Contingency agreement defined
A contingency agreement is a legally binding agreement used to manage the risk involved in situations of uncertainty. It is most often encountered in personal injury law contexts where a client’s ability to access skilled legal advocacy depends on their lawyer’s willingness to accept a case on a contingency. In other words , the client will not pay their lawyer any legal fees unless and until the case is won or settled. At this point, typically the lawyer’s expenses are covered by the settlement, plus a percentage of the settlement.
The purpose of a contingency agreement is to balance the interests of the parties, which may be at odds with each other in the context of a legal proceeding. A contingency agreement, once signed, is legally binding.
Contingency agreement components
To fully understand how to select the right lawyer for your case, you should also understand what terms you may expect from your lawyer. Contingency agreements are no different from any other contract in the sense that there are terms, conditions, and fees that may be charged. The primary terms and conditions you will see in a contingency agreement are as follows:
- Percentage: You will often hear about "sliding scales" in terms of contingency agreements. In some cases, your lawyer will take a much larger percentage of your recovery if your case settles before a lawsuit is filed, and a larger percentage again if a lawsuit is filed, and then again if your case goes to trial. On the other hand, some cases have one fee that applies to the entire case, regardless of whether your case is resolved before a lawsuit is filed, or at trial.
- Costs: Costs are any expenses or fees that your attorney will have to pay in order to proceed with your case. Some examples are court filing fees, copy costs, trial expenses, and expert witness fees. Depending on the agreement, the amount of the cost is usually deducted from the recovery after either settlement or trial, but, in any case, the lawyer will have a lien on your recovery for any costs or expenses they paid on your behalf.
- Warranty: In most contingency agreements, the attorney warrants that he or she have the time and necessary resources to spend on your case. This means that your lawyer needs to have enough commitment to spend the time and effort on your case to ensure that you receive the recovery that you deserve.
- Communication: Your contingency agreement is a contract, and you should expect a regular communication from your lawyer, so that you understand the progress of your case, and what to expect in the future.
Types of contingency agreements
Most law firms utilize contingency agreements for personal injury cases, but not all do. The opposite of a contingency agreement is a "retainer agreement" and almost all attorneys in the United States will require a retainer agreement for every case they take on.
Lawyers have a responsibility to "zealously represent their clients" which means that they are under a professional ethics obligation to act only upon a client’s legally justified objectives. A person looking into hiring a lawyer is someone who is looking for solid legal representation and there’s no better way for a client to be assured that their lawyer will passionately represent their best interests than if they have a vested interest in the outcome of the case.
Contingency Agreement for Personal Injury Cases
Most personal injury cases involve a contingency agreement. With some exceptions, most of the time a personal injury lawyer will get paid nothing if the case is unsuccessful. Thus, an attorney will have a vested interest in the outcome of the case as their only way to be compensated is by successfully representing their client.
One downside to contingency fees in personal injury cases is that an attorney must then charge their client for expenses. If a lawyer did not charge their client for expenses, then they would be losing money on their case. Likewise, if an attorney requires a retainer agreement, they likely aren’t confident about their chances of winning a case (although that’s not always true). As such, you should never hire a personal injury attorney who requires a retainer agreement. Even if they feel that the retainer agreement is necessary to cover immediate expenses, even without a retainer agreement an attorney can often front expenses and deduct them from a contingency fee if the client so requests.
Personal injury attorneys are often willing to work on a very low contingency agreement (or none at all) if they truly believe they will win a case. Thus, if you are confident about your case, look for attorneys that represent clients for low rates or no rates at all. There are a lot of attorneys that no longer represent clients without a contingency agreement but there are exceptions.
There are other arrangements for personal injury lawyers to consider as well. For example, if the client is not from the United States but has suffered an injury here, then a lawyer will require a visa application be filed for the client at the U.S. consulate in their home country. A lawyer may also request that a foreign client put money in their trust account to hold until the case is over. Once the case is over, the lawyer will deduct their fees and expenses from the account.
