arrangements

Not surprisingly, the clients with whom we maintain our best relationships provide us with good quality referrals and pay an appropriate contingent fee for the high degree of recovery we usually obtain. Of course, the caliber of the referrals has much to do with the due diligence undertaken prior to the credit granting. These clients want us to spend our time hunting down actual cash rather than chasing rainbows. By its nature, a successful contingency fee arrangement requires mutual respect and understanding between attorney and client, with each consistently keeping in mind the full range of interests of the other.

It is apparent that a law firm handling a matter on a contingency fee basis will devote most of its time to recoverable accounts tendered by clients willing to pay reasonable and appropriate fee rates. Similarly, it is probable that a firm will demonstrate less gusto as any phase-down kicks in.

It is counterintuitive to an aggressive attorney that he or she should receive comparatively less compensation the more successful the outcome of a matter. The consistently proffered argument that it takes the same amount of time and other resources to recover $250,000 as it does to recover $25,000 holds no water. The higher the amount at issue, the harder a debtor will fight, the more the debtor will employ maneuvers to deny ultimate recovery, and the higher the likelihood that there will be a Chapter 11 filing. Besides, with a reasonable contingency fee arrangement, the better debt recovery law practices continue the aggressive pursuit of a recovery in the bankruptcy court, an endeavor that usually requires sizeable time expenditures.

Pay More Get More

Following the theory that higher contingent compensation usually results in superior performance, we have several clients who, at their suggestion, pay us more in fees for more recovery, as well as less in fees for less recovery. For example, we represent an international company with sizeable referrals that pays us 20 percent for a recovery constituting less than 25 percent of the principal amount at issue, 25 percent for a recovery constituting 25-74 percent of the principal amount, and 30 percent for a recovery constituting 75percent or greater of the principal amount. We welcome this type of arrangement. It compensates the client if a recovery is on the low side and rewards the firm when the recovery is on the high end.

spector-and-bennett    More about Spector & Bennett

In addition to its litigation work, Spector & Bennett consults with its clients regarding business structuring, the assessment and management of risk, corporate and commercial transactions, international trade, and government contracts and claims. We invite you to visit our website to learn more about our practice areas and our representative clients.

International Statutes of Limitations

We are honored to be asked by The National List of Attorneys to prepare a survey of International Statutes of Limitations. The first installment of the survey, “Asian Statutes of Limitations,” appears here on their website. The European edition will be published later this summer. Each installment will be accompanied by a blog posting such as this that addresses an issue universal to debt recovery throughout the world.

Categories: Collection attorney fees, contingency fees, negotiating contingency fees, NL Insider

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