Construction Law Monitor : Construction Lawyer & Attorney : Wolfe Law Group : New Orleans & Seattle Law Firm : Construction Law Monitor Blog

What is contingency fee?

Here is the definition:

A method of paying a lawyer for legal representation by which, instead of an hourly or per job fee, the lawyer receives a percentage of the money her client obtains after settling or winning a case.  Often contingency fee agreements award the successful lawyer between 20% and 50% of the amount recovered [read definition on wikipedia].

In plain english, you attorney works on a "contingent" basis, meaning the attorney's payment is dependent on the outcome of the case.  If you recover money, the attorney gets a percentage of the recovery.  If nothing is recovered, you pay nothing in fees.

What's Good About Contingency Fees?

For the client, contingency fees have many positives.

The cash-flow impact of litigation is substantially lower, you gain leverage over the other party who needs cash flow to fund the case, and a portion of the case’s risk is transferred and borne by your attorney.

The only “negative” of a contingency fee is that the fee can be substantial. When a recovery is made, the attorney fee is usually between 30-45% of the amount recovered. But, as we’re about to explain, this really isn’t as bad as it sounds.

100% of Nothing is Nothing

For the client, contingency fees have many positives.

The cash-flow impact of litigation is substantially lower, you gain leverage over the other party who needs cash flow to fund the case, and a portion of the case’s risk is transferred and borne by your attorney.

The only “negative” of a contingency fee is that the fee can be substantial. When a recovery is made, the attorney fee is usually between 30-45% of the amount recovered. But, as we’re about to explain, this really isn’t as bad as it sounds.

WLG Loves Contingency Fees

We love representing clients on a contingent fee basis for one very important reason: We can more zealously represent our clients.

When clients are billed for fees, it’s inevitable that bills will be challenged and cash crunches will arise. This effects how our firm can represent a client.

If $10,000 in discovery motions are needed, for example, but the client can’t afford it, the client’s claim is weakened.

Contingency fees result in more aggressive litigation…which results in higher settlements and more successful trials.

This blog post was originally posted on our Wolfe Law Rocks blog, and can be read here.

• Email This
• Print
• Comments
• Trackbacks

We step away from Washington and Louisiana for a moment to explore the outside construction world, and find that a massive lawsuit has recently come up in Delaware.

The Wall Street Journal Law Blog seems to be the first to report on a Complaint filed in the Delaware Counrt of Chancery alleging the breach of joint venture between MGM and Dubai-based Infinity World Development Corp. A copy of the 13 page Complaint can be found at Wall Street Journal's website.

The suit, initiated by Infinity, alleges that MGM (the shell of wholly-owned affiliates Mirage Resorts and Project CC) has breached a joint venture agreement to develop City Center, a massive Las Vegas epicenter for tourism.

The Complaint states that MGM has issued a recent 10-K statement which illustrates that the massive company can no longer pay its debts as they become due, including a debt to make contributions to the joint venture itself (See Page 2 of Complaint). The business' failure allegedly will cause substantial and irreparable damage to Infinity World Development, who would have to pick up slack in financing the outlandish project.

Now - Infinity World Development wants out. Significant cost overruns and delays have caused the project to run ashore with problems. Estimates for completion continue to grow with each passing day.

Though the suit concers over $10 billion in open obligations, the Complaint itself is quite simple. Infinity has alleged breach of contract, breach of good faith and fair dealing, and sought declaratory relief for its obligations under contract.

No response has yet been offered by MGM in pleading form. But WSJ.com reports that MGM has already issued a public statement:

MGM fired back on Tuesday, calling the lawsuit “completely without merit.” A spokesman later added that the company “is ready, willing and able to fund its share of the costs to complete CityCenter, including a required payment this week.”

The Wall Street Journal further believes that the suit has all the makings of a giant. The celebrity and capital involved makes this case certain to draw considerable legal attention.

• Email This
• Print
• Comments
• Trackbacks

This weekend, I read a post on the South Carolina Construction Law Blog about Texas' Prompt Payment Act.  It caused me to do a little online research on similar acts around the country, finding them in Alabama, Tennessee, Georgia, Wisconsin, New York, federally, and elsewhere.  

A "Construction News" pamphlet from Baker Donelson [pdf] in the Winter of 2004 has a good article about the statutes in AL, TN & GA, the theme of each act simply being this:  "Prompt Payment Acts Set Payment Guidelines for Construction Work."

It's no secret that payment problems are rampant in the construction industry.  And unfortunately, the old statement that "possession is 90% of the law" has some truth to it. 

Large well-funded construction companies can hold progress payments at the end of a project for trivial reasons, and strong-arm its subcontractors into settling for less.  Prompt Payment Acts aim to equalize the playing field a bit, applying penalties against those who misapply funds or try to strong-arm subs and suppliers.

So, do they exist in Louisiana and Washington?   Mostly....no.  

Both Louisiana and Washington lack a pure "Prompt Payment Acts."  Those victim to the misapplication of funds must rely on jurisprudence or other possibly applicable statutes, discussed below. 

Misapplying Funds in Louisiana
Buried within the Private Works Act in Louisiana is La. R.S. 9:4814 (A), which provides as follows with regard to the misapplication of funds:

No contractor, subcontractor, or agent of a contractor or subcontractor, who has received money on account of a contract for the construction, erection, or repair of a building, structure, or other improvement, including contracts and mortgages for interim financing, shall knowingly fail to apply the money received as necessary to settle claims to sellers of movables or laborers due for the construction or under the contract. Any seller of movables or laborer whose claims have not been settled may file an action for the amount due, including reasonable attorney fees and court costs, and for civil penalties as provided in this Section.

This provision actually works as a "prompt payment" requirement, but as is evidence from its terms it only has limited applicability. 

