The Contingency Fee Contract

So many times, you hear personal injury attorneys use the phrase “No Fees Unless You Collect.” or, “No Attorney Fees until You Recover.”  But what does this really mean?  What is being described is an attorney contingency fee contract, and here is how is works….

How a Contingency Fee Contract works.

The typical contingency fee contract works just like it says it does:  The attorney fees are contingent, or conditioned, upon there being a recovery in your case.  If there is no recovery, then there is no fee owed to the attorney.  Said another way, the attorney gets paid if, and when, you get paid.

The fee is usually calculated as a percentage of what is recovered.  For instance, typical personal injury attorney in Dallas, (as well as most other places) typically charges is 33.33%, or one-third (1/3), of the amount that is recovered on the case.  For example, if the case settles for $60,000, then the attorney’s fees are 1/3, or $20,000.

Sometimes, the percentage can increase.  For instance, some attorney will charge up to 40% and 45% if a lawsuit has to be filed or if the case goes to trial.  Some attorneys even go as high as 50% if there is an appeal.

What About the Case Expenses?

Generally, case expenses are collected separately from the attorney’s fees.  Using the example above, if the attorney spends $200 in expenses, then the attorney would collect $20,200 ($20,000 in fees and $200 for reimbursement of case expenses).

The Texas State Bar rules require that the contract between the attorney and client specify and describe which case expenses are to be reimbursed by the attorney.

The usual expenses in a personal injury case include things like postage, medical records fees, and public records fees (such as obtaining police reports).  If a lawsuit has to be filed, then then expenses can go up significantly.  That is because the attorney has to pay litigation expenses like court filing fees, depositions, mediation fees, and expert witness fees.

Be sure to ask your attorney what kind of expenses can be anticipated in your case.

Pros and Cons of a Contingency Fee Contract.

The main advantage of a contingency fee contract is that you are not obligated to pay any attorneys fees until the case settles or there is some sort of monetary recovery.  Most people cannot afford to pay an attorney on an hourly basis.  Thus, s contingency fee contract gives the client an opportunity to retain an attorney.  Additionally, the attorney will be personally invested in your case and will have the incentive to strive for the most favorable outcome.

The only real disadvantage to a contingency fee contract goes to the attorney.  If there is no recovery, then the attorney may put in a lot of of time and money into a case only to get nothing out of it.  But that’s the risk everyone takes at the very beginning.

Recent Criticisms of Contingency Fee Contracts.

Many tort reformist have attempted to put restrictions on contingency fee contracts and have even tried to eliminate them altogether.  They reason that contingency fee contracts encourage frivolous suits and create conflicts of interests between the attorney and client.

Rather, the opposite is true.  Why would an attorney invest their own time and money into a case if it were frivolous.  Additionally, how could there be any conflict of interest between the attorney and client when their common interest is to achieve the most favorable outcome in the case.

In reality, it is my humble opinion that hourly fee contracts create these problems and not contingency fee contracts.  If an attorney is getting paid by the hour, then there is no incentive for the attorney to properly review the case or obtain a favorable outcome.  In essence, the financial incentive for the hourly attorney is to bill as many hours as possible.  Therefore, the more cases they can sign up and bill, the more money the hourly attorney gets regardless of the outcome of the case.

Things to Watch for in Contingency Fee Contracts.

The most important thing to be aware of is the percentage being charged  by the attorney.  The usual rate for a personal injury attorney in the Dallas and Fort Worth area is 1/3.  Another thing to look for is whether the rate goes up after a suit is filed.  This is also customary, but sometimes the percentage can go as high a 45% and 50%.

The percentages are not written in stone and can be negotiated.

Another thing to watch out for is what expenses are being reimbursed.  My contract only provides that only direct expenses are to be reimbursed.  There are attorneys who will charge for more indirect expenses such as copies, faxes, and even envelopes.  Likewise, I only get reimbursed for actual expenses paid on the file and not expenses for office over-head or general business expenses.