What is a personal injury contingency fee agreement in California?

What is a contingency fee contract? How does it work? How is it different from an hourly fee contract? And should you sign one with your personal injury lawyer in California? We will answer all of these questions, and more, in this article.

Personal injury lawyers don’t generally work for free! So don’t be fooled by those deceptive ads by personal injury lawyers that say "we won’t charge you a fee" (unless you win your case). That’s misleading and personal injury lawyers shouldn’t say it.

The more honest way for a personal injury lawyer to say this is to simply say they are going to ask you to sign what is commonly known as the contingency fee contract, where the lawyer does not charge you until the end of your case, and then takes a "piece of the pie". Contingency fee contracts are used in virtually every personal injury case in California and across the country.

A contingency fee contract can be an excellent way for you to hire and get a great deal from your personal injury lawyer, or it can be a disaster and a way for a lawyer to take advantage of you.

Let’s learn how you can use the contingency fee contract to your benefit. We’ll start with some simple definitions:

Definitions

What is a "contingency fee" contract and is it better or worse than an "hourly fee" contract?

A contingency fee contract is just what it sounds like; it’s a written legal document you sign when you hire a personal injury lawyer that describes how much you will pay (or not pay) your personal injury lawyer.

It generally says you will pay a "fee" (attorney fees) to your lawyer, that are "contingent" upon whether or not your lawyer wins your case (recovers money for you). If your lawyer wins, you’ll pay attorneys fees. If your lawyer loses, you won’t pay attorney fees.

That’s basically how a standard contingency fee contract works, so the personal injury lawyer ad which claims "you won’t pay a fee unless we win your case" isn't doing you any favors, because that’s how all contingency fee contracts work.

The more important question in any contingency fee contract is: How much do you have to pay your lawyer if they win your case, in other words, what is the "sliding scale" in the contingency fee contract? We will cover this in more detail below.

An hourly fee contract is also just what it sounds like. In an hourly fee contract, you pay your lawyer by the hour for all the work done on your case. In an hourly fee contract, you pay the hourly rate to your attorney regardless of whether they win the case or lose the case. Hourly fee contracts are commonly used by lawyers in criminal defense cases (like DUI defense), or in family law cases, or business cases, and many other types of cases, but they are almost never used in a personal injury case. In fact, I have been a personal injury lawyer since 1985 and I have never known any personal injury lawyer who has ever handled a personal injury case on an hourly basis.

Here are a few authoritative sources for more on these definitions:

American Bar Association short definition of contingency fee contracts

Model Rules of Professional Conduct statement on contingency fee contracts

Which is better? CONTINGENCY FEE or HOURLY FEE?

In a personal injury case in California, which is better for you, a contingency fee contract or an hourly fee contract? The simple answer to this question for most people is Contingency Fee contract. In fact, it’s not only the best choice, but it’s also the only choice for most people unless you are a rich multi-millionaire. You see the vast majority of people could never afford to hire a personal injury lawyer on an hourly fee contract.

According to the United States, Consumer Law Survey the average hourly rate in California for an attorney that might handle an accident-type case is $450 an hour. The rates range between $338 per hour and $663 per hour. I’ve personally known a lot of lawyers who charge a lot more than that per hour. (they aren’t personal injury lawyers)

Personal injury cases in California can take a year or longer to resolve, either through settlement or a court trial. And before a personal injury case is finished, a personal injury lawyer often spends a lot of hours and does a lot of work on the case including interviewing witnesses, obtaining and reviewing a lot of documents and reports, preparing and filing the court case (the lawsuit), issuing subpoenas, taking depositions, hiring and working with expert witnesses, and on and on.

Personal injury lawyers spend a lot of time preparing and presenting an injury case. That means your attorney may spend hundreds, or sometimes thousands of hours working on your case, and at hourly rates of $450 or more, that could cost you tens of thousands of dollars or more, and with an hourly fee contract, you would have to pay for all of that money upfront. In other words, you have to pay as you go. Almost nobody could afford to hire a lawyer like this. And if you spent all of that money on an hourly rate contract and you lose your case, you will have lost both your case and all of the money you spent on it. That’s just one reason why personal injury cases are not handled on an hourly basis. It’s just too expensive and too risky for the injured person.

