Twelve Things Prospective Clients Should Know About Contingency Fee Agreements

  1. Clients should understand what a contingency fee is. Generally defined, in Arizona it is a fee for services provided where the fee is payable only if there is a favorable result for the client. It is usually calculated as a percentage of the client’s gross recovery. The client is usually responsible for the costs of pursuit of the claim (administrative costs, court costs, expert witness costs, etc.), but these are often advanced on behalf of the client by the attorney and recouped at the time of settlement of the case.
  2. Contingency fee agreements can make sense in many cases for both the client and the attorney. A lot of people in our society are not able to afford to pay what they consider to be attorney’s expensive fees (usual hourly fees), but they may well have valid legal claims. Having legal fees and costs assumed by the plaintiff’s attorney in exchange for a percentage of the ultimate verdict or settlement is one way in which they can fund their prospective litigation. Contingency fees also in most instances provide powerful motivation to the attorney to work hard and diligently pursue the client’s interests. The other justification for contingency fee agreements is that the average prospective claimant, if they are attempting to represent their own interests, does not have the legal training or resources to pursue a claim on their own. They usually do not have the knowledge and experience to place a value on their claim or if they are working with an attorney on an hourly fee basis, to be able to evaluate their attorneys worth or ethics in the pursuit of the case. The contingency fee case in many cases can help to instill honesty in their dealings.
  3. There are certain types of cases which lend themselves well to contingency fee agreements. Others do not. They are most commonly used in personal injury and medical malpractice claims. Over the last few decades, use of contingency fees has expanded into other types of cases; commercial collections, business litigation, civil rights claims, employment claims and intellectual property claims. Contingency fee agreements are, of course, not offered in criminal, divorce or bankruptcy proceedings. Most injury cases are handled on a contingent fee ranging from 33% to 35%, plus litigation costs. Medical malpractice cases are usually handled on a 40% basis. Some attorneys will use a sliding scale for the fee which means that if the case is resolved before litigation, the fee may be lower but if the case goes all the way to trial, it will be higher. When choosing an attorney, the fee percentage should be considered, but it is not always the most important consideration. A prospective client should also make inquiry concerning an attorney’s expertise, trial experience and proven results.
  4. Arizona has statutes and Professional Rules of Ethics which prevent attorneys from overreaching in their implementation of contingency fee terms. Regardless of the terms of the agreement, if there appear to be significant injustices to clients in any specific case, a right of review remains to assure fee is ultimately reasonable. A.R.S. 12-568, Matter of Swartz, 141 Ariz. 266, 686 P.2d 1236 (1984) and AZ-ER 1.5(a).With respect to AZ-ER 1.5(a), the Rule out the following factors that are to be considered in gauging the reasonableness of a lawyer’s fee:
  • the time and labor required, the novelty and difficulty of the questions involved, and the skill required to perform the legal service properly;
  • the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
  • the fee customarily charged in the locality for similar legal services;
  • the amount involved and the results obtained;
  • the time limitations imposed by the client or by the circumstances;
  • the nature and length of the professional relationship with the client;
  • the experience, reputation, and ability of the lawyer or lawyers performing the service; and
  • whether the fee is fixed or contingent
  1. The standard fee in most personal injury cases is 33 1/3, In medical malpractice cases, the standard is 40%. There are discount lawyers who charge less, but those contracts often have escalator clauses — 25% if it settles on demand, 30% if a complaint is filed, 40% if the case is tried, 45% if an appeal is taken, etc. Such provisions often create conflicts and even problems. To a large extent, many of the discount attorneys are more interested in turning a profit than fighting for the best interests of their clients. Therefore prospective clients should be cautious of increasing percentage contracts to make sure they are not being played by the attorney to potentially give up more of their recovery than they should. Such fee agreements are clearly ethical and in some cases justified, but their implementation must ultimately be fair.
  1. Any attorney’s decision concerning whether to handle a case on a contingency fee basis should be based on the merits of the case and the overall economic circumstances present in the case. An attorney should evaluate the likelihood of victory on liability issues and determine whether, if successful, the claimed damages justify the economic risks. In many contingency fee cases, clients are asked to pay and even advance costs so that the client has some skin in the game. This also makes the attorney more willing to take risks in representation that he or she might not take otherwise.   It puts some control or limit on the potential financial losses an attorney might take of his or her time and money invested if the case ends up going south. Some of the most dedicated professionals in the legal profession work on contingency fees and show great dedication and perseverance in pursuing their clients’ causes.
  2. If the prospective client is asking the attorney to explore untested legal issues or test out the nuances of existing case law, it will be difficult to get an attorney to consider taking the case on a contingency fee basis. In these types of cases, attorneys generally require the clients pay costs and attorney’s fees on an hourly fee basis as the case proceeds and in many instances require retainer fees in advance of proceeding.
  3. If an attorney agrees to take a case on a contingency fee basis, he or she must keep the client informed of all developments to make sure the claim remains worthy of pursuit. If not, the attorney may help you gain an early dismissal to reduce the risk of the case turning on you. Sometimes if the case starts developing badly, the attorney may decide to file a motion to withdraw. If this occurs, you may want to revisit your decision to proceed. An attorney under most state professional ethics codes is not required to pursue a case in which the client is being unreasonable or is pursuing the case for illegal or improper reasons. In Arizona under the Rules of the Supreme Court, Regulation of Practice, E.R. 1.16 certain rules are set up which can become the basis for an attorney’s withdrawal. If representation is terminated, the attorney must follow certain steps set forth in these rules to make certain the client’s interests are properly protected.
  4. In deciding whether to undertake contingency fee representation in a case, attorneys may be highly selective concerning the character and integrity of the client since both of those qualities will be scrutinized by opposing parties, opposing counsel and ultimately the judge and jury if the case ends up being tried.
  5. Prospective clients should not hire attorneys on a contingency fee basis who are inexperienced in handling the type claim being pursued. This can backfire severely with potential cost assessments or sanctions being levied by the court against the plaintiff, counterclaims being filed and possibly even abuse of process claims being pursued if the case ends up being dismissed for lack of merit or because the attorney is inexperienced.
  6. If you plan to or have retained an attorney to replace a former attorney, make certain you have the new attorney explore whether there are attorney and cost liens outstanding from the former attorney’s representation which could undercut your recovery and that of the current attorney. Your current attorney should also be fully aware of and keep you posted regarding any other liens and their possible effect on the economics of the case.
  7. Any settlements or awards should be paid through your attorney’s trust account in order to ensure accurate accounting regarding your recovery, costs and the attorney’s fees. The best practice is to review a proposed Settlement Breakdown Statement prior to authorizing any proposed settlement to eliminate possible misunderstandings. Paying the settlement through the attorney’s Trust Account will oftentimes avoid unnecessary disputes which could necessitate Bar Complaints or further law suits.

IF YOU HAVE ANY QUESTIONS REGARDING THE ABOVE OR WOULD LIKE TO DISCUSS POSSIBLE CONTINGENCY FEE REPRESENTATION ON A POTENTIAL CLAIM RELATING TO PERSONAL INJURY, MEDICAL MALPRACTICE, BUSINESS LAW, AN IP DISPTUTE OR AN INHERITANCE CLAIM, PLEASE CALL ATTORNEY WILLIAM D. BLACK @ 602 265-2600.  HE WOULD BE HAPPY TO HELP YOU WITH AN INITIAL CONSULTATION, FREE OF CHARGE.

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