If You Had $1,000 To Spend To Resolve a $20,000 Legal Issue, How Would You Allocate Your Capital?

Let's look first at the option of hiring an attorney on a contingency basis.

In addition to the amount at stake--$20,000 in this case--you need to know some details about the kind of dispute; and in the context of considering whether to hire an attorney, you especially need to know whether it is the kind of case an attorney would take on a contingency basis.

If you are not already familiar with that term, a contingency basis is when an attorney agrees to handle your case for little to no money upfront in exchange for your agreement to pay the attorney a percentage of what you win in the case, if you win at all. That percentage usually ranges from 20% to 40%. In addition, it is common for contingency arrangements to also include a provision that first pays an attorney's expenses incurred in handling your case, and then deducts the percentage from that leftover balance. This means that should you win your case, and some compensation as a result, you could be responsible to first pay your attorney's expenses and "success fee."

But to keep this analysis simple, let's assume that you do not have to pay your attorney's fees but that you agree to pay her 33% of what you win, and to pay her nothing if you do not win. So if your potential winnings were $20,000, then you would be "risking" an attorney fee of $6,600, and your attorney would be risking a fee of $0.

Not a bad option, right? If you were able to find an attorney to agree to such an arrangement, then you could keep your $1,000 and align your attorney's interests with your own. Not so fast.

Let's stipulate that the issue is a contract dispute and that, specifically, $15,000 of the $20,000 stakes is the amount you would have to pay over the remainder of the contract if you were not able to terminate it now. This means that, out of the $20,000 at stake, there is only $5,000 of actual cash in play, although the total value of win to you is $20,000: because you would both get your $5,000 back and avoid having to pay the $15,000.

This stipulation probably takes the likelihood of finding an attorney to handle your case on a contingency basis close to zero. Business attorney Aaron Hall explains..

Every attorney will find risk in any given case. It's just the way that attorneys view the world, and it's a handy inclination for evaluating a potential contingency case (in fact, attorneys who are bad at this kind calculus are probably bad attorneys). The way that an attorney would look at your case is twofold:

1. What is the risk that I do not win this case? 
2. How big is the purse if I do win?

Let's say that the attorney calculates your odds of winning to be 80%. The attorney would then apply that discount to the total purse, reducing the total win value from $20,000 to $16,000, and the total cash in play from $5,000 to $4,000. The attorney will pay closer attention to the $4,000 in cash, because the non-cash value of a win is less accessible without trampling on one of the key benefits of a contingency arrangement: that you, the client, don't have to pay the attorney anything out of pocket.

If the attorney won your case, and you were excused from a $15,000 debt, then to pay the attorney's 33% contingency fee on that portion of the winnings would require you to pay the attorney almost $5,000 out of your own pocket (which exceeds your budget of $1,000). So the case economics, for the attorney's fee, really center on that $4,000 in cash (expected value), which would only amount to just over $1,300 if the attorney were to win your case.

In contrast, most attorney retainers begin around $1,000 to $2,000, with hourly rates ranging typically from $250 to $350 (or more, depending on experience and expertise). So the chance to win a $1,300 fee, even if it is a good chance, is not compelling to most attorneys: the attorney's alternative fee models--the standard retainer + billable hour model, for example--are far too lucrative to consider taking this case on a contingency basis.

💡 For a little more background beyond just this hypothetical analysis, keep in mind that you tend see contingency fee arrangements mostly in personal injury cases in which your opponent has insurance designed to cover the kind of wrongdoing your suit might allege (i.e. automobile accident cases and medical malpractice cases) and in cases for which there is statutory basis for recovery of both attorney fees and stipulated damage amounts (i.e. debt collection cases invoking laws such as the Fair Debt Collection Practices Act). In other words, you do not tend to see contingency arrangements in contract disputes like the hypothetical one we have described above. Further, most states have laws that actually prohibit contingency fees in certain types of cases, which are understood to be for "public policy reasons."

