Tuesday, January 29, 2008

Contingency Fees

A contingency fee is where the attorney agrees to represent a client without requiring the client to pay the attorney any fees up front. In return, the attorney receives a percentage of whatever amount he is able to recover on behalf of the client. If the attorney is not able to win any money for the client, then the attorney does not get paid. With medical malpractice cases in Utah, the legislature has determined that 1/3 is the maximum contingency fee an attorney can charge a client for his services.

Much of the discussion in our country about "trial attorneys," and why they are a blight on society has to do with contingency fees. Insurance companies love to insight the public against trial lawyers by claiming that attorneys are only interested in making money off the misfortune of their clients. Contingency fees, they claim, are all the evidence one needs to support this claim.

However, the truth of the matter is that contigency fees make it possible for individual citizens to hold large corporations and insurance companies accountable for their actions. Without contingency fees the average person would not be able to pursue a lawsuit. Let me explain why.

Depending on the market in which you live, attorneys charge anywhere from $150 to $300 an hour for their services. If you are involved in a divorce or a criminal case, you will likely have to provide your attorney with a retainer of $3,000 to $5,000 just to get them to take the case. They then work against that retainer at an hourly rate. In other words, they do not do any work on your case until they know they have money in their account to compensate them for that work. Large corporations and insurance companies pay their attorneys the same way.

Attorneys that handle personal injury cases, on the other hand, do not put the same financial burden on their clients. Whereas a divorce or criminal case may be handled in a handful of hours, personal injury cases often take dozens, if not hundreds, of hours to resolve. If a patient injured as a result of medical malpractice were required to pay their attorney $25,000 up front, just to get the case started, they would likely have no choice but to walk away from the case. Not only would this leave the individual patient uncompensated for her injuries, but it would also leave society as a whole worse off. Many of the safety features and procedures we all benefit from are the result of lawsuits brought by individual citizens.

Contingency fees also serve the important purpose of discouraging frivolous lawsuits. Despite what tort reformers in legislatures around the country are saying, there are very few frivolous lawsuits because there is no money to be made on such cases. If an attorney knows that he will only get paid when he actually wins money for his client, he has not incentive to take on cases that have no merit. If contingency fees were eliminated then the only cases that would be litigated would be those with wealthy plaintiffs, regardless of whether the case was actually legitimate.

So, while 1/3 may seem like a lot of money, when one considers the financial risk assumed by the attorney, as well as the alternative of having to pay the attorney up front, it is clear that contingency fees are an important and vital part of our legal system in this country.


Nichole Mercado said...

I actually know an Arizona Personal Injury lawyer who stays true to their motto of "No Attorney Fees unless we Win". Although there's a large benefit if a case is won because of Contingency Fees, I still admire the dedication of these lawyers who protects the rights of their clients.

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James McAllister said...

1/3 is the highest? The seems like a pretty large cut; presumably the plaintiff needs the suit money, so I wonder if the personal injury lawyer takes their potential cut into account when coming up with the number to sue for. I will have to ask my friend who is a personal injury lawyer in Boston MA. Thanks for the post!