California Business and Professions Code Section 6147(a) and the laws of most other states require that you enter into a written agreement with your attorney in personal injury and other cases. These agreements set forth in the nature of the representation that the attorney is expected to provide, the compensation agreed to by the parties, and in many cases, the client's responsibilities to assist in the conduct of the case.
In California, the most important thing for any wrongful death or personal injury plaintiff to know this stage is that contingent fees are both legally proper and used in virtually every case. A contingent fee is simply a fee that is based on the outcome of the case. Usually, if no recovery is made on your behalf, no fee is owed. If a recovery is made, the contingent fee is calculated as a percentage of either of the gross or net recovery.
Contingent fees are much-maligned but play a very important role in our justice system. Without contingent fees, only those who are fortunate enough to be able to afford an attorney's hourly fee would have access to the courts. The use of the contingent fee allows all people with legitimate claims to obtain competent legal representation, even when they cannot afford the up-front costs.
While many people are under the impression that personal injury attorneys always receive one third of the recovery made by the client, contingent fees are, in most cases, negotiable. Indeed, California law requires personal injury attorneys to advise clients in writing that the percentage contingent fee is negotiable. Thus, in many cases the contingent fee is something other than 33 1/3 percent.
Many attorneys propose fee agreements in which of the contingent percentage increases as the case progresses. The fee may be set at a relatively low percentage if the case is resolved before an actual lawsuit is filed, and increase as each stage in the litigation is passed. Obviously, an attorney who not only filed the case but conducted a lengthy and expensive trial may expect a higher percentage fee than one who resolves the case before even stepping into the courthouse.
The contingent fee percentage also might vary depending on the size of the recovery. For example, your attorney may propose or consider a fee of 30% of the first $500,000 recovery, and 25% of all amounts above that. For a client with a relatively large case, a sliding scale fee agreement of this sort could be extremely beneficial.
It is important for you to understand the difference between gross recovery and net recovery, as it pertains to the calculation of attorney fees. At the end of a case, typically you will be obliged to pay to your attorney not only a legal fee, but also an amount to reimburse that attorney for all of the costs and expenses he or she incurred in preparing and litigating your case. Your attorney may have spent a considerable amount of money for things like document copying, expert consultants, travel, lodging, and other goods and services. In most cases the attorney advances the funds necessary to pay these various costs and expenses, and is reimbursed from the gross recovery at the end of the case.
The gross recovery is the amount received from the defendant, before the attorney deducts the costs and expenses owed to him or her. The net recovery is the amount received from the defendant, after the attorney deducts the costs and expenses owed to him or her.
Obviously the gross recovery is a larger amount than the net recovery, and in some cases the difference can be quite large. Therefore, an attorney fee that is based on a gross recovery is going to be larger than a fee based on the net recovery, although the percentage is the same. Be wary of attorneys who offer you a low percentage fee but calculate that fee based on the gross recovery. Since their fee percentage is based on a larger number, the ultimate amount of money that you pay might be greater than you expect.
When the fee is based on the net recovery, clients generally benefit in more than one way. Aside from the lower fee, it gives counsel an added incentive to spend your money wisely. The more case costs they incur, the lower the net recovery will be, and hence the lower the fee will be. An attorney who is earning a fee based on the gross recovery has no incentive to minimize case expenses.
In some areas attorney's fees are limited by law. In California the two largest areas where fees are capped are medical malpractice claims and claims brought on behalf of minors.
In some fee agreements the attorney may seek an agreement that that the client assume the interest expense associated with borrowing for case costs. This is allowable in California.
Fee agreements also typically contain a lien clause which provides that if a new attorney takes over the case and makes a recovery, the original attorney has a right to compensation for the work he or she did on the case, to be paid out of that recovery. This is a valid provision in California.