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How Do Contingency Fee Arrangements Work?

Many people fear hiring an attorney because they feel they have no way to pay for legal services out of pocket. Of course, attorneys run a business and therefore receive compensation for legal services that they provide. However, in personal injury cases attorneys typically do not require payment from their clients upfront. A lawyer taking a personal injury case usually offers his/her services on a “contingency fee” basis. Ultimately, contingency fees are a way that someone who cannot afford an attorney, but is a victim of a personal injury, can achieve justice and receive the compensation they deserve, without getting the monthly bill that most other types of clients receive.

What is a “Contingency Fee?”

A contingency fee is defined as any fee for services provided where the fee is payable only if there is a favorable result.  Attorney’s fees are paid only after your case is has a judgment or settlement of a monetary recovery.  Essentially, it is a percentage of the amount of the settlement that you would receive if you win your case in court. Whether your case settles outside of court, or if it goes to trial, your attorney’s payment will be “contingent” upon winning the case, and you receiving compensation. While this type of payment arrangement has significant risk for lawyers, they have a greater incentive to get you the highest settlement for your claim as quickly as possible.   Even in a case perceived as being of low risk to lose, to work for up to a year or more, and invest potentially thousands of dollars into a case before getting paid can be a challenging business.  In most cases, there will be some offer available early on, without all the work and delay of litigation.  But you want a lawyer who is willing to wait, do all the hard work and invest in your case if that’s what it takes to maximize your financial recovery.

Costs of Litigation

Every personal injury lawsuit involves costs, which can include the following:

Filing Fees and Court Fees: State and federal courts all require a fee to file the case in court. These fees vary, but a personal injury attorney will generally pay those in advance and will be reimbursed through any contingency fees he/she receives at the end of the case if it is successful.

Discovery: The discovery of evidence can be a lengthy and expensive process. Additionally, part of discovery often includes having parties—the defendant, witnesses, medical experts—testify under oath outside of court in a deposition. Depositions require a court reporter to document everything that is said, which can be used in the court proceedings. A deposition lasting eight hours can easily cost up to $1,000, and lawsuits can oftentimes require several depositions.

Documents: To recover compensation in your personal injury case, you must often obtain certain documents to substantiate your claim. Requesting or issuing a subpoena for documents for medical records, public documents, payroll documents, etc. can add up to hundreds of dollars in expenses.

Expert Witnesses: Depending on the type of personal injury case that is filed, many times expert witnesses are required. This expert is brought to court to offer his/her opinion regarding the case, and the court will oftentimes rely on the expertise provided by this witness.   Expert witness fees are often the largest part of all the costs.  You want a lawyer who will hire the experts your case needs, but who will also strive to keep costs proportionate to your case’s value, so that you still have a good outcome after all the costs and fees are paid.

Miscellaneous: Court cases can be expensive endeavors. From copying and postage, to document production and driving to visit witnesses, costs can add up quickly.

Advantages of Contingency Fees

There are many advantages to hiring an attorney under a contingency arrangement.  You do not need to pay the attorney, but rather they will collect their fees from your awarded damages in a lawsuit.  An attorney is also incentivized to work diligently on a case where they will only get paid if they win.  If you lose your case, you typically do not pay your attorney for the work that has been done.  Depending on your particular contingency arrangement, there are many advantages to agreeing to this type of fee agreement with your lawyer.

Potential Disadvantages of Contingency Fees

There are a few potential disadvantages to a contingency fee agreement. In some cases, you may end up paying the attorney more than what his/her hourly fee was if the claim you win has a substantial monetary result in your favor.   If you can afford to hire a  lawyer by the hour, and are confident that you have a successful, high-value case, you may be interested in an hourly billing arrangement instead.  However, cases resulting in a large settlement or award typically require many hours of preparation, so you need to have a clear understanding of what you are getting into before choosing hourly billing.

Contingency Fee Rates

Any attorney can decide to take a contingency fee, except for cases involving criminal trials, which do not allow this payment arrangement. Other than that scenario, there is no straightforward answer regarding how much an attorney will take as a contingency fee. While all fees are disclosed and agreed upon in advance, the exact percentage typically takes into account the complexity and risk of the case.  The more complex or challenging a case is, the higher the contingency fee percentage your attorney is likely to charge.

Contingency Fee Agreement

Always carefully read a contingency fee agreement, and have your attorney explain any and all small fees for which you may be responsible. Ask about any terms that you do not understand. Ask if the percentage owed to the attorney will fluctuate depending on how far the legal case goes towards litigation.  Most injury attorneys have two rates: one-third if the case settles before progressing to a certain point before a trial or arbitration date, and 40% thereafter.  When this happens, the amount of work goes up a lot, much more than the proportionate increase in fees.  Since most injury attorneys charge these same rates, the primary decision you have to make is which attorney to charge, but you should not be charged more.  And, you should look carefully at what event causes the fees to increase.  Some injury fee agreements provide that a case can be significantly litigated before going up to the higher percentage.

Request all information regarding what would happen if you lose your case. Would you be responsible for the costs incurred by the attorney if a judgment is not awarded in your favor? Ask how the accounting will be done as the case moves forward, and request to be updated periodically regarding the expenses incurred on behalf of your claim. Additionally, you should of course keep a copy of the contingency fee agreement for your records.

Contact an Attorney

If you have been injured by the negligence of another person, the lawyers at Callaway & Wolf are here to help. Our consultations are free, and we work on a contingency fee basis. Contact us today at 415-541-0300 to schedule an appointment in our San Francisco or Oakland office to learn more about how our experienced attorneys can help you recover the compensation you deserve.

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