Contingency fees are a useful form of billing that allows clients to afford to pursue an otherwise costly case, even when they do not have the funds to afford court or litigation costs. In short, a contingency fee is a form of billing utilized by attorneys, where the attorneys agree to pay for the costs of a case in exchange for a fixed percentage (usually one third) of the total recovery of the case.
As a client, you are charged no upfront costs and do not pay anything unless the case is successful. Instead, if the case is successful, the attorney will receive their attorney fees as a predetermined percentage out of the settlement or court award for damages from your ultimate recovery. However, some contingency fee agreements may provide for the attorney to receive money for the cost of the litigation in addition to his normal contingency fee.
In order to be valid, contingency fee agreements must be in writing, signed by the client, state the method for how the fee is determined, clarify whether the expenses are deducted before or after the fee is calculated, and explain which expenses the client must pay (sometimes even if they lose the case).
As noted above, the contingency fee will be expressed as a predetermined percentage of the total amount damages received from your overall settlement or court award. The percentage is negotiable, must be reasonable, and will be stated in the attorney-client retainer agreement.
Typically, contingency fees will be around 33%-40% of the final award but they can often be higher or lower based on the value or type of case. Some attorneys utilize a sliding-percentage scale, where the percentage depends on how far the case goes in the litigation process (for example, if the opposing party offers to settle during the process then litigation will end).
For example, an attorney may only take 33% of the total amount of damages recovered if the case settles before they file suit, but may take 40% of the total amount of recovery if the case proceeds to trial. Even though you won’t pay expenses until the case is settled, it is a good idea to keep track of the costs. It is important ask your attorney to send you a bill on a regular basis that details the breakdown of the bill.
Generally, attorneys and clients are given great discretion in negotiating contingency fees within attorney fee agreements. However, if the court finds that a contingency fee agreement is unreasonable or unfair, then the fee agreement may be invalidated or amended by the court.
In addition, an attorney may be subject to court sanctions, probation, or even disbarment if the court finds that the contingency fee percentage was very unreasonable. What constitutes a reasonable contingency rate varies from case to case. The following are some of the factors that court may use to determine if a fee is reasonable:
- The total amount of time the lawyer spent preparing and working on the case;
- The amount of work that the attorney had to turn down due to the obligations and demands of the case in question;
- The typical attorney fees for similar types of case;
- The amount of money in controversy and total amount of damages recovered;
- The experience, reputation, and ability of the lawyer or lawyers performing the services; and/or
- The likelihood of success in the case.
As noted above, contingency fee agreements provide clients with access to legal services they otherwise might not be able to afford. Further, contingency fees provide motivation for an attorney to work diligently on your case, as they are assuming the financial risk of litigation.
The costs of litigation can be substantial and recovery for successful claims may take months or even years to be received. Without contingency fee agreements, many individuals could be precluded from pursuing valid legal claims simply because they don’t have the necessary funds to pay for the costs of litigation.
Often times attorneys who practice in the area of civil litigation typically accept cases that present both clear liability and a means of collecting a judgment or settlement, such as through a defendant’s insurance coverage. However, this also means that attorneys often turn away clients who have a case where liability is not clear or apparent.
Attorneys may also turn away cases where the defendant was uninsured. Further, if a case is considered too risky, due to the liability, or too costly, then an attorney may turn that case down. It is important to note that an attorney is not required by law to take your case.
Contingency fee agreements are typically used in:
- Personal injury cases (such as car accidents, medical malpractice, product liability, or wrongful death);
- Property damage cases;
- Claims against creditors harassing debtors;
- Employment and wage dispute cases;
- Collection of large debts; and
- Class action lawsuits.
Contingency fee agreements are prohibited by law in certain cases. There are some variations between states, but usually contingency fee agreements are prohibited in:
- Criminal cases;
- Immigration cases;
- Bankruptcy cases;
- Drafting contracts, wills, trusts, or other legal documents;
- Registering a trademark, copyright, or patent; and
- Domestic relations cases, such as: divorce or property settlement matters, alimony, or child support (an attorney may utilize a contingency fee agreement in cases of collecting child support that is past due).
Why? In general, courts do not want attorneys to be motivated to go for the largest possible amount based on the fact that they will receive a larger percentage of the outcome. However, for cases like criminal, immigration, bankruptcy, and domestic issues, the outcome isn’t driven by monetary compensation.
For example, for immigration cases the outcome is solely focused on establishing immigration rights for their client. Either by securing a visa, citizenship, stopping deportation, etc. In those situations, money is typically not a factor as far as compensation. So it is not possible to receive a percentage of the outcome if there is no actual financial outcome.
As can be seen, contingency fee agreements can be a valuable tool if you believe you have a strong and clear legal claim, but are not able to pay the costs of litigation upfront.
If you think that you might have a case and would like to know more about a possible contingency fee agreement, then you should consult a well-qualified and licensed civil attorney to evaluate your case and see if a contingency fee agreement is in your best interests.
Make sure you find out their contingency fee structure and ask yourself if you would feel comfortable paying a certain percentage or cut of your monetary compensation after your legal issue is resolved.