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What Is a Contingency Fee and Why Does It Matter?

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If you can’t afford a lawyer out-of-pocket, the courts are not necessarily closed to you. Contingency fee arrangements allows anyone to hire a knowledgeable, successful lawyer.

Background of Contingency Fee Lawyers

Why Do Lawyers Cost So Much?

Market forces determine the salaries of all professionals, including lawyers. Attorney fees are high because they are performing highly specialized work. A typical member of the public could not perform the job of an attorney who has years or decades of extensive legal training. Lawyers are able to charge what they do because their work requires specialized knowledge of the law and legal systems, and is in high demand.

Future Attorney Fee Types

 

In theory, our legal system is blind. The law must give the richest and most powerful members of society equal treatment under the law, and afford them no more privilege than the poorest and most vulnerable.

In practice, it is more complicated. The rich and powerful can afford a squadron of the best lawyers who are experts at intimidating ordinary citizens, who have only a fraction of the resources to fight back. This is especially relevant in our own field of personal injury law, where people who were injured through no fault of their own, and want to be compensated fairly for their losses, must wage a legal battle against powerful corporate giants.

While this makes sense, it does not make the situation any easier for those who feel shortchanged by the current system.

If you have suffered a personal injury, you want to hire the best legal representation. Because lawyers are so expensive, you may believe “the best” is beyond your reach. But ordinary people can challenge insurance companies and massive corporations through a contingency fee arrangement.

Contingency Fee Explained

The Contingency Fee Arrangement

The contingency fee arrangement is an alternative payment plan most personal injury lawyers use.

Here’s how it works: when the lawyer takes your case, you don’t have to pay anything out-of-pocket. Your attorney does the work: negotiates with the other parties, drafts legal briefs, speaks to witnesses, hires experts, and even takes the case to court if necessary. You may even receive free medical treatment or cash advances.

Under a contingency fee arrangement, you only pay if you win, and if you lose, you don’t pay a dime.

What’s in it for the attorney? If you win the case, they will take an agreed-upon percentage of your judgment or settlement to cover their legal fees. Typically, this is set at around 33% of the final cash award, although it may be higher if the case goes to trial.

Also, lawyers who operate on a contingency fee basis usually take a high number of cases, and are confident in their ability to win a significant enough percentage of these cases to make a consistent profit.

Contingency fee arrangements give lawyers access to cases they might otherwise be unable to sign. A client who cannot afford a lawyer might have a case with the potential for a substantial award. Lawyers who operate on an hourly basis might miss many of these potentially lucrative cases.

Finally, but not least importantly, some lawyers operate on a contingency fee basis because they are committed to the ideal of equal treatment under the law.

Reza Torkzadeh - LawyerWho Offers Contingency Fee Arrangements?

Contingency fee arrangements are often a wonderful opportunity for the client, but not all lawyers offer them. In some legal fields, it is easy to operate on a contingency fee basis, and in others, it is not workable, or even allowed.

  • Contingency fees are almost universal in the field of personal injury law; they are also common in employment or debt collection law.
  • Other types of law, such as business or family law, don’t use contingency fee arrangements; neither does criminal law, because there is no “award” to be gained.
  • Contingency fee arrangements are typically only used by the plaintiff in a case. It is not usually workable for the defendant to use a contingency fee arrangement, because the lawyer’s job is to keep the client from losing money, rather than to help them recover damages. For a civil defense attorney, there may be nothing from which to draw the contingency fee.

Even lawyers in fields that use contingency fees most commonly will not take every case. Because each contingency fee case is a gamble for the lawyer who takes it, s/he is less likely to take risky cases. Contingency fee lawyers are also more likely to take high value cases.

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What Are the Benefits and Drawbacks of Contingency Fee Arrangements?

Benefits of a Contingency Fee Arrangement

  • The obvious benefit of a contingency fee arrangement is that you pay nothing out-of-pocket. This makes contingency fee lawyers accessible to anyone within our society, at any income level, and helps level the playing field in personal injury law.
  • Because the lawyer’s paycheck in a contingency fee arrangement is directly tied to the size of the settlement, this gives the lawyer a direct financial incentive to obtain the largest possible amount.
  • Contingency fee arrangements also incentivize lawyers to settle cases quickly. Lawyers who are paid by the hour have the perverse incentive to drag the case out.
  • To some clients, one of the best things about a contingency fee arrangement is peace of mind. When you’ve been in an accident, a contingency fee arrangement allows you to not worry about money and focus on recovery.