First, the contractor must "knowingly" misapply the funds.  Second, the only parties qualified to recover the penalties of the provision are "sellers of movables" and "laborers." 

The Private Works Act in Louisiana specifically distinguishes between laborers and subcontractors, and so subcontractors who provide labor to the project would not likely qualify for the penalties under La. R.S. 9:4814 - although the matter has never been decided.

Unfortunately for everyone not mentioned by §9:4814, Louisiana doesn't provide a remedy when funds are misapplied, and the parties must rely exclusively on the conditions of its contract.

Misapplying Funds in Washington
In 2006, the Washington Court of Appeals published an interesting reversal in Westview Investments, Ltd. v. U.S. Bank National Association [pdf of decision], addressing the issue of misapplying construction funds in Washington.

Since progress payments are not funds held in "trust" by statute in Washington, the court explained that they may be considered trusts if appointed as such by the parties - namely, through contract.

According to the Westview decision, progress payments made by a project owner to a general contractor constitute "trust funds" for the benefit of subcontractors, when the agreement between owner and contractor is based on AIA A201 (1997).    

Interfering with any "trust funds" would be a tortious conversion - and the Westfield court even goes so far as to rule that banks may be liable for misappropriating trust funds when it uses these funds to  pay down the borrower's debt to the bank (see discussion here).

Time for A Prompt Payment Act?
Is it time for a Prompt Payment Act in these Washington and Louisiana?  

While many statutes and regulations have drawbacks, there doesn't seem to be a downside to requiring contractors to pay its bills!

Litigation is costly and time-consuming - and it doesn't seem fair that after a long, expensive battle with a better-funded opponent, subcontractors and suppliers must settle for the principal debt. 

There are ways to punish contractors in Louisiana and Washington when funds are misapplied, but it's always dependant on circumstance.  A Prompt Payment Act would help equalize the playing field for subcontractors and suppliers who rely heavily on prompt payments.

• Email This
• Print
• Comments (3)
• Trackbacks

The construction industry is riddled with risk and disagreements, and some say it's only a matter of time before a construction organization finds itself in litigation. Regardless of its certainty, litigation is a fact of business and has the potential of costing your organization thousands, hundreds of thousands or millions.

Accordingly, your business wants to weather the litigation storm as painlessly and quickly as possible. Here are three principals to mind if your construction company is facing litigation.

1) Settlement Should Always Be An Option
If the dispute is in litigation, there were likely settlement attempts before formal filings. Simply because these pre-litigation settlement efforts have failed, however, does not mean post-litigation settlement efforts are without utility. To the contrary, the reality of litigation often hits parties only after filing and can be a powerful influence to settle.

Attorneys oftentimes are scorned by the public for their desire to settle cases rather than litigation. The practice, however, is not the result of laziness or a fear of the courtroom. To the contrary, attorneys are usually looking out for the best interests of their clients - and in most cases, it's in all parties' best interest to settle the case.

Litigation of all types is expensive. The associated legal fees, expert fees and court costs associated with taking a case to trial is going to be a minimum of $10,000 - $15,000.00, regardless of the amount in dispute. The more complex a case, the more expensive the litigation - oftentimes costing parties hundreds of thousands or millions of dollars.

As such, parties should make objective reviews of their legal positions and consult with attorneys to discuss the challenges of their case, its possible exposure, and estimated legal costs.

Judges and mediators often say, "a good settlement is when both parties leave unhappy." While unhappiness is not the most pleasant end to your legal dispute (in which you may be emotionally and personally invested), it may be the best. Depending on the associated risk of the case and your company's exposure, full-blown litigation may result in a much worse scenario than a mediocre settlement.

2) Explore Alternative Dispute Resolution
It's never, ever too late to explore alternative dispute resolution options. In the past, parties have chosen to mediate or arbitrate their differences even on the eve of trial - and successfully so.

In the event of litigation or arbitration, however, you shouldn't wait that long to explore the possibility to resolving the parties' differences through mediation or some other less expensive resolution program.

Mediation may be a great alternative to litigation since it is entirely driven by the will of the parties, voluntary and less expensive than a formal dispute. However, mediation is not free (depending on complexity of your case and length of mediation, it may cost between $2,500 and $25,000, or more). Accordingly, you want to agree to participate only if both parties come to the table in good faith to settle the case. Both parties, in other words, should be prepared to have a flexible settlement discussion.

Settlement discussions within mediation are confidential, allowing the parties to discuss details of the case frankly and to exposure each other's weaknesses. Furthermore, in the event mediation is not successful, it is a great way to prepare your for trial and to gain a stronger understanding of your opponent's position.

See: ADR Articles on Construction Law Monitor

3) Good Counsel is Priceless
The type of attorney you'll need to most effectively and least expensively litigate your claims will depend on your desires and circumstances. And unfortunately, there are so many shades of desire and types of circumstances that your company may face in the event of litigation.

A good counselor will review your claims, defenses and financial health to determine the best course of action for your company. While it's always important for an attorney to be a qualified litigator, "being right" or "litigating your claim" might not be best for your business. There are a number of factors to consider before setting forth on your litigation course.

Counsel should review the risk associated with your claim, your company's financial exposure and your ability or desire to go through to trial to properly advise an organization on its options to proceed.

Perhaps it is in your company's best interest to push the matter towards trial as rapidly as possible....but that it not always the case. Mediation may be a better option, or some other sort of settlement procedure.

In short, it's important to have a counselor to give solid and objective advice about your company's legal position and options. Your selection of legal counsel is perhaps the most important component of your claim. As such, be careful to choose wisely.

See: Is Your Counsel Helping or Hurting?

• Email This
• Print
• Comments
• Trackbacks (1)