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Prof Responsibility • Financial Duties
PR#013
Legal Definition
A contingency fee is a form of payment to a lawyer for their legal services. In contrast to a fixed hourly fee, in a contingent fee arrangement lawyers receive a percentage of the monetary amount that their client receives when they win or settle the case.
Plain English Explanation
Contingency fees are a unique payment system in the legal world that can be a game-changer for many people seeking justice. Unlike the traditional method where lawyers charge by the hour, contingency fees tie the lawyer's payment directly to the outcome of the case.
Here's how it works: if you win your case or settle it favorably, your lawyer gets a percentage of that money. If you lose, your lawyer doesn't get paid for their time and effort. It's a bit like the lawyer betting on your case – they only win if you do.
This system opens up legal representation to people who might not be able to afford a lawyer otherwise. It's particularly common in personal injury cases, where someone hurt in an accident might not have the money to pay a lawyer upfront but could pay from their settlement if they win.
Contingency fees also align the lawyer's interests with the client's. The lawyer is motivated to win the case and get the highest possible settlement or verdict because their pay depends on it. It can be a powerful motivator.
However, it's important to note that contingency fees are usually higher than standard hourly rates. This is because the lawyer is taking on the risk of not being paid at all if the case is unsuccessful. The exact percentage can vary, but it's often around 30-40% of the amount recovered.
This payment method isn't allowed in all types of cases. For example, it's generally not permitted in criminal defense or certain types of family law cases.
Here's how it works: if you win your case or settle it favorably, your lawyer gets a percentage of that money. If you lose, your lawyer doesn't get paid for their time and effort. It's a bit like the lawyer betting on your case – they only win if you do.
This system opens up legal representation to people who might not be able to afford a lawyer otherwise. It's particularly common in personal injury cases, where someone hurt in an accident might not have the money to pay a lawyer upfront but could pay from their settlement if they win.
Contingency fees also align the lawyer's interests with the client's. The lawyer is motivated to win the case and get the highest possible settlement or verdict because their pay depends on it. It can be a powerful motivator.
However, it's important to note that contingency fees are usually higher than standard hourly rates. This is because the lawyer is taking on the risk of not being paid at all if the case is unsuccessful. The exact percentage can vary, but it's often around 30-40% of the amount recovered.
This payment method isn't allowed in all types of cases. For example, it's generally not permitted in criminal defense or certain types of family law cases.
Hypothetical
Hypo 1: Sam is injured in a car accident caused by a distracted driver. He wants to sue for damages but can't afford the upfront costs of hiring a lawyer. Bob, a personal injury attorney, offers to take Sam's case on a contingency fee basis, agreeing to receive 33% of any settlement or court award. After months of negotiation, Bob secures a $90,000 settlement for Sam. Result: This is a classic example of how contingency fees work. Bob would receive $29,700 (33% of $90,000) as his fee, while Sam would keep the remaining $60,300.
Hypo 2: Sam, a small business owner, believes a former employee stole trade secrets. He approaches Bob, a business litigation attorney, about suing the ex-employee. Sam is cash-strapped due to recent business losses. Bob agrees to take the case on a 40% contingency fee basis. After a year-long legal battle, they lose the case. Result: In this scenario, despite all the time and effort Bob put into the case, he receives no payment for his services because they didn't win. Bob gets nothing.
Hypo 3: Sam is going through a difficult divorce and wants to hire Bob to represent him. Sam suggests a contingency fee arrangement where Bob would get a percentage of any alimony or property settlement. Bob explains that contingency fees are not allowed in divorce cases in their state. Result: Bob is correct to refuse this arrangement. Contingency fees are generally prohibited in domestic relations cases to avoid incentivizing lawyers to discourage <reconciliation> or to fight for a larger settlement when it might not be in the family's best interest.
Hypo 4: Sam invents a new type of smartphone accessory and wants to patent it. He approaches Bob, a patent attorney, about filing a patent application. Sam proposes a contingency fee where Bob would get a percentage of future profits from the invention if the patent is granted. Bob declines, explaining that patent prosecution work is typically billed hourly or at a flat rate. Result: Bob's response is appropriate. Contingency fees are uncommon in patent prosecution because the outcome (whether a patent is granted) doesn't directly result in a monetary award from which the lawyer could take a percentage.
Hypo 5: Sam is charged with drunk driving and faces potential jail time. He asks Bob, a criminal defense attorney, to represent him on a contingency basis, offering a percentage of his salary if he avoids jail time. Bob refuses, explaining that contingency fees are not allowed in criminal cases. Result: In criminal cases, contingency fees are not permitted because they could incentivize unethical behavior (like encouraging clients to lie) and because the outcome of a criminal case doesn't result in a monetary award from which a contingency fee could be paid. Bob is ethically bound to refuse this arrangement, regardless of Sam's ability to pay.
Hypo 2: Sam, a small business owner, believes a former employee stole trade secrets. He approaches Bob, a business litigation attorney, about suing the ex-employee. Sam is cash-strapped due to recent business losses. Bob agrees to take the case on a 40% contingency fee basis. After a year-long legal battle, they lose the case. Result: In this scenario, despite all the time and effort Bob put into the case, he receives no payment for his services because they didn't win. Bob gets nothing.
Hypo 3: Sam is going through a difficult divorce and wants to hire Bob to represent him. Sam suggests a contingency fee arrangement where Bob would get a percentage of any alimony or property settlement. Bob explains that contingency fees are not allowed in divorce cases in their state. Result: Bob is correct to refuse this arrangement. Contingency fees are generally prohibited in domestic relations cases to avoid incentivizing lawyers to discourage <reconciliation> or to fight for a larger settlement when it might not be in the family's best interest.
Hypo 4: Sam invents a new type of smartphone accessory and wants to patent it. He approaches Bob, a patent attorney, about filing a patent application. Sam proposes a contingency fee where Bob would get a percentage of future profits from the invention if the patent is granted. Bob declines, explaining that patent prosecution work is typically billed hourly or at a flat rate. Result: Bob's response is appropriate. Contingency fees are uncommon in patent prosecution because the outcome (whether a patent is granted) doesn't directly result in a monetary award from which the lawyer could take a percentage.
Hypo 5: Sam is charged with drunk driving and faces potential jail time. He asks Bob, a criminal defense attorney, to represent him on a contingency basis, offering a percentage of his salary if he avoids jail time. Bob refuses, explaining that contingency fees are not allowed in criminal cases. Result: In criminal cases, contingency fees are not permitted because they could incentivize unethical behavior (like encouraging clients to lie) and because the outcome of a criminal case doesn't result in a monetary award from which a contingency fee could be paid. Bob is ethically bound to refuse this arrangement, regardless of Sam's ability to pay.
Visual Aids
Related Concepts
How and when must a lawyer determine fee arrangements with a new client?
How does California rule on fee splitting differ from the ABA?
How may a contingent fee be calculated?
In California, how and when must a lawyer determine fee arrangements with a new client?
In California, what constitutes "reasonable fees"?
Under the ABA, which types of cases are prohibited from contingent fee arrangements?
What constitutes "reasonable fees"?
What is required to fee split with another lawyer not in their firm?
What must a contingent fee offer warn the client of, and how?