Drawbacks of a Contingency Fee Arrangement

  • You aren’t receiving free legal representation. If you win, you must still pay your lawyer out of your settlement. In fact, a contingency fee lawyer may cost as much as an hourly lawyer. You may not fully grasp that fact until you receive the final check.
  • Although the contingency fee arrangement will typically cover all attorney’s fees, there may be some additional costs. Know what your agreement does and doesn’t cover.
  • Because each contingency fee case is a significant risk for a lawyer, you might have trouble finding a lawyer if you don’t have a strong case. Every lawyer’s risk assessment will be different, so this doesn’t necessarily prevent you from finding a contingency fee arrangement, but you may need to do a bit of shopping, and or even pay a higher fee.

Retainer fee and contingency fee difference

Other Types of Fee Arrangements

Hourly Rates

An hourly rate is the most common way to pay a lawyer, and the simplest to understand. You simply pay the lawyer a set fee for every hour of work they do on your case. Lawyers may also charge different rates for different work. An hour in court, for instance, might cost more than an hour filing paperwork.

Typically, lawyers charge upwards of $100 an hour. Extremely successful lawyers, who are more likely to resolve your case quickly and favorably, often charge significantly more. Lawyers in high-demand fields, or those in big cities or areas with higher costs of living also tend to charge higher rates. The most expensive lawyers can charge several hundred dollars an hour, or even over a thousand. If you receive a more favorable settlement, though, it may be worth it.

Retainer Fees

Attorneys who operate on an hourly rate request a retainer fee from clients. At the start of the case, the client deposits money in a special account. As the attorney works on the case, he or she uses this retainer fee to pay for the

work they perform. If it runs out, the client can deposit more.

Retainer fees ensure an attorney will have money available to fund their work on the case. In most cases, retainer fees are nonrefundable, which means you won’t get back what you invested into the retainer, even if there is some left over.

However, most state bar associations require that a retainer fee be based on a reasonable estimate of the expected cost of the case. If the attorney charges an unreasonably higher fee than was spent on the case, you might be able to petition for a refund.

Flat Fees

Under a flat fee arrangement, the lawyer charges a specific, upfront fee for taking a certain case or performing a certain task, regardless of how many hours s/he spends on it. As you might imagine, flat fees are reserved for simple, straightforward cases, such as wills or simple bankruptcies, where the attorney knows what to expect in terms of time and effort.

There might be additional costs not covered by the flat fee. As always, know what is covered in your agreement.

Capped Fees

A capped fee arrangement is like an hourly fee arrangement, with one major difference: the attorney and client agree to limit the total fees at a certain amount.

This gives clients a degree of certainty, but it can be risky for lawyers in bigger cases. Capped fee arrangements are typically used where the case’s outcome is predictable. An attorney may also offer a soft cap agreement, which can be altered during the case if specific conditions happen.

Holdback

Under this arrangement, a law firm charges an hourly rate, but the client only pays part of this rate during the case. They pay the rest if they are satisfied with the outcome.

A holdback fee arrangement gives attorneys the certainty of financial reward for taking the case, but also gives them incentive to do excellent work. However, lower-income clients may be unable to afford this arrangement, and it is still a risk for the attorney.

Pro Bono Representation

In rare cases, a lawyer may be willing to represent you for free, or pro bono, which is derived from a Latin term meaning “for the public good.” According to the American Bar Association’s Model Rules of Professional Conduct, every lawyer must perform 50 hours of pro bono work a year. However, most attorneys don’t do pro bono work on a regular basis, simply because like you, they must earn a paycheck. If you want to be represented pro bono, you must find an attorney who is passionate about helping you or your cause, and in a financial position to work for free.

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Other Fees Associated with Hiring an Attorney

Consultation Fee

The consultation is the initial meeting with the lawyer to discuss the basics of your case, and determine if they’ll be able to help you. Most contingency fee lawyers offer a free consultation.

Referral Fee

Many attorneys refer cases to each other, because each attorney’s strengths are different, and lawyers (just like any other professionals) network with each other. When this happens, the attorney who refers the case may charge the second attorney a referral fee. State bar associations set strict guidelines on the practice of offering referral fees, to ensure that lawyers refer cases based on who will give the client the best representation, rather than who can pay the highest fee. You have every right to know if you are referred to a lawyer who is paying a fee, and to choose whether to consent to that agreement.

If you need a lawyer, it’s worth the time and effort to find the fee arrangement that works best for you, as well as an attorney who understands your case and shares your values. Everyone deserves the best legal representation when they need it.

Reza Torkzadeh - California Personal Injury Lawyer

A highly regarded and well-respected trial lawyer, author and speaker, Reza Torkzadeh is the founder and managing attorney of TorkLaw – a premier plaintiff’s personal injury law firm specializing in complex catastrophic injury and wrongful death cases.

Reza’s performance in and out of the courtroom has earned him several of the industry’s top awards and professional recognitions, and a reputation as an elite litigator. He has earned millions in settlements, verdicts, and judgments for his clients.

If you would like a free consultation, please contact us today.

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