Contingent Fee

Payment to an attorney for legal services that depends, or is contingent, upon there being some recovery or award in the case. The payment is then a percentage of the amount recovered—such as 25 percent if the matter is settled, or 30 percent if it proceeds to trial.

Contingent-fee agreements are valid only in civil cases and are frequently used in personal injury cases. Court rules and statutes often regulate these fees in relation to the type of action and amount of recovery. Such an arrangement is generally used when the party seeking recovery cannot afford to retain an attorney and therefore would not have any effective means of prosecuting a claim.

An attorney is not entitled to a contingent fee in the absence of an express contract. Contingent-fee agreements, although intensively scrutinized by the courts, are valid if equitable and reasonable to the client. The purpose of a contingent fee is to reward attorneys for proficiency and diligence in prosecuting disputed and litigated claims, as opposed to rendering minor services that any inexperienced attorney might perform.

Contingent fees are never permitted in criminal cases, as there is no possibility of a financial recovery that would be the source of the contingent fee. These arrangements are emphatically discouraged in DIVORCE proceedings due to public policy considerations. An attorney may discourage a reconciliation if a fee depends upon the granting of a divorce. Public policy favors the continuation of marriage, which is traditionally viewed as a stabilizing force in society. A contingent-fee contract that prohibits a client from settling a case is also void as against public policy because society views the avoidance of unnecessary litigation as desirable.

When an attorney who was retained on a contingent-fee basis dies, his or her estate will not be entitled to any fee unless the attorney had completely performed the contract prior to death. In some states, the estate cannot recover unless the jury had returned a monetary award in favor of the client before the attorney's death. However, the attorney's personal representatives may collect payment for the reasonable services that were rendered.

An attorney might be entitled to recover his or her share of the proceeds of an action if the contingent-fee contract was substantially performed prior to the death of the client. If the case had been submitted to the jury before the client died, and the jury found in favor of the client, the attorney is entitled to his or her fee from the proceeds. If the suit is dismissed or settled by the client's personal representatives, the attorney might have no right to a fee unless the contract so provided. However, the death of a client does not deprive an attorney of the right to recover the reasonable value of his or her services rendered until the time of the client's death.

Jurisdictions are not unanimous as to the question of whether an attorney's contingent fee should be calculated based on the net amount of the recovery that a client actually receives or the gross amount of recovery before any successful counterclaims are factored in. For example, suppose that a personal-injury lawyer agrees to represent the plaintiff for a one-third contingent fee and recovers a $100,000 jury verdict. However, the jury also returned a verdict on the defendant's counterclaim for $10,000. Should the plaintiff's lawyer receive a $33,000 contingent fee or a $30,000 contingent fee?

Section 35 of the Restatement (Third) of the Law Governing Lawyers provides that "when a lawyer has contracted for a contingent fee, the lawyer is entitled to receive the specified fee only when and to the extent the client receives payment." Comment d to section 35 provides that "[i]n the absence of [a] prior agreement to the contrary, the amount of the client's recovery is computed net of any offset, such as a recovery by an opposing party on a counterclaim." To date, Section 35 has been adopted only in Texas. Other states calculate the fee based on the client's full award, regardless of whether the client ever actually recovers the full amount awarded, reasoning that such a calculation better reflects the comprehensive value of the attorney's services and the economic value received by the client.

A sample contingent fee agreement between an attorney and a client.