Contingency Fee Agreements
Many personal injury lawyers advertise “no recovery, no legal fees” – learn the truth about contingency fees and contingency fee cases. Answer your questions about the purpose, rules and limits of the collection of contingency fees.
What is a contingency fee agreement?
- A “Contingent fee” is a method of paying a lawyer a percentage of whatever you collect in a case
- “Contingent” means an attorney only collects if there is recovery for the client, typically a settlement or jury award. If nothing is recovered for the client, no fees are paid to the attorney.
- Contingent fee litigation is not risk-free. Expenses, such as expert witness fees or copying charges for medical records, travel, depositions, investigations, court fees, are commonly included in addition to your contingent fee arrangement.
- Before entering into a contingent fee agreement, your attorney should provide you with a disclosure statement and fee agreement which, together, detail the specifics of the contingent fee, the manner in which other litigation costs will be handled and alternative fee arrangements which are available.
A “Contingent fee” is a method of paying a lawyer a percentage of whatever you collect in a case. Contingent fee arrangements in civil cases have long been commonly accepted in the United States in proceedings to enforce claims. While a lawyer, Abraham Lincoln handled many claims on contingency, and even advertised his services. A contingent fee agreement may be the only practical means by which an individual or a family, with claims can afford to obtain the services of a competent lawyer. The contingent fee is often viewed as the key to the courthouse for the ordinary person, the family bankrupted by medical bills, the grieving widow or widower and orphans, broken-hearted parents whose children have been catastrophically harmed.
“Contingent” means an attorney only collects if there is recovery for the client, typically a settlement or jury award. If nothing is recovered for the client, no fees are paid to the attorney. The attorney is compensated for the legal work performed by taking a certain agreed percentage or amount from the recovery, regardless of the time or effort involved. However, there are many forms of contingent fee agreements, and it’s important to know the basics.
Contingent fee litigation is not risk-free. Expenses, such as expert witness fees or copying charges for medical records, travel, depositions, investigations, court fees, are commonly included besides a contingent fee arrangement. Sometimes, where fair, these expenses are paid by the client regardless of the outcome. Depending on the case, expenses can be very nominal. In other cases, expenses can run into tens or hundreds of thousands of dollars. The cost-benefit of fees and costs must be evaluated by you and your attorney.
Colorado’s Rules Governing Contingent Fees provide several mandatory elements which must appear in contingent fee agreements and the accompanying disclosures. Before entering into a contingent fee agreement, your attorney should provide you with a disclosure statement and fee agreement which, together, detail the specifics of the contingent fee, the manner in which other litigation costs will be handled and alternative fee arrangements which are available.
There are several types of attorney fee arrangements:
- Time based fee
- "Time based" means, a fee determined by the time involved such as so much per hour, day or week.
- Fixed fee
- "Fixed" means a fee based on an agreed amount regardless of the time or effort involved or the result obtained.
- Contingent fee
- "Contingent" means a certain agreed percentage or amount that is payable only upon attaining a recovery regardless of the time or effort involved.
There are several key points to elements of a contingent fee agreement and about which you are required in Colorado to be informed. First is the hourly rate of the law firm; typically, its best that the firm set out what its actual hourly rate is so you could figure if its more sensible to hire the lawyer hourly. If you agree to pay by the time, the work-piece, or on a fixed rate, then you need to pay the lawyer per the agreement no matter if you are winning or losing your case. These days, most people who interview or ask for a proposed fee agreement for personal injury, wrongful death, work accidents, workers’ compensation, etc., ask for a contingent fee agreement because paying hourly rates to an attorney is impossible.
The fee agreement also needs to address the question of any award of fees made in the case – who gets them, how they are credited; and in a bad situation, who pays them when they are awarded against you and the circumstances about which when they could be awarded (for instance if a case is dismissed outright) must be disclosed.
How costs are recovered from a settlement
By far, the most confusion occurs around the costs incurred and to be taken from the settlement. Primarily whether the costs come off the top before or after the calculation of the attorneys’ fees. The papers your lawyer gives you should clearly define the costs, give you an estimate as to what the costs will entail, get a signature from you as to the costs’ authority in the case, and explain if you are going to be paying costs as they are incurred, or if the costs will be advanced by the lawyer. In some cases, lawyers will offer “costs contingent” fee agreements that make the fees and the costs payable only if the case settles and pays or is won. The fee agreement must be clear if the contingency is paid on the gross settlement or if it is to be applied on a calculated net of the settlement. The key variables on “net” or “gross” are the costs, any medical, or insurance reimbursement out of the settlement.
