Client: Since I’m the plaintiff in this case, you're handling the lawsuit for me on a 100% contingency basis, right?
Attorney: Yes. You won’t have to pay any of my legal fees for handling the case unless and until we recover either settlement money or money damages at trial from your opponent. You will have to pay all costs and expenses in the case, however, because those are different than legal fees.
C: What do you mean by “recover” settlement money?
A: Your opponent, the defendant, has an insurance company standing behind her in this lawsuit that will pay for any settlement with us. If we “recover” settlement money, it means her insurance company will give us a check in a negotiated amount in return for us signing a settlement agreement with your opponent dismissing our lawsuit against her.
C: Who gets the check?
A: The insurance company’s check will be made jointly payable to both you and my law firm. We will both endorse the check. I will then deposit it into my law firm’s client trust bank account, and then we’ll divide up the money according to what my attorney retainer agreement says each of us gets.
C: What if we go to trial against my opponent and win? How would we “recover” in that situation?
A: We would have to wait longer to see any money. If we win at trial, the court will issue a money judgment in our favor. But even if we win, some defendants keep fighting by filing what are called “post-trial” motions. For example, the defendant might ask the court to grant them a new trial, or to change the jury’s verdict, or to reduce the amount of money awarded to us. If they lose all their post-trial motions, they’d still have the right to file an appeal of the money judgment. Usually nothing gets paid to us until all the legal maneuverings are over, once and for all. Honestly, it could take an extra year or two.
C: But all of those post-trial motions and appeals could be totally frivolous. Do I get compensated for having to wait so long for my money?
A: Yes, in the end the defendant has to pay us “post-judgment interest,” starting from the date that the judgment is issued, for as long as they make us wait. That can add up to a lot of extra money in interest if we get a big money judgment at trial. So the meter is running against the defendant who tries to delay final payment.
C: Let’s go back to what your retainer agreement says about dividing up the money between us. Where do we start?
A: There are several steps involved. As step one, the retainer agreement says that all of the costs and expenses in the case first have to be paid off the top of the settlement money. Costs and expenses include items like photocopying, messenger services, court filing fees, expert witness fees, court reporter fees, to name just a few. My office manager is preparing an itemized report of all the costs and expenses in this case.
C: Do you calculate your percentage contingency fee on the amount of money in the pot before or after all costs and expenses have been deducted?
A: After. It’s a smaller pot of money that way, but my approach ends up being a better deal for you, the client.
C: Do all contingency attorneys take their costs and expenses off the top before they calculate their percentage fee?
A: No, and it was smart of you to ask me about that up front, before you signed my retainer agreement. Some attorneys do just the opposite of me. For example, let’s say the plaintiff’s total recovery in the case is $1 million, and the attorney gets a 40% contingency fee. Some attorneys will first multiply that 40% by the total amount recovered of $1 million, and come up with a $400,000 fee for themselves. Assume the costs and expenses are $50,000. They would take all $50,00 in costs and expenses off the top, then another $400,000 for their fee, and leave $550,000 for the client.
C: But the way you’re calculating your contingency fee here is a better deal for me, right?
A: Yes. In my example, let’s say the attorney took their $50,000 in costs and expenses off the top. That would leave a net amount of $950,000. If they then multiplied their 40% fee by $950,000, instead of by $1 million, their fee would only be $380,000, instead of $400,000. That would put another $20,000 in the client’s pocket. Enough to buy a new car, for instance.
C: You could have sent me a legal bill each month showing the costs and expenses, and made me pay them myself on an ongoing basis, couldn’t you? You didn’t need to wait until the end.
A: That’s right. Some attorneys bill their clients for the costs and expenses in the case as they go along. The client gets a legal bill each month. There are no legal fees in the legal bill, because the attorney is working on a contingency basis. But the costs and expenses are listed in the bill. The client has to send a check for them to their attorney each month. If that happens, they don’t get deducted from the recovery at the end of the case. They’ve already been paid by then.
C: Why didn’t you do that with me?
A: Because you told me in the beginning that it would be hard for you to pay costs and expenses each month. The total costs and expenses in this case are going to add up to many thousands of dollars. So I decided instead to “advance” the costs and expenses myself, then get reimbursed for them out of the settlement money.
C: Once the costs and expenses are reimbursed to you, what’s the next step?
A: We refer back to the contingency fee amount shown in the retainer agreement. You’ll recall back when we first talked about the retainer agreement together, that I planned to charge you the usual 40% share of any recovery as my contingency fee, as most other plaintiff’s contingency attorneys do today.
C: Yes, and I pointed out to you that I had interviewed several other plaintiff’s attorneys besides you, and every one of them told me I had a very strong case, with clear liability on the part of the defendant, a lot of potential damages, and an insurance company standing behind the defendant to pay those damages.
A: That’s right. So I proposed a better contingency fee structure for your case than those other attorneys. Instead of automatically taking 40% as my fee, I proposed an “escalating” scale of percentages. In other words, I would get a higher percentage depending upon how much harder I had to work and how much longer it took to settle the case or win at trial.
C: I have a copy of the signed retainer agreement right in front of me. There are 5 different escalating percentages. It says that you would get only 15% of the recovery, net of all costs and expenses, if you settled my case before we even had to file a lawsuit. You would get 20% if you settled the case before any pre-trial discovery began. You would get 33-1/3% if the case settled before trial started. You would get 40% if we won at trial and got a court judgment. Finally, you’d get 50% if we ended up successfully defending the judgment against an appeal by the losing side.
A: That’s right. Normally I don’t do “escalating percentage” fee structures with my contingency clients, but that’s because most of them don’t have as strong a case as you do. This way, I really earn my higher fee percentages.
C: Yes, because to be perfectly honest with you, I’d be unhappy if you were able to settle the case before even having to file a lawsuit, without having to do any real work, and you automatically got 40% of the settlement money.
A: That’s true, but I need to explain something about the reality of being a plaintiff’s contingency attorney. Too many clients are under the impression that every case we attorneys take ends up being a legal fee “jackpot” for us, that we make money hand over fist without having to do much work or take much risk. The reality is just the opposite. I know plaintiff’s contingency attorneys who make little or no money on up to half their cases.
C: I’m guilty of that kind of thinking sometimes.
A: I’m not trying to sing the blues here, because my good cases outnumber my bad ones. But it’s easy for clients to forget that, unlike hourly attorneys who get paid whether they win or lose a case, contingency fee attorneys only “eat what they kill,” so to speak. And lots of clients wouldn’t be able to afford attorneys at all if every attorney wanted to be paid hourly. If the contingency fee percentages seem high, it’s because contingency attorneys really do take risks. Just like venture capitalists who make risky investments in start-up companies, contingency attorneys are trying to offset their losing cases with their winners.
[TO BE CONTINUED]
© 2008 Ken Moscaret. All rights reserved.