Conclusion on the contingency fee option: not an option for you. Although contingency fee arrangements can be favorable for the client in certain types of cases--because the contingency fee forces the attorney to share the risk with the client and because it allows you to pursue legal claims you could otherwise not afford to pursue (or at least justify when the stakes are low)--the contingency fee option is not generally available in a contract dispute case, and is specifically not likely in our hypothetical contract dispute case described above, both because of the type of case it is and because the amount at stake ($20,000) is far too low for most attorneys to even consider on a contingency basis. So a general truth seems to be that if the stakes of your case are too low for you to risk paying an attorney regular fees upfront, then the attorney will draw the same conclusion about her risking not getting paid upfront. Thus contingency fees are almost never an option in (what we call) "low-value claim" cases.

Let's look next at the option of hiring an attorney at normal hourly rates.

Because in our hypothetical scenario, you actually have $1,000 to spend, we'll ignore the question of whether you can afford to spend $1,000. Maybe you're a small business owner, and this contract dispute is with your landlord: you want to terminate the contract early, but he wants to charge you the outstanding balance of $15,000 for the remainder of the lease's term, and he is threatening to keep your security deposit in the amount of $5,000. Of course, there might still be questions of whether you can afford to spend more than $1,000, and we will run into that question right now.

As we've already said, hiring an attorney the old-fashioned way--paying a retainer upfront and a set hourly rate throughout the case--can become really expensive really fast. So in the context of our scenario...

1. there is the question of whether $1,000 would even buy you representation by an attorney under the billable hour model; 
2. and there is also the question of whether your total fee to an attorney under this model would be justified given stakes of only $20,000.

Having handled thousands of these cases over the last decade, I can tell you that most people would begin by considering the second question. Why? Because people are more averse to certain loss than potential gain, even when the value of the potential gain outweighs the certain loss; and paying a $1,000 retainer right upfront, and then committing to an hourly rate on top of that of $250 or more...that is what "certain loss" looks like, because it's gone for sure, whether you eventually win your case or not.

It's called the "loss aversion bias."

Luckily, in our hypothetical scenario, I have stipulated a budget, such that you have no more than $1,000 to spend even if you weren't somehow influenced by this loss aversion bias.

So let's move to consideration of the first question, whether an attorney will represent you if you only have $1,000 to spend. This has two parts. The first is to try to estimate how much work it would take for an attorney to resolve your $20,000 contract dispute case, and then apply some hourly fee to determine whether we fall above or below $1,000.

The chart above comes from a study conducted by the National Center for State Courts. Based on a range of hourly rates from $150 to $600 per hour, it found that the median attorney fees in a contract dispute case well exceed $1,000 in the very first stage of the case ("intake"). During the intake stage, your are simply telling the attorney about the case, she is taking notes, and she is beginning to devise a case strategy. It is a preliminary analysis of the facts and evidence, and involves basically no work that gets you any closer to your goal of resolving your issue. Is it necessary? Absolutely. But does it help you? Only if that attorney then proceeds to subsequent stages, which means that you would have to continue paying for more of your attorney's time.

Across all case types this study surveyed, the bare minimum cost of resolving a case was $1,000, but that was not for a contract dispute case, and that was only if the attorney had to spend no more than 4 hours on the case. Yet the median judgment was only $2,441--at best a 2.4 non-risk-adjusted ROI. This is why 76% of the cases surveyed featured at least one party who did not have representation by an attorney. Do you think an attorney could resolve your (admittedly hypothetical) contract dispute issue in less than 4 hours of work?

The second part is less obvious. Some contracts explicitly say that the losing party in a dispute must pay the prevailing party's attorney fees. If your contract dispute arose from a contract with such a provision, then you might be able to find an attorney who would take your case for the $1,000 retainer upfront and a billable hour along the way, but at a full deferral of the billable hour portion until the case is resolved. Then, if you were to win your case, the other party would have to pay your attorney's fees. Why would an attorney do this? If she thought you had a good chance of winning, then such a provision could theoretically serve as a "blank check" for however large he fees become in the course of handling your case. But it still presents the attorney with a risk that you will not win your case and that no such blank check will be there to cover her exorbitant fees.

