Personal injury clients often pay their attorneys on a contingent fee basis, meaning the attorney’s fees are contingent on the client receiving an award. These fees are calculated as a percentage of the client’s award based on the stage in which it is received. For example, a contingent fee agreement could state that the attorney is owed 25% of the award if the matter is settled before trial, 33% of the award if the matter is settled after a jury is selected, and 50% of the award if the matter is concluded after appeal. The primary purpose of a contingent fee is to ensure that individuals who may not be able to afford an attorney can still access legal representation.
The Model Rules of Professional Conduct indicate special requirements for contingent fees to prevent attorneys from using them to charge clients unreasonably. Rule 1.5(a) states “A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses.” This safeguard is in place to protect the client from being taken advantage of when payment is based on a percentage of a reward. The rule also lists several factors that determine the reasonableness of a contingent fee. These factors are: 1) the fee agreement must be in writing and signed by the client; 2) the method of fee computation must be stated for any stage of representation; 3) litigation and other expenses as a reduction from the recovery must be identified ; 4) a fee agreement must include a statement as to when expenses are deducted in relation to the fee computation; and 5) the agreement must include any fees a client is required to pay regardless of the outcome.
Beyond these factors, the rule details two situations in which contingent fees are unreasonable. The first is when there is a high likelihood of substantial recovery by trial or settlement and thus the lawyer bore little risk of nonpayment, and when the client’s recovery is so large that the fee would clearly exceed the appropriate sum for services performed and risks assumed.
Thanks to Eglet Adams for their insight on contingent fees.