January 12, 2026

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Most practitioners think about contingency fees in terms of risk allocation. No recovery, no fee. Simple. But that framing misses something critical: a contingency fee structure isn’t just a risk management tool—it’s a weapon that fundamentally changes the dynamics of preference litigation.

How contingency fee structures shift leverage from defendants to the estate.

 

The Defendant’s Playbook: Attrition Through Delay

If you’ve prosecuted preference claims, you know the pattern. Defense counsel files motions. They request extensions. They engage in protracted discovery disputes. They schedule depositions that get cancelled and rescheduled.

This isn’t incompetence—it’s strategy.

Every defendant knows that hourly legal fees are a ticking clock for the estate. The longer the case drags on, the more the estate pays its lawyers, and the more pressure builds to settle cheap just to stop the bleeding. For defendants facing substantial preference exposure, attrition through delay is often their best—and sometimes their only—defense.

The math is straightforward. If a defendant can spend $50,000 in legal fees to force the estate to spend $75,000 prosecuting a $200,000 claim, they’ve created powerful incentive for a lowball settlement. Even if the estate would ultimately prevail, the economics of hourly billing make capitulation rational.

How Contingency Flips the Script

Now imagine the same scenario with contingency counsel. The defendant’s legal fees still accrue by the hour. But the estate’s costs? Zero—until there’s a recovery.

Suddenly, every delay tactic that worked against hourly counsel becomes worthless. The defendant can stretch the case out for months, even years, and the estate’s position doesn’t weaken. If anything, it strengthens as the defendant’s own fees mount.

This asymmetry transforms the negotiating dynamic. When defendants realize they can’t win through attrition, they’re forced to engage on the merits. And on the merits, solid preference claims under 11 U.S.C. § 547 are difficult to defend.

Three Advantages of Contingency in Preference Litigation

1. Eliminated Downside Risk. The estate only pays when it gets paid. Cases that settle for nuisance value or get dismissed don’t drain estate resources. In our experience, this protection is especially valuable in cases with uncertain defenses or documentation gaps.

2. Aligned Incentives. Contingency counsel has every reason to maximize recovery as quickly as possible. Unlike hourly attorneys—who have no financial incentive to resolve matters efficiently—contingency counsel’s interests are perfectly aligned with the estate’s.

3. Superior Leverage. When a defendant knows the estate can prosecute claims indefinitely without hourly fee pressure, settlement discussions become more productive. The implicit threat of protracted litigation carries real weight because it costs the estate nothing to follow through.

The Practical Impact

We’ve seen cases where effective avoidance litigation made the difference between a 5% and 40% distribution to unsecured creditors. Those aren’t rounding errors—they’re transformative outcomes for creditors who otherwise would receive almost nothing.

In our experience, defendants who face contingency-funded plaintiffs settle faster and at higher percentages. The data supports this: our average resolution time on preference claims is 40% shorter than industry benchmarks, and our recovery rates consistently exceed 70 cents on the dollar for cases we prosecute.

Simply stated, settling strong claims cheap because of fee pressure isn’t just suboptimal—it’s a failure of the fiduciary duty that defines the trustee’s role under the Bankruptcy Code.