Access to justice for all

The contingency fee contract was developed so that the very poorest person could hire the very best lawyer. It allows everyone the same access to the court system, regardless of their economic status.

Contingency fee contracts also prevent bad cases, or cases with no merit, from ever getting to court, because no lawyer who works on a contingent fee contract is going to take a case that cannot be won. If they did, they would never make any money, because they only get paid if they win. Contingency fee contracts are also a great motivation for a lawyer to work hard on their client's case because their fee is based on how well they do and how much money they win.

A short and interesting history of contingency fee contracts

A long time ago contingency fee contracts were illegal. Back then it was called "champerty". Back then the rich controlled everything in society and they had the financial means to pay good lawyers to do whatever was necessary to keep them wealthy and in power.

In the early 1840s in England, this finally started to change. Society started to understand there existed a human rationale for the contingency fee. An example of this and why things changed can be seen in the terrible accidents that happened in the British coal mines. The surviving widows of the men killed in mine accidents were unable to do anything about it, even when the accident had been caused by the gross negligence of the coal mine owners. The widows couldn’t afford to pay a lawyer by the hour, so they found lawyers who would take their cases on a contingency fee basis. This gave them access to the court system for the first time in history.

In the United States, the contingency fee contract first arose in several of the newly-settled states of Kentucky, Maine, Ohio, and Tennessee in the early nineteenth century. Settlers who had purchased titles on land, built homes on the land, cleared farms on the land, and paid taxes for years, found themselves being wrongfully evicted and moved off their land by wealthy newcomers. These settlers were desperate for legal representation, but they had no ability to pay up-front lawyer fees, so they utilized a new contract called a contingency fee contract which gave them access to the courts to fight for their rights. You can read more about the interesting history of contingency fee contracts in Enabling the Poor to Have Their Day in Court: The Sanctioning of Contingency Fee Contracts, a History to 1940

No one likes an "Ambulance Chaser"

Contingency fee contracts were a great step in the right direction for our society, but as in many things, sometimes a good thing gets turned in the wrong direction, and some personal injury lawyers who use contingency fee contracts have developed a bad reputation.

As a personal injury lawyer myself since 1985, I have heard my fill of “lawyer jokes”, especially the ones about greedy lawyers. And I’ve heard all the sarcastic names we are called like “sharks” and “ambulance chasers”. (for the record, I’ve never actually seen a personal injury lawyer running after an ambulance!)

As a lifelong personal injury lawyer, I will admit that a lot of this criticism of my profession is well deserved. There are unfortunately more unsavory personal injury lawyers out there than most of us in the profession would like to admit. I think the point of the lawyer jokes (at least in the area of personal injury law) is aimed at creating an impression that most personal injury cases are frivolous, without merit, and that people are suing just to make quick money. In my many years of experience, the truth however is just the opposite!

One of the great things about the contingency fee contract is that it actually helps to prevent the filing of so-called “frivolous lawsuits” or cases that have no merit. This is because no personal injury lawyer is going to take a case that is a loser. When a personal injury lawyer takes a case they have to invest hundreds or even thousands of hours working on the case, and if the case has no possibility of winning, the lawyer will never get paid, and no one likes to work without being paid. I am convinced this is why the number of personal injury lawsuits filed is actually quite low, and this is good for the court system and good for society. For more on this take a look at this great article: Contingency Fees: The Free-Market Deterrent to Frivolous Lawsuits

In short, the history of contingency fee contracts shows that they help maintain an equal footing in our courts between the wealthy and powerful corporations and the average person who can’t afford to hire a lawyer to fight for justice. Contingency fee contracts are arguably "as American as apple pie" as they say because they help to preserve one of our country’s principal rights - the right to a fair trial which is granted to us under the Seventh Amendment.

Contingency fee contracts have "Sliding Scales"

One of the main and best features of a contingency fee contract is the “sliding scale” contained in the contract. This means that most contingency fee contracts don’t state just one amount that you might be charged by your lawyer if you win your case, instead, the contingency fee contract will list several different amounts. In other words, most contingency fee contracts don’t usually say “...if we win the case we get 50% of the recovery”.

