Contingent fee fundamentals. A contingent fee pays a trial lawyer solely out of the benefits he obtains for his client. No benefits, no fee. Big benefits, big fee.
Contingent fee arrangements can be but aren’t necessarily complex. Today we’ll talk about some important variables.
Gross sum recovered. In Blawgletter’s firm, the standard engagement letter defines the contingent fee as a percentage of the "gross sum recovered" — which means all cash and other things of value.
Sliding scale. The percentage varies from case to case. It depends primarily on probable risk and damages versus likely investment. In general, a high-risk case with small damages and a big time commitment would call for a larger-than-average percentage. A case with low risk, high damages, and a small time commitment would justify a littler-than-average percentage.
The fee may also change as litigation progresses — and the amount of work the law firm has done grows. A 30 percent pre-litigation fee, for example, could step up to 35 percent after suit is filed; the 35 to 40 once within 90 days of an active trial setting; and 40 to 45 when the parties finish putting on evidence at trial.
Who advances expenses also affects the percentage. If the client fronts expense, the firm charges a lower percentage.
Finally, some fee arrangements specify different percentages for different recoveries or ranges of recoveries. The deal may set percentage A for recoveries up to $X million, percentage B for recoveries between $X million and $Y million, and percentage C for recoveries above $Y million.
Effect of expenses on caculating contingent fee. Expenses also come into play when computing the fee. Under many standard engagement letters, the fee equals the gross recovery times the relevant contingent percentage before deduction of expenses. If the client recovers $15 million and the relevant percentage is 40, the fee equals $6 million regardless of expenses. The fee would be lower if the fee is calculated after expenses are deducted.
But what about reimbursing expenses? As a general rule, expenses come out of the client’s share of any recovery no matter who advances them. In the $15 million example, if the firm covers expenses, it would get the $6 million fee plus $1 million in expenses; the client would receive the other $8 million.
For more information. Simple, right? If you want to know more, you can always contact us by phone or email. We’re happy to help. Usually.