Through my Understanding the Law podcast and video series I attempt to answer general questions about legal and business matters for subscribers. One of the most frequent questions I receive is, "Why won't an attorney take my case on a contingency basis?" People often say, "I see it on the TV or Internet all the time that an attorney will accept a contingency fee, but why won't an attorney accept my case?" In this post, I am going to explain why an attorney may refuse to accept a contingency fee arrangement.
If you have ever watched television or listened to the radio, you have most certainly heard an attorney (or "attorney spokesperson" aka hired actor) explain in an advertisement or commercial that "you pay no fees unless we recover for you." Ring any bells? How about this one, "we don't get paid unless you get paid?" Or, "No fees unless we recover for you?"
When people see or hear these advertisements, they make a few assumptions: (1) every lawyer works on a contingency basis; (2) a contingency fee arrangement is applicable to every type of legal issue; and/or (3) if a lawyer accepts their case on a contingency basis, they will not have to spend one penny unless the lawyer recovers for them. Ok, it time to debunk some myths.
Contingency Fee Arrangements in Personal Injury Cases
The reality is that most lawyers do not work on a contingency basis. Typically, contingency fee arrangements are most often utilized by personal injury lawyers. Here is how it works. A personal injury attorney will screen each potential case that comes into his or her office to determine what the projected value of the claim is. If liability is too difficult to prove or the injuries are not significant enough, the lawyer will not accept the case.
When a personal injury lawyer accepts a case, he is essentially investing in your injuries. He believes that by taking approximately 33% of the projected recovery the case will be profitable. The lawyer is wagering that the money he could recover will be greater than the amount of time needed to handle the case.
A contingency arrangement works in personal injury cases because so long as the client is injured and there is some arguable liability, the chances are that there will be some level of monetary recovery. Basically, the attorney believes that he will be paid for his efforts because he is reasonably sure that the injury has a recoverable value. We will discuss in a future post, how attorneys "value" personal injury cases.
Contingency Fee Arrangements Misrepresentations
As an aside, when you see or hear those contingency fee advertisements make sure you listen carefully. Most of the ads say things like, "we don't get a fee unless we recover", or "you don't pay fees . . . " The use of the word "fee" is significant because what you are not hearing is that you will be responsible for paying actual costs. Often, personal injury lawyers fail to mention that you are responsible for costs. Other times, their advertisements are simply misleading.
Let's talk about covering costs. If your personal injury attorney accepts your case on a contingency basis and files a complaint, he will pass that filing fee along to you. Let's say that throughout your personal injury case the lawyer fronts or pays costs on your behalf that add up to $3,500, and your case settles for $10,000. Here is how it would typically work out. When the $10,000 arrives, the attorney immediately takes out $3,500 to cover the expenses, leaving a balance of $6,500. The lawyer then takes his 33.3% of $2,164.50 and send the balance of $4,335.50 to you.
What happens if you lose the case? Well, most personal injury attorneys will send you a bill for the $3,500 of expenses that they fronted and demand that you pay it. Many people, who were not told about the need to repay the expenses are shocked to find out that despite the attorney taking the case on a contingency basis they still have to pay money.
Most Cases Are Not Contingency Fee Friendly
Except for personal injury, collection cases, and fee-shifting cases, the majority of lawsuits and legal matters are not able to be taken on a contingency basis. Let me give you an example, which will hopefully highlight the reason why.
Suppose that you are a small business and a customer sues you. Let's get even more specific. You are a photographer, and you are hired to photograph a wedding. On your way into the church, you accidentally drop your camera. You are late, so you quickly pick up the camera and start taking pictures. You photograph the entire wedding.
However, when you get back to your studio, you realize that there is an issue with all of the photos. There is a dark line through the center of every image, likely caused by the drop. The photos cannot be saved, and you break the bad news to your client, the bride. She becomes enraged, like a savage beast that has been captured by poachers in the wild. Instead of going to your studio to set it on fire, she does something worse. She hires a lawyer and sues you.
Despite your offering to return the bride's money, she is still suing you for damages. You are understandably upset. So, one night after being served with the Complaint, you are drowning your sorrows in a gallon of ice cream when you see a lawyer advertisement on your television. He tells you that his clients don't pay any legal fees unless he recovers for them. You assume that all attorneys work that way.
So, the next morning you call a business attorney who says that his office will gladly represent you for a $5,000 retainer and an hourly rate of $350. You ask him to represent you on a contingency basis and he says, "no way!" You are confused, don't all lawyers work on a contingency basis? Why would this business attorney say "no"?
The reason that the business attorney refused to accept the case under a contingency agreement is that there is no way for the attorney to get paid. There is no injury to value or to ultimately collect on. The only reason personal injury lawyers take contingency agreements is because there is a way for them to get paid.
Business disputes and other non-personal injury cases can be complex and lengthy, requiring hours and hours of work. Generally, there is no way of knowing how long a business dispute will last. Basically, there is nothing to invest it and no way for the attorney to get paid for his work.
Moreover, if you are a defendant in a case, you may have to pay the plaintiff if you settle or if you lose the case. Thus, the lawyer could not accept a contingency becuase you cannot get a percentage of zero.
Bottom Line: Expect to Pay
The bottom line is that if you have a case that is not a personal injury or collection matter or is not governed by a fee-shifting statute, chances are no lawyer will accept the case on a contingency basis. If you do have a personal injury case, make sure to ask your attorney about your obligation to pay costs and expenses, even if you lose the case.
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