Question

Explain what "contingency fees" are and argue why they are good or bad. Should the government put an upper limit on contingency fees? If so, why? If not, why not? Explain thoroughly.  

Answer 1

Introduction

The basic concept of the contingency fee agreement is that a client does not pay upfront expenses. Further, a client does not pay legal fees unless and until the case is won and then the lawyer receives a percentage of the recovery as his or her fee. If the case is lost, there is no legal fee at all for the lawyer. It may be surprising to know that a large number of attorneys are willing to work diligently for no guarantee of payment. Not only will lawyers work hard, but often incur significant costs on a case which may never get repaid.

Meaning of Contingency Fee: A contingency fee is simply a percentage of the amount you win in your case. It could be a personal injury claim or another type of plaintiff's case, but, it all works the same. When you enter into a contingency fee agreement, the law firm pays for the cost of litigating your case. The law firm's pay is "contingent" on the end result. If you prevail, the law firm receives a percentage of your settlement or judgment. However, if you don't win, the law firm doesn't receive a fee and typically does not get reimbursed for expenses incurred.

Reason to go for Contingency fee agreement: Contingency fees make sure that a lawyer's interests are closely tied with those of a client. The plaintiff will most likely receive better representation, as the lawyer has a higher incentive to do a good job. Tactics such as delaying cases or wasting time in order to "run the clock" are eliminated, as the lawyers themselves are spending the funds required to try the case. This saves everyone involved money; the plaintiff, the lawyers and the courts system itself.

                                    Since personal injury cases can take weeks, months, or sometimes years to be resolved, your attorney agrees to litigate on a contingency basis rather than charging you an hourly rate for all legal work performed. Contingency fee cases are common for the following: car accidents, work-related injuries, medical malpractice, creditor collection harassment, product liability, environmental tort, and other various types of personal injury cases.

Here are some other advantages of contingency fees:

• It provides a lower risk to the client. In an hourly rate arrangement, a client could very well face substantial legal bills, especially if they are not successful in their case. Because of the many hardships often accompanying personal injury and other cases, a contingency fee arrangement greatly reduces the client's financial risk. Attorneys put up all money to litigate a case and the clients has not out-of-pockets costs.
• Facilitates a better attorney-client relationship. Because an attorney agrees to represent a client under a contingency arrangement, he or she is paid only if the case is successful. As a result, a lawyer will work hard for his or her client to resolve the case quickly and for the most money.
• A contingency fee agreement demonstrates confidence in the case. A contingency fee also demonstrates to a client that his or her attorney is confident the case can be won. If it were an hourly rate, the attorney would likely accept any case, and just collect fees through the process.
• It helps to level the field for the client against his or her wealthy opponents. Insurance companies and corporations have the advantage of deep pockets in some instances but with contingency fee cases, clients are not forced to pay upfront fees and costs, which corporations would use to their advantage to draw-out the process in-order to win.

Why contingency fee agreement may not be a good idea:

The main problem with a contingency fee agreement is that it could cost the plaintiff more than standard hourly rates for a lawyer if the case settles quickly. A standard contingency fee can range between 30-40% of the final award. Whether your lawyer works for one week or one year, he or she will get the same amount of your settlement.

If you have a “risky” case, a lawyer may negotiate a higher fee. Lawyers who use contingency fees can be very selective about the cases they take and avoid cases that appear to have low odds of winning. They do not have to accept a contingency agreement if they aren’t satisfied with the nature of the case, or if the state has imposed a cap on the amount of damages the plaintiff is able to claim.

Also there may be additional fees associated with your cases, such as filing fees, discovery costs, and service of process fees. Be sure to scrutinize the full agreement to know what costs you are responsible for, on top of the percentage of the overall award at the end.

Question of putting a cap or upper limit on Contingency fee: The widespread use of the contingent fee is unique to the American civil justice system. Contingent fees allow plaintiffs with little money to seek redress in the courts because the attorney bears the financial risk of bringing a lawsuit in exchange for a percentage of the recovery, if any. In recent years, the current system has benefited lawyers at the expense of their clients. But the problem with this system is, the contingent fee system invites abuse because it encourages lawyers with a financial interest in the outcome of a case to try meritless claims or ask for unreasonably high awards. Contingent fees are generally one-third of a total award, even when, as is often the case, attorneys bear no risk in taking a case. Attorneys today seek out cases that can be settled easily, with little work, or can be decided under no-fault laws. The one-third contingent fee pay-off for seeking such cases is disproportionate and discourages lawyers from taking more difficult, work-intensive, cases. There is no real answer to this question because we have to look at it case to case basis which in real scenario I not that easy a task.

The Government should limit the use of contingent fees in cases where a legitimate risk of non-recovery exists, and requires an hourly fee in cases where no legitimate risk of non-recovery exists, such as cases involving automobile accidents and other incidents where the parties are likely to settle, and cases where strict liability is imposed, such that no liability question exists to be resolved at trial.

            Alternatively, reforms should be made towards legislation that provides a sliding scale for the award of contingent fees. A sliding scale removes some of the incentive for lawyers to seek excessive jury awards, while preserving for plaintiffs the access to the civil justice system that the contingent fee system provides.

            But what I believe is that it should be made mandatory for an attorney to provide clients up front with an estimate of what the hourly rate for a case would be versus the applicable contingent fee charge. The client would be free to choose the payment method under which they would like to proceed. After disposal of a case, an attorney would disclose the number of hours actually spent resolving the case and the amount of the hourly fee or the contingent fees due. Fully informed clients would be able to compare attorneys’ fees and go in to fee arrangements with realistic expectations.

Why limiting the contingency fee may not work :    The argument against imposing reasonable limits on contingent fees – that the unrestrained use of contingent fees gives plaintiffs who would otherwise be able to afford a lawyer access to the civil justice system – fails to address abuses of the contingent fee system by lawyers seeking to maximize their financial gain by almost exclusively taking on cases involving little or no risk and involving the potential for huge pay-offs, without disclosing to the client beforehand how much work and risk is involved in the case. Personal injury lawyers have the upper hand in fee bargaining and can easily mislead clients about the value of their services. Additionally, the typical personal injury client lacks “bargaining power” to negotiate aggressively with his lawyer for a fair deal on fees.   As a result, the disparity between lawyers and their one-time tort clients leads to gross exploitation in some cases.

In conclusion, contingency fees are generally a very debatable topic when it comes to paying the attorneys, but since people may not have the funds to pay usual attorney rates, our justice system permits the use of contingency fees.