Instead, most contingency fee contracts usually have several different amounts that you may be charged, and the amount typically goes up as the amount of work done by the lawyer goes up, which makes sense. The more work the lawyer has to do, the more they are going to get paid. Remember, if they don’t win, you don't have to pay them for the many months or years they spent working on your case, so the lawyer is taking a lot of risk on you and your case.

A common contingency fee contract will contain several different percentages and will have different amounts (percentages of the recovery) that you will be charged depending on what happens in your case. That’s why it’s called a “sliding” scale - because the amount slides up as the amount of work in the case goes up.

Here is an example of what a sliding scale fee might look like in a simple contingency fee contract:

You’ll be charged:

• 25% if the case is resolved before a lawsuit is filed in court; or you’ll be charged
  
• 33.3 % if the case is resolved after a lawsuit is filed in court, but before expert witnesses have to be exchanged; or you’ll be charged
  
• 45% after expert witnesses are exchanged.

This is just an example and your contract will probably be different. I like to use this example because I think these terms are fair for most types of personal injury cases. The point is that you need to read your contract, and especially the sliding scale fee portion very carefully and make sure you understand what it means and when these events might happen in your case.

For example, if your contract looks like the one in this example, and your lawyer has the habit of immediately filing a lawsuit in every case after he signs up the client, then you’re probably never going to be charged 25% - you’re going to pay at least the 33.3% and the lower fee of 25% will never apply to your case. So before you sign a contingency fee contract ask the lawyer when a lawsuit in your case will most likely be filed in court. In many jurisdictions a lawsuit does not have to be filed until 2 years after the accident, so you might be at the lower rate of 25% for a long time if your lawyer waits to file a lawsuit.

One of the most horrible examples I have seen of a lawyer taking advantage of a client in a contingency fee case happened a number of years ago to a woman who came to me looking for a new lawyer. I’ve told this story before, but it deserves repeating because it shows how careful you have to be when you read your contingency fee contract, and how important it is to ask the lawyer you are thinking of hiring a lot of questions about how your particular case will be handled. Here is that example:

The contingency fee contract that blew up in her face

In that case, the woman told me she signed a contingency fee contract with a personal injury lawyer that had a sliding scale which included fees of 25% and 33.3%, and 45%. This meant that she would be charged a different percent of the recovery depending on what happened in her case. Unfortunately, she did not understand what those events were or when they might happen.

She said she had “wishful thinking” that she would only be charged 25%, not the higher rates of 33.3% or 45% which were also mentioned in the contingency fee contract. She thought her case was a good case and that it would settle rather quickly, without very much work by the lawyer, so she figured she would only be charged 25%. Her contingency fee contract stated that the amount she was going to be charged started at 25% when she signed her contract, and it didn’t go up to 45% until “a trial date was set by the court” in her case, and since her case was brand new, she thought a trial date wasn’t going to be set for possibly a year or more, so she wasn’t worried.

But what she didn’t know (and didn’t ask) was that in the jurisdiction where her case was filed, the court “sets a trial date” right at the beginning of the case, as soon as the complaint is filed. As a result, as soon as she signed her contract and hired her lawyer, the lawyer filed her lawsuit in court, so right from the start, she was going to be charged a 45% fee, because the court set the trial date on the same date that her lawyer filed it. So even if her case was settled a week later, without a lot of work by the lawyer, she was going to be charged 45% of the recovery! In a case worth $100,000, that meant she was going to pay $45,000 in attorney fees instead of $25,000!

So the lesson is you MUST know when the sliding scale fee is going to go up from one percent to the next higher percent.

You also have to ask the lawyer when each of these events is most likely to occur based on the customary practices of the lawyer, the jurisdiction where the case is filed, and the particularities of your case. And you need to ask these questions before you sign a contingency fee contract (i.e. before you hire your lawyer).

You should negotiate the sliding scale fees in your contingency fee contract

I’ve said this before, and I’ll repeat it again: You should negotiate your contingency fee contract! In other words, ask for a better deal. And the easiest way to do that is to adjust the fee percentages.

This is the best way for you to save potentially thousands of dollars in your personal injury case. If you were going to hire a lawyer on an hourly fee basis you probably wouldn’t hesitate to negotiate the fees. If the lawyer wanted $500 an hour you might suggest they accept $400 an hour. That would be totally normal.

