Although used for years by attorneys in personal injury and many other types of cases. Contingent fees still draw scrutiny and create controversy.
In a contingent fee arrangement, a lawyer offers to take a legal matter on a contingency basis. Contingency means that the lawyer’s fee is contingent – dependent — on the outcome of the case. Paying by contingency fee means that the lawyer only gets paid if he or she wins the case. There is no cost, then, for a client to initiate a lawsuit; although, the client might have to pay the costs of the lawsuit such as court filing fees, court fees, deposition costs, etc. will not be required to pay your attorney for the work done on the case. This arrangement is most often used in personal injury, medical malpractice and workers’ compensation cases.
In May, Mississippi’s governor signed into law restrictions on the state’s use of outside, contingency-fee lawyers. Motivated by criticism that contingency fee arrangements were a bonanza to attorneys after the 1997 multi-state tobacco settlement that included billions of dollars in fees for the private attorneys who helped negotiate it. The law allows the governor and attorney general to continue to hire outside counsel, but the attorney general must first make a written determination that contingency fee representation is both cost-effective and in the public interest. Maryland attorneys shared in the proceeds from that settlement. Peter Angelos reportedly received $150 million from the tobacco settlement. Angelos reportedly secured $4.4 billion over 25 years for the state of Maryland as its share of the national tobacco settlement.
Critics of contingency fees say the fees put too much money in the pockets of attorneys. They say that contingency fees do not guarantee justice or even access to the courts and that lawyers only take the cases that are most likely to be successful in court.
But there are advantages to the contingent fee system. Advocates say contingency fees level the playing field for the individual litigant against well-heeled corporations, making it easier for poor and middle-income to pursue their rights in court without providing a lot of money upfront. Contingency fees also provide motivation for attorneys to work diligently on the client’s case. Finally, because lawyers assume the financial risk of litigation, the number of speculative or unmeritorious cases are reduced.
Hourly fees have been suggested as an alternative; but, it’s rare to find a client that wants to or has the means to pay for a case on an hourly fee basis. Some personal injury and medical malpractice clients – left disabled and unable to work – would find it difficult to pay for an attorney’s help in recovering for their injuries if they had to pay a monthly invoice billing the client for the attorney’s hours. And, in a weak economy, where many people are living from paycheck to paycheck but personal injuries still occur, some attorneys say that it would “almost be immoral” for an attorney to ask the clients to pay on an hourly basis following an injury.
Also, an hourly fee system could easily be used by insurance companies to their advantage. Under such a system, insurance companies would have a huge incentive to litigate matters in the hope of running up huge legal bills so as to scare off those who would bring a claim against them.
Critics of the contingency fee system fail to take into account that lawsuits take years to wind through the court system, leaving attorneys and the people they employ, without income from the case for many years.
Many critics of the contingency fee system are not aware of the tax considerations. Unlike other businesses, when an attorney spends money on a case, the attorney can’t deduct those costs as “business expenses.”
Courts have weighed in on the issue. Contingency fees have long been supported by state courts as a means of leveling the playing field.
Baltimore, Md.-based Belsky, Weinberg & Horowitz has been fighting for clients who have been the victims of negligence for many years. Call us at 410-234-0100 or email us for a free consultation and let us help you.