Frequently Asked Questions - What is a Contingent Fee?
A contingent fee is a way of paying an attorney for his services based on the outcome of the case. Typically, a contingent fee is based on a percentage of the amount recovered by the attorney. Because a contingent fee is based on a percentage of the recovery, it is suitable for use only in cases in which the relief sought is a money judgment. Contingent fees are most commonly used in personal injury cases and are prohibited for use in domestic relations cases and criminal cases.
It is not uncommon for the contingent fee percentage to vary based on the amount recovered or the stage of the proceeding at which the recovery is obtained. For example, the contingent fee might be set at one-third of any recovery up to $1,000,000 with lesser percentages applicable to recoveries between $1,000,000 and $2,000,000 and over $2,000,000 if the recovery is obtained before an answer or a demand for arbitration is filed. Where the recovery is obtained after an answer or a demand for arbitration has been filed, the percentages might increase to 40% of the first $1,000,000, 30% of amounts between $1,000,000 and $2,000,000, and 20% of amounts in excess of $2,000,000. To illustrate how a contingent fee works, if the contingent fee is one-third and the lawyer eventually recovers $150,000 for his client, his contingent fee is $50,000. The lawyer receives his fee only after he has recovered money for his client and the client has received his share of the recovery. If the lawyer fails to recover anything for the client, the lawyer does not receive anything and the client does not owe any fee to the lawyer.
The advantage to the client of a contingent fee arrangement is that it does not cost the client any money out of the client’s pocket. This can be especially important if the client has been injured and is unable to work. In such a situation, the client can ill afford to use his or her limited resources to pay for legal services, where it may take months or even a year or more to secure a recovery. More importantly, the client is not risking any of his or her remaining funds on the chance that there may be little or no recovery, as could be the case if the other party’s insurance is inadequate or if there are disputed facts as to which person is at fault in the accident.
In the absence of a contingent fee arrangement, a lawyer is often paid based on the time spent by the attorney and an hourly rate that is based on the lawyer’s experience and the area of law involved. However, hourly rates are usually billed monthly and the client is expected to pay the bill within 15 days of receipt. In litigation matters, it is extremely difficult to predict how much time will be required to see a case through to completion, because the amount of time actually required is heavily influenced by how the other side chooses to defend the lawsuit. If the other side chooses to vigorously defend the lawsuit, then the time required to prepare and try the case could be substantial and could easily exceed an amount that the client could realistically afford to pay. Of course, in a contingent fee arrangement, the lawyer is required to provide the services regardless of the amount of time required to complete the case. Thus, the risk of loss (i.e., that the time required to complete the case is disproportionately large in relation to the recovery) is borne by the lawyer and not by the client.
The Florida bar rules governing lawyers’ conduct require that all contingent fees be clearly set forth in writing and must “state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal, litigation, and other expenses to be deducted from the recovery, and whether such expenses are to be deducted before or after the contingent fee is calculated.” The written agreement must be signed by the client and by a lawyer on behalf of the law firm. The client must receive a copy of the signed contract for his or her records. The Florida bar rules also require that a contingent fee agreement include certain required language, including language permitting the client to cancel the contract within three (3) business days of its being signed.
As part of its standard contingent fee agreement, The Trial Professionals also advance the necessary out-of-pocket costs to see a case through to its successful conclusion. For example, there are often costs involved in obtaining medical treatment following the accident. If the client does not have health insurance, the law firm may advance funds to pay for the client’s medical treatment. As the law firm investigates the case, it often incurs charges for medical records and police reports. When a lawsuit is filed, the clerk of the court where the suit is filed charges a filing fee. As additional pleadings are filed in the court record, additional court costs are incurred. As the case proceeds to trial, it is common for each side to take depositions. A deposition is a procedure whereby a party or a witness is examined under oath before a court reporter who compiles a written record of everything that is said at the deposition. In an appropriate case, a video record may be made of the deposition. It is not unusual for a court reporter’s fee to exceed $1,000 for a single deposition. It may also be necessary to engage expert witnesses. For example, a medical expert may be needed to testify as to the medical care required to deal with the client’s injuries, the fact that the client’s injuries were caused by the accident, and to the effects that the client’s injuries will have on the client’s future life experience. An economic expert may be needed to testify as to the effect that the client’s injuries have had on the client’s past earnings (i.e., lost earnings) and as to the effect that the client’s injuries will have on the client’s future earning capacity (i.e., future earnings). In a case involving extremely complex injuries, it may be necessary to hire experts to testify as to the client’s future medical needs and life care expenses. The law firm advances all of these costs and then is reimbursed for these costs out of whatever sums are recovered. These cost reimbursements are in addition to the law firm’s legal fee. However, if nothing is recovered, the law firm is not reimbursed for the costs that it has expanded.
If you have any questions regarding a contingent fee, you are more than welcome to call any of The Trial Professionals’ trial attorneys.