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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.
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