When it comes to seeking legal representation, the costs involved can be a significant concern for many individuals. Fortunately, there is an alternative fee arrangement called a contingency fee that can provide relief to those who may not have the means to pay steep legal fees upfront. In this article, we will explore what you should know about contingency fees, their benefits, and how they work.

What are Contingency Fees?

Contingency fees are a type of payment arrangement commonly used in certain legal cases. Under a contingency fee agreement, a lawyer agrees to represent a client without charging any upfront fees. Instead, the lawyer’s fee is contingent upon the successful outcome of the case. In other words, the attorney will only be compensated if they win the case or reach a favorable settlement on behalf of their client.

How Do Contingency Fees Work?

Typically, contingency fee arrangements are most commonly seen in personal injury cases, medical malpractice claims, and other civil litigation matters. When entering into a contingency fee agreement, the lawyer and the client agree on a percentage of the monetary recovery that the attorney will receive as their fee. This percentage is often negotiable and can vary depending on the complexity of the case, the risks involved, and local regulations.

Benefits of Contingency Fees

  1. Access to Justice: Contingency fees enable individuals who may not have the financial means to afford high legal fees to pursue their legal rights. It levels the playing field and ensures that justice is not reserved only for those with deep pockets.
  2. Alignment of Interests: Since the lawyer’s fee is directly tied to the outcome of the case, contingency fee arrangements align the interests of the attorney and the client. The attorney is motivated to achieve the best possible result, as their own financial compensation depends on it.
  3. Risk Mitigation: Contingency fees transfer a significant portion of the financial risk from the client to the attorney. If the case is unsuccessful, the client is generally not responsible for paying the attorney’s fees, reducing the financial burden on the client.
  4. Quality Legal Representation: Lawyers who work on a contingency fee basis often have a vested interest in selecting cases with a higher chance of success. This means that clients who hire attorneys on a contingency basis are more likely to receive quality legal representation.

Things to Consider

While contingency fees offer many advantages, it is essential to consider a few factors before entering into such an agreement:

  1. Percentage of the Recovery: Discuss and negotiate the attorney’s fee percentage upfront to ensure transparency and a clear understanding of how much the lawyer will receive if the case is successful.
  2. Additional Costs: In addition to the contingency fee, there may be other expenses associated with the case, such as court fees, expert witness fees, and document preparation costs. Clarify who will be responsible for covering these expenses.
  3. Legal Ethics and Regulations: Different jurisdictions have specific rules and regulations governing contingency fee arrangements. Familiarize yourself with the ethical guidelines and laws in your jurisdiction to ensure compliance and avoid any potential issues.

Conclusion

Contingency fees can be a valuable option for individuals seeking legal representation without the burden of upfront costs. They provide access to justice, align the interests of the attorney and client, and mitigate financial risks. By understanding the basics of contingency fees and considering the factors involved, you can make an informed decision when it comes to selecting the right legal representation for your case. Always consult with a qualified attorney to discuss your specific situation and determine if a contingency fee arrangement is suitable for you.

Video Transcript

Why won’t a lawyer take my great case on contingency? I saw a great example of this recently.

A business owner had been mistreated by another business owner. We will call them the good business owner. The good business owner was cut out of the business, lost access to all the financials, and the bad business owner started keeping all of the money and the good business owner said, “I would like to hire an attorney, but I don’t have the money to pay out of pocket. Can I pay a contingency fee?”

What Is a Contingency Fee?

A contingency fee is when an attorney only gets paid if they recover money. So contingency means triggered. So if money results from the case. Then, or under that contingency, the lawyer gets paid. Well, if it is a great case, why not?

Here is why lawyers are really skeptical of cases on contingency. Because often, clients don’t tell the lawyer the full scenario. The lawyers don’t know what the other side is going to say. I have had some cases that looked incredible when they first came in, and when I first started practicing, I was more willing to do contingency cases. And then, as you get into the case, you find out awful stuff about your likelihood of winning.

In fact, I once had a case; you may not even believe this; I had a case where I found out my client got drunk and ran her car into the home of the opposing party. That really hurt my case. I don’t care how strong the facts were in the case; that doesn’t seem like a very nice person. When a judge has to decide who should win and who should lose, whether a person is a good person or a bad person often comes into play.

So contingency cases are highly risky for lawyers because, at the time you agree to take the case, you have no idea what the other side’s arguments are, what their defenses are, and what information your client might not be telling you. And in a business dispute, it is extremely rare for one side to be an angel and the other side to be a devil. Usually, they both made some mistakes, and they both said some things they regret and did some things they regret. And so I know it is highly likely that if we start a lawsuit against the bad business owner, we are going to get counterclaims back. And then what may look like a million-dollar case might end up where my client owes money.

Well, that means, as a lawyer, I am not going to get paid. Even if the good client ends up going to trial and wins $100,000, and let’s say it was a 40% contingency, and the attorney then gets $40,000, that is a terrible deal for the lawyer because a lawyer will spend maybe a year or two and an extraordinary amount of time and money and tools to win a case like that.

A case like that usually is going to cost 150 to $250,000 legal fees. So the lawyer is losing money if the lawyer only gets $40,000. And I realize that sounds like a lot of money, but keep in mind lawyers get that money and then turn around and pay staff and overhead and insurance and tools and all the things necessary to run a business. It is kind of like saying, “Oh, bakers must be, must be rich. They get all the money from the donuts every day.” Well, no, the baker turns around and pays for the people who make the bakery goods, pays for the ingredients, pays for electricity, etc.

So contingency fees for lawyers are very appropriate for personal injury cases, accidents where it is clearly an insurance company on the line. The question is just how much can you get, but in these cases where they are hairy, they are going to be arguments going back and forth about, well, you did this, no, you did that. Contingency fees rarely work out. So that is why a lawyer is going to be very unlikely to take a business dispute on a contingency basis.

What Is a Hybrid Contingency Fee?

Well, that is very appropriate right now. A hybrid contingency fee is where the lawyer gets a percentage of whatever is one but also gets paid by the hour. So, for example, the lawyer might get $200 per hour plus 20% of whatever is won. That way, the lawyer at least knows expenses will be covered, but hasn’t arguably an incentive and a piece of some skin in the game to win.

Those rarely can work. And I say rarely because normally, lawyers aren’t going to want any case on a contingency. It is not that the lawyer doesn’t believe in the case or isn’t going to work just as hard. What it is, though, is lawyers don’t know the scenario that they are litigating until they get deep into it with their client and they hear the arguments of the other side. And so most lawyers are just simply not willing to take the risk of a business dispute on a contingency fee unless they just don’t have enough other work and they need to take something like that.

Conclusion

All right. That wraps it up for today. If you are interested in being notified about future live sessions, usually, we send out a notice a couple of days in advance. You can get that notice in two ways. You can subscribe to this YouTube channel and turn on notifications, or you can get our emails. To do that, go to aaronhall.com/free Enter your email address, and you will know about these free live YouTube sessions and you will also get access to exclusive videos that aren’t available to the public.

It was a pleasure having you here today. I look forward to seeing you next time.