Finally, the contingent fee agreement must also be crystal clear on the amount of the contingency, no matter if it is on the gross or the net. The fees can progress or “stair-case” through the life of the case and increase based on when and how the case concludes. For instance, it is not uncommon to charge in a complicated or high-risk case the amounts of 35% of gross if the case settles prior to litigation, 40% of gross if the case progresses into litigation, and 45% of gross for trials and appeals. Usually, lawyer and client can agree on any number of factors based upon the complexity of the case, the reputation and experience of the lawyer, the time involved, the result achieved, and the skill required.
On the other hand, in a Federal Tort Case (“FTCA”) such as if you are run down by an employee of USPS or a V.A. doctor commits malpractice, federal law limits fees to 20% of a pre-litigation settlement, and 25% of a case filed and heard before a Federal Judge or Magistrate.
Lawyers may also charge contingency fees, or for contingent court awarded fees, in cases involving employment or age discrimination, civil rights cases, and fraud, commercial or malpractice cases.
Contingent fees are not permitted in criminal cases. Contingent fees are impermissible in domestic cases except in connection with the collection of a final court ordered judgment for money.
Often, such as in pattern litigation for product liability, or class actions, fees need to be established and approved by the court.
Subrogation after settlement
Businesses, insurance plans or government entities may have a subrogation right in what you recover in pursuing your claim. "Subrogation" means the right to be paid back. You need to understand that the subrogation right may arise in various ways such as when an insurer or a federal or state agency pays money to or on behalf of a claiming party in situations such as an Employer funded or partially funded ERISA plan, Medicare, Medicaid, workers compensation medical, private or employer paid for health insurance, no-fault insurance, uninsured or underinsured motorist insurance, and other reimbursement situations. A hospital, physician or an attorney may assert a "lien" (a priority right) or you may agree to “treat on a lien” to obtain care and secure payment for the treatment by agreeing that the provider has a claim to your settlement. Subrogation rights and liens need to be considered and provided for in the fee agreement you reach with your attorney. The fee agreement should tell you whether the subrogation right or lien is being paid by your attorney out of the proceeds of the recovery made on your behalf and whether the fee you must pay your attorney will be based on the recovery before or after payment of the subrogation right or lien.
You may terminate the employment of your attorney or your attorney may withdraw. If the lawyer justifiably withdraws or is fired and replaced, you may nevertheless be obligated to pay your attorney based on a fairness or quantum meruit evaluation, from the ultimate settlement, for the work done by your attorney on your behalf. The fee agreement should contain a provision stating how such alternative compensation will be handled.
Where the primary client is a child, or the client has a mental disability, or is under the court order for a guardian or conservator, the parents/or guardian/conservator must seek probate court approval to protect the child/protected person. Typically, absent evidence of over-reaching, or a conflict arising between counsel and client, the probate court will approve the settlement and the fees agreed upon; however, the parents/guardian or conservator must understand that the benefit of the settlement must go to the child or protected person and that trusts or supervised administration may be in order to fully protect the child/protected person.
We typically include in our agreement that we will make no compromise or settlement of your claim without your approval. Whenever an offer of settlement is made to you, we will inform you and make our recommendations. Our recommendations are not binding upon you.
Ethics in action
In this world, only the worst lawyers seem publicized. Every attorney is an officer of the court. Although we will represent your interests within the bounds of the law, and have fiduciary duties to you, we nonetheless have predominant duties relating to ethical and honest behavior owed to the courts and the general public, under our oath. By signing pleadings filed, each attorney certifies that he or she has read the pleading; that to the best of the attorney's knowledge, information and belief, the matters set forth in the pleading are well grounded and warranted by existing law, or a good faith argument for the extension, modification or reversal of existing law; and that no matter set forth in the pleading is interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.
In your relationship with your lawyer, it’s fair to discuss strongly felt feelings, but you must not request your lawyer to take any unethical action.
No lawyer may make a promise for the success of your claim and what you will collect, if anything.
Any contract needs to manage the worst circumstances. But most contingent fee cases do come out for the best. At closing the case, you should be handed a complete financial history of the case, usually in a document called a Disbursement Statement. The final terms of the settlement, how reimbursement or medical liens are to be paid out, the precise amount paid for fees and costs, and the net disbursement to you. These cases typically will settle by a settlement check being traded for a settlement agreement and release. The settlement check is deposited to the lawyer’s fiduciary or “trust” account. Checks (or e-transfers) are then made. Typically, damages paid for personal injuries are not taxable. Sometimes, a tax can be incurred if a transaction is misunderstood as a forgiveness on a debt, or if a large tax deduction has previously been taken for recovered medical expenses.