Legal Definitions - reverse contingent fee

A reverse contingent fee is a payment arrangement between a client and their lawyer, most commonly used when the client is a defendant in a lawsuit. Unlike a standard contingent fee, where a lawyer receives a percentage of the money recovered for a plaintiff (the person suing), a reverse contingent fee means the lawyer's payment is a percentage of the money saved for the defendant (the person being sued).

This "saving" is typically calculated as the difference between the amount the plaintiff initially demanded or was likely to win, and the final amount the defendant actually pays through settlement or judgment. This fee structure incentivizes the lawyer to minimize the client's financial liability in a legal dispute.

• Example 1: Corporate Litigation Defense

  A small software company, "CodeCraft Solutions," is sued by a larger competitor for alleged intellectual property infringement, with the competitor demanding $15 million in damages. CodeCraft Solutions hires a law firm that agrees to a reverse contingent fee. Their agreement states that the law firm will receive 8% of any amount by which they reduce CodeCraft's liability below the initial $15 million demand. After extensive negotiation and a strong defense strategy, the law firm successfully settles the case for $5 million. CodeCraft Solutions saved $10 million ($15 million demanded - $5 million paid). The law firm's reverse contingent fee would be 8% of $10 million, which is $800,000, in addition to any agreed-upon hourly rates or retainer.

• Example 2: Personal Injury Defense

  Ms. Eleanor Vance is sued after a car accident, with the plaintiff seeking $750,000 for medical expenses and pain and suffering. Ms. Vance's defense attorney proposes a reverse contingent fee arrangement. The attorney will charge a reduced hourly rate, but also receive 12% of any amount by which the final judgment or settlement is less than $750,000. Through the attorney's skillful defense and negotiation, the case is eventually settled for $200,000. The attorney successfully saved Ms. Vance $550,000 ($750,000 initial claim - $200,000 paid). The reverse contingent fee portion of the attorney's payment would be 12% of $550,000, which is $66,000.

• Example 3: Construction Contract Dispute

  A general contractor, "Apex Builders," is accused by a client of failing to meet project specifications and is facing a demand for $3 million in remediation costs and penalties. Apex Builders engages a legal team under a reverse contingent fee agreement. The agreement stipulates that if the legal team can reduce the amount Apex Builders has to pay below $3 million, they will receive 6% of the saved amount. After several rounds of mediation and presenting compelling evidence, the dispute is resolved with Apex Builders agreeing to pay $1 million. The legal team saved Apex Builders $2 million ($3 million demanded - $1 million paid). Their reverse contingent fee would be 6% of $2 million, totaling $120,000.