People often confuse a contingency agreement with a retainer agreement, but the two are very different things. A retainer agreement is different from a contingency agreement because with the latter a person does not have to pay anything at all to a lawyer if they lose the case. In addition, the lawyer must front all expenses if needed. On the other hand, with a retainer agreement a person must pay the lawyer right away for their services. The only time a lawyer would use this type of agreement for a personal injury case is if the client is refusing to sign a contingency agreement.
Contingency Business Agreements
There are business contingency agreements as well. For example, an attorney may represent a client in a business negotiation, receive 20% of net profits in that business and not have to front any of the expenses. It’s fairly common in the world of business for clients to ask their attorney to represent them in their negotiations.
Not all law firms, however, utilize contingency agreements in the realm of businesses. Because of the higher expenses involved, it’s not unusual for an attorney to have a retainer agreement for a business representation. A retainer agreement is also more common due to the amount of waiting and time it takes to reach an agreement with a business negotiation.
Benefits and drawbacks of contingency agreements
Contingency agreements can have many pros and cons, both for clients (who are plaintiffs in the case) as well as attorneys (defense and plaintiffs’ counsel).
A contingency agreement has many pros for the client. The most important pro of a contingency agreement for a client is that the client does not have to pay any money out of pocket to pursue their case, and if they lose their case, they do not have to pay their attorney anything. Clients in New Jersey typically believe their contingency agreements are "standard", meaning they are predominately 1/3 contingent fees. However, there are two factors to consider. The first factor is whether the case you have has a more complex claim or injury which may require additional costs and representation of a few different experts. This expert testimony may cost more and could be as much as 35% or 40% contingent agreement in a complicated matter. Second, the other factor to consider is the defense attorney who is representing the other side in the matter. Some defense counsel will continue to charge the plaintiff’s attorney on top of their 1/3. A plaintiff’s attorney’s fees are not considered costs and disbursements of the client in a case, so it may be possible that you will give up significant portions of your client’s recovery at trial to pay defense counsel’s fees. As a client, before agreeing to your attorney’s contingency agreement, you should ask questions about it.
There are also pros for the attorney. For the attorney representing the plaintiff, working on contingency will allow them to attempt to file a matter without getting paid upfront by the client. If the matter is complicated and expensive, the attorney may have to wait years to be compensated for the work they have done.
As previously mentioned, the main con for the client is the attorney’s fees they will have to pay in the end if the case goes to trial. If you have a case that is highly contested, you can anticipate a lot of costs and bifurcated trials with consulting experts, which can all take place before the trial. Many attorneys will require you to sign a separate retainer agreement as a client before the trial. At that point, you will understand that you have to pay your own attorney’s fees, which can be very expensive.
The biggest con for the attorney is that it can take a significant amount of time for them to see a return on their investment for the work they do. If they work for 5-10 years on a case, it can either settle or go to trial. Trial can last over a few weeks, and then when the case is decided, the appeals will often last 1-2 years. The attorney may not see payment for the work they have done until up to 12 years after it had started.
Writing a contingency agreement
A contingency agreement usually must be drafted in writing; however, there is no standard form. The provisions of a contingency agreement will vary depending upon the type of legal services being provided and the way in which a litigation matter will be pursued. To create a contingency agreement, the client’s interests must be balanced against the proposed form of payment to the attorney.
To draft a contingency agreement, it is necessary to first determine the range of a percentage of the recovery that would be appropriate to receive for the attorney’s work. Then, terms and conditions of the work to be performed by the attorney on the client’s behalf must be discussed and agreed to by the client and the attorney.
If a settlement is reached, a revised agreement can be used, as there is no requirement that a signed contingency agreement be revised to reflect the settlement. In a contingency agreement drafted without a signature line, no signature is needed to enact the terms of the agreement. This does not make a contingency agreement unenforceable if the attorney performs specified legal work for the client. The contingency agreement must have the client’s approval to be enforceable. On October 1, 2015, the American Bar Association’s Model Rules of Professional Conduct Rule 1.5(c) was updated to require an "engagement letter" to be signed by the client. The use of the words "engagement letter" is not a modification of the Model Rules, but only a language change amongst the ABA, a practical application. Attorneys’ fees are not fully earned until the contingency occurs, unless otherwise stated.
