What You Should Know About Contingent Fees
Contingent fee agreements–arrangements that call for a lawyer to receive a percentage of the client’s recovery by way of compensation for legal services–are often criticized, but usually not by the clients who sign them. While early English and American courts disfavored contingency fees, believing that they encouraged litigation, this type of fee arrangement has been recognized and approved by courts for more than a hundred years.
Contingent fee agreements, which are common, if not universal, in personal injury cases, provide important societal and individual benefits. These agreements make quality representation available to even the poorest individuals, and allow them to pursue meritorious claims against individuals, corporations and insurance companies who have enormous resources to fund litigation. They assure the client of the lawyer’s best efforts, by giving the lawyer a financial incentive to achieve the best possible result for the client. And they provide a return to the lawyers who invest their own time and money to pursue what they believe are meritorious claims.
But there is an important benefit to society and the judicial system as well. The practical effect of the contingent fee system is to encourage lawyers to screen cases carefully, and to pursue only those that have merit. The shrill cry of the insurance industry that contingent fee agreements encourage frivolous lawsuits is ridiculous. A lawyer who repeatedly brings baseless claims will soon find himself unable to pay his office expenses.
Indeed, it is the lawyers who are paid by the hour, no matter what the result, who have no incentive to resolve a case or to be concerned with its merits. The longer the case goes, the more they can bill. And if they lose the case for their clients, they still get paid. These are the lawyers who represent corporations and insurance companies.
Most states have special ethical rules that apply to contingent fee agreements. Rule 1.5 of the Massachusetts Rules of Professional Responsibility applies to contingent fee agreements in the Commonwealth. In addition to a requirement that the agreement be in writing, lawyers must be sure the client understands the percentage of the fee, and how case expenses will be paid and reimbursed. The New Hampshire Rule 1.5 and the Rhode Island Rule 1.5 are similar, although less detailed. In some specific types of cases, such as Massachusetts medical malpractice cases and cases brought under the Federal Tort Claims Act, there are separate statutes that limit the amount of a contingent fee.
In addition to paying a percentage of the recovery as a contingent fee, most agreements require reimbursement of any costs that have been paid by the law firm during the case. Many firms will advance all of the costs until the time of settlement or verdict, so that there is no out-of-pocket cost to the client at all.
If you are considering hiring a law firm under a contingent fee agreement, you may want to ask some or all of the following questions:
- Exactly how is the fee calculated?
- Am I required to pay any costs to have my case evaluated?
- What do I owe if you decide not to take my case?
- Am I required to pay any costs during the litigation process?
- What kinds of costs should I expect in my case?
- If there is no recovery in my case, do I owe anything, either for costs or attorney’s fees?
- If I change law firms, what do I owe to your firm?
- What legal work is covered by the fee, and is there anything that isn’t covered?
- What happens if there is an appeal of my case?
It is important to read the agreement carefully, and ask questions until you’re sure you understand all of the terms. If you’re unsure, take the agreement home and read it at your leisure until you’re comfortable with what you’re signing. Once you’ve signed, the lawyer should sign the agreement as well, and give you a copy for your personal files.
Once the agreement is signed, most cases proceed smoothly, and clients are usually satisfied with the result. In a future post, I will describe some of the problems that arise when these agreements are not used correctly.