THE THEORY BEHIND CONTINGENCY FEES
Many clients have asked me over the years why contingency fees are, in their perception, so high. They realize that most lawyers charge one-third of the recovery as their fee, but they believe this is very high and wonder why. Furthermore, clients often get particularly upset when they perceive that their attorney took a third of their money even if the case did not have to go to trial and even if the attorney did not spend very many hours on their case. I will outline for you, the explanation that I have always given to those clients, and which has usually made them feel much better about the amount of the fee.
When you hire an attorney on a contingency fee basis, that attorney is taking a gamble on your case. During the course of litigation, the case may turn out to be easier than he or she initially thought. On the other hand, it might turn out to be much harder. Some cases will settle, some will go to trial, and some will even be appealed and perhaps tried multiple times. Thus, when an attorney signs you up, he or she really has very little idea as to whether your case will take 5 hours of work or 500 hours of work. He or she also knows that the case may make lots of money, or it could get nothing, in which case he or she has invested significant time and gets no money for that time. Also, not only will the attorney not get paid for his or her time if the case loses, but he or she will also lose the costs invested in the case, potentially thousands of dollars, because even if the client is contractually responsible for paying the costs as provided in the fee agreement, the attorney knows that many clients cannot afford to reimburse these expenses. So, over the course of a year, an attorney will have some cases that make lots of money with little work, some cases with lots of work that make no money, and the rest will fall somewhere in between. When you walk into the office, neither you nor the attorney can really know where your case will fit on this spectrum. Therefore, you are agreeing to pay a third of the money you get regardless of how much work is involved on the theory that if your case takes little time, that your case will help to finance other cases that lose. On the other hand, if your case loses, it was then financed by other cases that took very little time. Clients are, in effect, pooling their resources together, sort of like buying an insurance policy, to help offset the inability to know whether their case will ultimately be an easy one or a tough one. In the end, the personal injury attorney will win some, lose some, and hopefully average a reasonable income after overhead is paid.