Note that if your were to lose, you would still have to pay your own attorney's fees, because this is not a contingency arrangement. So both you and your attorney should thoroughly evaluate your ability to afford whatever total fee your attorney would need to charge to handle your case. Likely, that total amount will exceed your $1,000 budget. For example, the chart below is considered by some to be the predominant method for determining a "fair hourly rate" for the attorney fees a the loser would have to pay for a case heard in the Washington-Baltimore area--could you afford to be the loser who pays those rates when your case only involves a $20,000 stake?

But, just for fun, let's suppose that you did find an attorney to take your case under this arrangement, with full deferral of the billable hour portion until the case is resolved, and that in the end you did win your case. Still, it is up to the court to decide whether the attorney fees you would then ask the losing party to pay were "reasonable." It is a somewhat subjective measure, but there is enough case precedent that we can identify some of the key elements for determining what is reasonable, one of which is "the size of the amount in dispute in relation to the fees requested." So this puts downward pressure on the total fees your attorney could rack up in general, and even more downward pressure when the case pertains to a relatively small sum at stake, as in our case. Would a court find that $10,000 of attorney fees were reasonable on a case only worth $20,000 total? Maybe not.

The last caveat with this second part is that once you and your attorney enter into such a deferred-fee arrangement, your options for settling the case prior to a verdict by the court might be fewer, because you might not qualify as the "prevailing party" under a settlement agreement. The only exception would be if you somehow managed to get the court to treat the settlement agreement as an order of the court, and to specify therein either that you are the prevailing party or that the other party must pay your attorney's fees in any case.

💡 Attorney fees are expensive, and the single largest driver of those fees is time: how much time will they spend on your case? Because the "traditional law firm model," one of upfront retainers and billable hours, has never had any incentive to reduce the time it spends handling a case, it hasn't. Indeed, in the chart below, you can see that the cost of legal services has gone up faster than the relative cost of the the other components of the Consumer Price Index.

And what has been the result? Simple economics. As cost (aka price) has risen, spending on legal services has fallen, as people have opted for more DIY and non-lawyer methods for resolving legal disputes. Nowhere is this more apparent than in the segment of the legal market that Veeto plays in: low-value claims. Because when the price of a lawyer rises, the demand for a lawyer goes down (especially when the stakes of your case are lower).

Conclusion on the billable hour option: not an option for you. That $1,000 is not likely to buy you an attorney for your case.

Now let's look at the option of handling the case yourself, DIY.

Since this option depends more on you than any of the other options (obviously!), I will not be long-winded here. Instead, I would point to one truth. The single largest drive of attorney cost will be the single largest drive of DIY cost: time. But obviously, with DIY, the time is yours. So you have to consider two key questions:

1. How much time can you afford to spend to resolve this issue? 
2. How effective will you be?

Realize that the equation required to answer the first question begins with an evaluation of present trade-offs: if you spend 5 hours arguing with your case opponent, what are the things you would not be able to spend those 5 hours doing? But then it introduces the same element of expected future value that attorneys use when evaluating a case: what are your odds of winning? You multiply those odds--say, 50% if you go the DIY route--by the total value of the case, which is $20,000. So the expected future value of the case becomes $10,000.

For most people, $10,000 is still a lot of money, and a sum you could justify pursuing even if it means trade-offs. But the question is, how sure are you about those odds? Do you really think you have a coin toss's chance to win? If so, then maybe this a good option for you. But more importantly, it may often be your only viable option.

OK, let's look at the final option of using a legal service like Veeto.

And I'll just keep this one to bullet points, because if you want to, you can find plenty of info about Veeto just by kicking around this blog. Veeto is a good option if...

• your case is one Veeto specializes in; 
• Veeto can handle your case for $1,000 or less (to stay on budget);

• Veeto has a strong win rate for cases like yours, with similar fact sets.

Of course, I sort of rigged this game, because the parent category of almost all of the niche case types Veeto specializes in is contract disputes, and we have an 90% or better win rate for all of them (some are even 100%), over more than a decade of cases.

The best part? You can book a call directly with a Veeto expert, and for $30, you can be pretty certain whether Veeto is better than the DIY option in your case.

Fun game, huh?

For real, though, if you have a real case you would like to run by Veeto, hit the button below.