What is a Contingency Fee?
A contingency fee is just like it sounds. It is a fee that is paid contingent upon money being awarded. If no money is obtained by the lawyer in the case, then the client does not owe the lawyer a fee. If a monetary award is obtained, either through settlement or verdict, the lawyer gets a percentage of the total recovery.
The amount a lawyer can charge for a contingency fee is generally not regulated by law. There are some limited exceptions to this rule, including worker’s compensation claims or claims brought under certain federal laws like the Federal Tort Claims Act. However, because of competition, contingency fees are very uniform throughout the country. Usually, the more complex time consuming cases which require the expenditure of considerable costs by the lawyer will exact higher contingency fees. If the lawyer must risk substantial sums of money on risky cases, he will charge a higher contingency fee.
Also, if the case involves a trial or appeal, the contingency fee may be increased. In general, non complicated cases which do not involve the expenditure of significant costs may bring contingency fees of 33 1/3 of the total recovery. If the case goes to trial that fee may increase to 40 %. If an appeal is involved, it may increase further. Medical malpractice cases, products liability cases and other complicated and expensive cases may start with a contingency fee of 40% and rise if a trial or appeal is involved.
The reason these fees are related to the amount of the costs expended in the case is usually because the client will not have to pay back any costs expended by the lawyer during the case if the case is lost. In medical malpractice and products cases, these expenses may amount to more than $100,000. That is a lot of money to risk on one case. Thus, the fee, which is contingent upon the outcome, must reflect that risk.
Some lawyers require the repayment of costs expended in the case if the case is lost. In such situations, it may be prudent for the lawyer to charge less of a contingency fee since his risk of loss is lessened. Some lawyers may charge one flat contingency fee regardless of whether the case involves a trial or settlement or appeal. In such instances, that fee may be slightly higher to compensate for those more expensive cases that do go to trial or appeal.
A common question raised by clients is whether the contingency fee is calculated on the total amount recovered or is it calculated on the total amount after the expenses have been deducted from the total. The answer in the majority of cases is that the contingency fee is calculated on the total amount recovered. If the costs in the case came out of the lawyer’s fee, expensive cases would pay the lawyer little or no fee for his time. Since a lawyer’s time and expertise are his trade, his compensation must be tied to those factors.
Moreover, if the costs came out of the lawyer’s portion of the recovery, a conflict of interest would arise because the lawyer would never want to spend the money necessary to properly work up and try the case since those costs would reduce his recovery. This is considered a fair arrangement since the client owes the lawyer nothing if the case is lost and the expenditures are high.
Finally, even if a contingency contract is agreed upon by the lawyer and the client, the client should be aware that if the case is lost and the court awards the costs of the prevailing party against the losing party, the client, not the lawyer may be responsible for those costs. Some lawyers do not clearly address this with their clients at the beginning of the relationship. However, the prevailing party is usually so happy to have won the case, and as a matter of professional courtesy, do not ask the court to award their costs against the losing party. This is an issue which should be addressed with the attorney before a contract is executed.