As the values of transactions in the cannabis industry grow, commercial litigation is certain to follow. One reason for this is that lawyers may be more inclined to represent clients on a contingency fee basis. Where the value of a cannabis transaction is small, the expense of litigation may not be worthwhile for an individual or business feeling cheated, and any settlement or judgment would likely not cover the costs of an attorneys’ contingency fee. However, where the value of a cannabis transaction is sufficiently high, say the upper six-figures or more, a lawyer may be more inclined to take the case for a contingency fee because the lawyer’s percentage of any recovery is likely to be greater than the costs the lawyer will incur in litigating the matter. A contingency fee arrangement may also be utilized to the advantage of a party that believes threatened or actual litigation might shift the leverage in negotiations and result in more attractive commercial terms.
A recently filed action captioned Silver v. High Street Capital et al., 2:18-cv-00020 (E.D. PA. 1/3/18), appears to result from the type of high value transaction that might warrant a contingency fee in a commercial litigation. The plaintiff, industry consultant Harris Silver alleges that, in connection with their bid to obtain a license to grow and process cannabis pursuant to Pennsylvania’s Medical Marijuana Program, defendant High Street Capital and other defendants associated with High Street promised Silver a lucrative compensation package, including (a) $180,000 to prepare the license application; (b) a $150,000 cash bonus upon the granting of a license and a 4% non-dilutable equity stake in any licensee; and (c) a salaried position with the licensee. Silver claims that notwithstanding his work on the High Street application, for which a permit was granted, the High Street defendants never paid Silver the valuable consideration that was contingent on the permit being granted. Thus, based on a host of factual allegations detailing various communications he had with the High Street defendants, and other allegations detailing his efforts on their behalf, Harris asserted claims against the High Street defendants for breach of contract, common law fraud, promissory estoppel, unjust enrichment, securities fraud and civil conspiracy.
Although it is unknown whether Silver’s counsel has taken this case on a contingency basis, it seems likely given the values at stake and the fact that Silver is taking on well-resourced defendants. While the litigation will be expensive, especially if the High Street defendants fight it out to the bitter end, Silver’s 4% equity stake in the High Street defendants’ licensee could be worth millions of dollars, and thus a contingency fee would likely cover his lawyer’s litigation costs and then some. If an early settlement can be achieved, Silver’s lawyer might profit even more.
As an experienced commercial litigator who has represented clients on both sides of commercial litigation where the plaintiff’s lawyer is being paid a contingency fee, I see the Silver case as another example of the transformation of the cannabis industry from hippiedom to Wall Street. The growth of the cannabis space into an industry like any other, and the excitement of seven-, eight- and even nine-figure cannabis transactions, comes with some economic realities that are less than utopian; one of which is that simply walking away from such a high-value deal feeling empty-handed, cheated or duped will be harder to do, and another of which is that litigation may be more likely because a lawyer may be willing to absorb the cost of litigation in the hopes of being paid a significant percentage of any recovery obtained.