Legal Definitions - negative contingent fee

A negative contingent fee, also known as a reverse contingent fee, is a legal fee arrangement where a lawyer's payment is calculated as a percentage of the money *saved* for the client, rather than a percentage of money *recovered* for the client. This type of fee is typically used in defense cases or situations where the client is facing a demand for payment, and the lawyer's objective is to reduce or eliminate that financial obligation. The fee is contingent on the lawyer successfully reducing the client's liability or the amount they would otherwise have to pay.

• Example 1: Business Lawsuit Defense

  A small manufacturing company, InnovateTech, is sued for $5 million by a former partner for alleged breach of contract. InnovateTech believes the claim is exaggerated but faces significant legal costs to defend. Their defense attorney agrees to a negative contingent fee, where their fee will be 15% of the amount by which they reduce the final judgment or settlement below the initial $5 million demand. After extensive negotiation and litigation, the attorney successfully settles the case for $1.5 million. The amount saved for InnovateTech is $5 million - $1.5 million = $3.5 million. The attorney's fee would then be 15% of $3.5 million, which is $525,000. This arrangement incentivized the attorney to achieve the best possible reduction in liability.

• Example 2: Tax Dispute Resolution

  An individual, Ms. Chen, receives a notice from the tax authority stating she owes an additional $200,000 in back taxes, penalties, and interest. She believes the assessment is incorrect. Ms. Chen hires a tax attorney who agrees to represent her under a negative contingent fee arrangement. The attorney's fee will be 20% of any reduction they achieve from the initial $200,000 assessment. The tax attorney meticulously reviews Ms. Chen's financial records and tax filings, successfully arguing to the tax authority that the assessment was based on incorrect interpretations. They manage to reduce the total amount owed to $50,000. The amount saved for Ms. Chen is $200,000 - $50,000 = $150,000. The attorney's fee would be 20% of $150,000, or $30,000.

• Example 3: Regulatory Fine Reduction

  A construction company, BuildRight Inc., is cited by an environmental agency for alleged violations and faces a proposed fine of $1 million. BuildRight believes the fine is excessive given their efforts to comply. BuildRight's legal counsel specializing in environmental law agrees to a negative contingent fee. Their compensation will be 10% of the amount by which they can reduce the final fine imposed by the agency. The attorney engages in detailed discussions with the environmental agency, presents evidence of BuildRight's compliance efforts, and negotiates a revised settlement. The agency ultimately agrees to reduce the fine to $300,000. The amount saved for BuildRight is $1 million - $300,000 = $700,000. The attorney's fee would be 10% of $700,000, which is $70,000.