Likewise, you should negotiate your contingency fee contract as well. Unfortunately, many people are either embarrassed to ask for a better contingency fee rate, or they don’t know how to do it. Let’s address both of these concerns.

Lawyers are professional negotiators! They aren’t offended when you ask for a better rate on a contingency fee contract. And the worst they can say is ‘No’ and then you can decide if you still want to hire them or if you want to look around for another lawyer. To ask a personal injury lawyer to negotiate a contingency fee contract is like asking the waiter to refill your water glass at a restaurant. That’s what they do! So don’t be embarrassed. Ask!

But how do you do it? And what modifications to the contract should you ask for? Here are just a few suggestions. And if you have specific questions about a contingency fee contract that you are thinking of signing, feel free to send me a message and I’ll let you know what I think.

Ask for modification of the highest percentage

As I said, the easiest thing to modify is the percentages. If the sliding scale in the contract you are considering asks you to pay a high rate of 50%, ask the lawyer to take 40%. Despite what most people think, or hope for, if a contingency fee contract has two or three different percentages in it, the most likely one you are going to pay is the high one, so I recommend leaving the low one alone and asking for a discount on the highest one. For example, if the contingency fee contract contains rates of 50%, 33.3%, and 25% - ask to have the 50% one lowered and leave the 25% one as it is. That’s how you will save the most money, but depending on your circumstances, you can ask for a modification of some or even all of the percentages.

Ask for modification of the events that change the percentages

As shown in my example above, the contingency fee can go up to the highest rate right at the start of your case because of something as simple as the way the court sets the trial date, so it is really important to understand both when the rate will go up, and when the event that causes it to go up is most likely to happen.

Understanding WHEN the rate goes up is just as important, or maybe more important, than the percentage itself. For example, if you were considering a contingency fee contract that had a low of 25% and a high of 55%, but the fee did not go from 25% to 55% until a jury verdict was reached in your favor, that would be a pretty good deal considering that a very small percentage of personal injury cases ever go as far as a jury verdict, and almost all of them are settled or resolved way before that point. This is an example of why WHEN, or what the event is that makes the fee go up, is every bit as important as what the various fees are.

Ask for help. Have your Lawyer Referral Service (LRS) help you negotiate the contract

One reason you should use a certified lawyer referral service like Higher Legal to help you find your personal injury lawyer is that the lawyer who runs the referral service can give you ideas on how to negotiate the contingency fee agreement.

I’ll give you a recent example where I did this for a client of mine

My client was badly injured in an automobile accident. Unfortunately, the driver who caused the accident only had a $100,000 insurance policy, which was way less than the case was worth. In addition to the negligence of the driver that hit my client, it looked like there might be other contributing causes to the accident, like a defective seatbelt (product liability case) and a dangerous highway configuration to the intersection where the accident happened (negligent road design case).

My client was given a standard contingency fee contract by the lawyer she chose. It looked like a pretty basic personal injury contingency fee agreement. But I reviewed the contract and thought my client could do better, so I contacted the lawyer to negotiate the contract.

I told the lawyer that if I contacted the insurance company for the negligent driver today and demand the full $100,000 available under that insurance policy, the insurance company would probably send a check for the full $100,000 to my client, and I would not charge her a fee, so she would keep the entire $100,000 recovery. This would save her from having to pay attorney fees on the $100,000 (which could be anywhere between $25,000 and $40,000).

I asked the lawyer to modify the contract and agree to not take any fee on the $100,000 from the driver of the car, so that all of their attorney fees would be taken out of the cases involving the defective seatbelt and/or the defective road design. The lawyer agreed.

The contract was modified to state these new terms. After many months of investigation, it was determined that there was not a viable seatbelt or road design case and the lawyer was not going to proceed any further with them. Because we had negotiated the contract to state that the lawyer would not get any fee from the $100,000 auto insurance policy, the client got the whole $100,000 and did not have to pay any attorneys fees. We saved her between $25,000 and $40,000 just by asking for this slight modification! That made for a very happy client!

I hope this article has provided you with some helpful information about contingency fee contracts and how to make sure you get the best contract in your California personal injury case.

If I can help you find an experienced personal injury lawyer please feel free to reach out to me at Higher Legal: Tell Me About Your Case

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