Ethics and Professionalism: When is a Contingent Fee not a Contingent Fee?

By Robert S. Bernstein, Esq.

*This article previously appeared in the April/May/June 2013 issue of Commercial Law World, the official publication of the Commercial Law League of America.

This is a subject near and dear to our hearts: Fees! In most states, a contingent fee case has some special rules that surround it, e.g. requiring a written fee agreement. Generally, the terms of a contingent fee are a matter of contract between the lawyer and client, although states may limit the kinds of cases where a contingent fee is not permissible and may limit the percentage. CLLA members are bound by the Operative Guides for Forwarders and Receivers in situations defined by the Guides. These Guides may vary by contract, but apply by default to a CLLA member.

Contingent fees serve a purpose and provide great opportunity for counsel willing to assume some risk. There is also great opportunity for loss and tension between the lawyer and the client. Experienced clients and lawyers understand the risks and the good faith give-and-take that can be required for a contingent fee case to end fairly. Where one side or the other is a neophyte, more clarity is always advisable.

Where does the rubber meet the road? Well, usually when a case is really easy or really hard. When it is really easy, the client may feel that the fee is way too high. Where the case is really tough, the lawyer might like to cut her losses and get out unless the client is willing to share more of that burden. It is the one-shot case from a client that has the most opportunity for friction. Where there is a long relationship or a large number of placements, it is often easy to justify taking a hit (or making a score) on a single case out of many. Sometimes, clients understand the value of sharing some risk in a hard-fought case by agreeing to raise the contingency percentage or advancing a portion of the fee as non-contingent.

If push comes to shove and the lawyer and client need to part ways mid-stream, there are some generally-accepted principles of law that come to bear. In many places, if a contingent fee client fires the lawyer or prevents the lawyer from taking an action that would generate the recovery (and a fee) then the lawyer is entitled to the reasonable value of his services. Since many contingent fee firms do not keep time records, determining the reasonable value can be difficult. If the client is firing the lawyer, that calculation also takes into account what the client has to spend to replace the lawyer, whether on a new contingent fee or not.

Most seasoned lawyers can reasonably recreate the time on a case to justify a reasonable fee on termination. Of course, where the contingency percentage is high and the time spent is low, that is less than satisfying. It is, however, the law and does protect the lawyer from a complete loss where the case is pulled.

The bottom line is that a contingency case has different kinds of risk for the lawyer and those risks need to be carefully considered and carefully managed.

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