Several times per week we receive calls and emails from potential new clients asking about contingency fee rates in commercial debt collection legal matters. Sometimes the caller proposes an objectively low rate combined with a phase-down, i.e. as the amount of the recovery rises the fee rate declines. Often the low rate/phase-down accounts sought to be placed are not the best quality, whether because of age, sustainable defenses or collectability issues.
Not surprisingly, the clients with which we maintain our best and most long-standing relationships forward good quality claims and pay a contingent fee that is commercially reasonable in general, and in any event appropriate for a firm which consistently achieves a high degree of recovery. By its nature a successful contingency fee arrangement requires a good working relationship between attorney and client, with each consistently keeping in mind the full range of concerns of the other, and openly communicating about them.
Regardless of the size of the law firm involved and the related economies of scale, the handling of too many not-so-great claims will spell a lack of profitability for the law firm and lower rates of recovery for the clients which actually place good quality accounts, given the reduced attention their matters will receive from a firm handling large quantities of mediocre claims.
Human nature dictates that an attorney handling matters on a contingency fee basis will devote more of his or her time to recoverable accounts tendered by clients paying reasonable fee rates. It is counterintuitive to an aggressive attorney to receive comparatively less compensation the more successful the outcome. The often proffered argument that it takes the same amount of time and other resources to recover $250,000 as it does to recover $25,000 is largely not supportable. As a general rule, the greater 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, as part-and-parcel of a reasonable contingency fee arrangement the better commercial collection law firms continue the intense pursuit of recovery in bankruptcy court at no extra cost, an endeavor often requiring sizeable time expenditures.
Following the theory that better contingent compensation will incentivize superior performance, clients occasionally request a fee structure that pays a higher fee rate for more recovery, as well as a lessor fee rate for less recovery. These types of arrangements are welcome, compensating the client if a recovery is on the low side and rewarding the law firm if the recovery is on the high end.