Contingent attorneys’ fees must be reasonable as a matter of law , pursuant to New Jersey Rules of Court Rule 1:21-7(a)(4). The New Jersey Supreme Court has instructed that a reasonable fee is the "fair value of the services rendered or the reasonable fee the parties had agreed upon if they had negotiated a fee before proceeding with the case." Reed v. Rahway Hosp. Ass’n, Inc., 13 N.J. 9 (1953). Further, the court instructed that the amount agreed upon between the client and the attorney "should be reduced if it exceeds the success fee percentage for the particular undertaking." Id. In Ward v. Ochoa, 180 N.J. Super. 120, 123 (App.Div. 1981), the Court determined that contingent attorneys’ fees in a medical negligence suit should remain the same, even though there was a settlement agreed to before trial.
If the parties did not agree to limits on the hourly fees to be charged as part of the contingency agreement in circumstances where the matter is concluded without trial or judgment, the hourly charges will be subject to the Court’s review to determine what was reasonable. If the parties agreed to limit the hourly fees in circumstances where the matter is concluded without trial or judgment, the parties are bound by the agreement, as long as it is reasonable under the circumstances.
A client may negotiate a higher contingency fee when the trial would be particularly difficult and unlikely to be successful. Conversely, a client may offer a lower contingent fee than proposed by an attorney when the anticipated results of the case are relatively certain and likely to be short.
The client must have signed the contingency agreement and, in some states, the contingency agreement may be required to be filed with the Court along with the complaint.
An attorney may elect to impose a cap on the fee, as well as agreeing to cancel the fee if it is not approved by the Court. In New Jersey, a contingency attorney’s fee, and its calculation, is reviewed for reasonableness.
Contingency agreement sample
When reviewing the sample contingency agreement that the attorney provided, there are a few key areas to pay attention to. Primarily, how and when the attorney will be paid for their services. In a basic sample contingency fee agreement, there is no money paid up front, and the attorney’s fee is paid if there is a settlement or judgment in your favor. But the wording may differ from firm to firm, and you should be sure to ask questions about the contract until you feel comfortable with their policies.
You should also take note of the payment terms, and how much you will owe if you do not win your case. The majority of personal injury attorneys will include language in their contract that subjects you to a fee of any costs expended before you hired the firm, so long as the amount is reasonable. Costs include things such as the filing fee for the court system, as well as fees for investigators, deposition transcription, and expert witness fees. You should also inquire whether you will have to front their filing fees before winning your case.
Dealings with personal injury attorneys can be very emotionally charged matters, but it is important that you read the entire contingency fee agreement thoroughly, and come to your appointment with questions.
Contingency agreement dispute
There are limited restrictions on a lawyer’s entering into a contingency agreement with a client. For example, in Florida, the rules state that a lawyer may not enter an agreement that is contingent on either the amount of the settlement or the success of the case (Florida RPC Rule 1.5(e)). Instead, in Florida, fees must be "settled on the basis of the percentage or percentages that the lawyer will receive from the recovery" in the case.
In New York, it is permissible to enter into a contingent fee agreement in a personal injury case. But specific to School Guardians, the New York Bar Opinion 2008-3 states that it is unethical to have a contingency agreement with a school administrator, parent, or student because it constitutes sexual misconduct for a lawyer to enter into this type of agreement with these particular individuals.
In Missouri , The Missouri Bar also states that it is possible for a lawyer to enter into a written contingency fee agreement with a client for a lawsuit, as long as that agreement does not violate a statute or an established rule. However, if a lawyer enters into an agreement with a school employee, it may constitute an adverse-interest conflict of interest under Rule 4-1.7. Similarly, guidelines from the New Hampshire Bar required that schools and lawyers enter into fee agreements with any school employee.
If a lawyer feels like a contingency fee agreement has been breached or violated, the lawyer can file a grievance with the bar association to address the issue. They can also file a State Bar complaint in their respective jurisdiction. Contingent fee arrangements are common in medical malpractice suits or personal injury cases.