Incisive Review of Hybrid Fee Agreement Saves Clients $700K in Dispute

Mar 15, 2024

A “hybrid” fee refers to any combination of fees for legal services. Among these fee arrangements are contingency fees, flat or fixed fees, success fees, retainers, and hourly fees. The Maloney Firm regularly handles fee disputes resulting from poorly drafted contingent fee agreements. We also counsel law firms and prospective clients while negotiating fee agreements to ensure they are fair and enforceable.

In recent years, we have seen an uptick in matters disputing the calculation of contingent fees. This is no doubt a result of how complicated contingent fee arrangements have become. Some fee disputes now include “negative” contingent fees (i.e., the fee earned is based upon how much money the attorney saves the client), ambiguous fee agreements (i.e., where the terms are difficult to understand and are more likely to be disputed by parties later), contingent fee agreements covering multiple matters, and more.

In late 2023, a group of clients who had been involved in a partnership contacted Patrick Maloney with a dispute over the amount of legal fees that were owing under a hybrid fee agreement into which they had entered. In this instance, the parties’ hybrid fee agreement called for a reduced hourly fee and a contingent fee. While the fee agreement provided the lawyers would receive a fee calculated on the value of the recovery, the agreement did not carefully and adequately define how this contingent fee would be calculated if the settlement included the purchase and sale of business interests – a common settlement in business disputes.

The underlying matter involved a dispute between partners who jointly owned a business. They settled their dispute when one side agreed to purchase the other’s interests in the business. Based solely on the sales price, the lawyers claimed a contingent fee of nearly $1 million. In calculating the fee they claimed, the lawyers ignored the value of the business interests the clients gave up in the settlement.

The Maloney Firm’s careful review of the legal fee agreement uncovered errors in its drafting. Typically, when preparing fee agreements, lawyers contemplate their client may enter a settlement through which they receiver non-monetary consideration. In those instances, the lawyer and client typically agree to a valuation methodology. But lawyers less frequently prospectively address how to determine a contingent fee when the parties enter a settlement with a more sophisticated structure, such as the purchase or sale of business interests, supply contracts, or any other form of business resolution. The fee agreement the Maloney Firm’s clients entered simply referred to “economic value” and “recovery value.” This allowed the Maloney Firm to argue the client had received no “recovery value” because the clients simply sold their business interests for the same amount they had paid for those interests.

Relying upon relevant statutes and case law to demonstrate the flaws in the lawyers’ retainer agreement and arguments, Mr. Maloney negotiated a settlement saving the clients nearly $700,000. Best of all, this significant victory was obtained without the burden and expense of protracted litigation. 

Successes such as these highlight the importance of properly defining how contingent fees will be calculated. A lack of clarity in fee agreements can result in significant monetary discrepancies and potential exploitation by attorneys. To ensure fair and enforceable fee agreements, consult with attorneys experienced in the nuances of contemporary contingent and hybrid fee agreements. For more information on the proper drafting of contingent fee agreements or for help with fee agreement disputes, contact Patrick Maloney and subscribe to The Maloney Firm’s newsletter.

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