17.05.01. General Requirements

Contingency fee agreements are common in situations where the client cannot afford to hire the lawyer on an hourly basis.  The nature of contingency fees make them subject to dispute and abuse.  Because of these concerns, there are a number of requirements that must be satisfied to have an ethical contingency fee agreement.  Under Rule 1.5(c), the agreement must:

• Be in “a writing signed by the client”
• State the method by which the fee is to be determined, including:
  • The percentage that the lawyer will take from the recovery
  • If the percentages are different if the case is resolved before trial, after trial, or after appeal
  • The expenses that are to be charged to the client and deducted from recovery
  • Whether the expenses are to be deducted before or after the contingency fee amount is determined.  This is worth thinking about for a second because when expenses are deducted can impact how much money the client recovers in a case.  Consider this hypothetical case:  the contingency fee is 40% of the recovery.  The lawyer recovers $100,000.  Expenses that the lawyer is entitled to recover equal $20,000.  If the lawyer takes the expenses out first, then remaining amount would be $80,000.  The lawyer then takes his 40% ($32,000) and distributes the remaining $48,000 to the client.  On the other hand, if expenses are deducted after the contingency fee, the amount the client gets is less:  $100,000, subtract out the 40% contingency fee ($40,000), leaving $60,000.  Now subtract out the $20,000 in expenses, and the client will receive $40,000.  There were enough client complaints about expenses that the rule now requires a lawyer to disclose the method of deducting expenses in writing.
  • If the client is to be responsible for litigation expenses even if there is no recovery (if a lawyer says “no fee unless I collect for you” – that does not mean that the client will not be responsible for the expenses incurred by the lawyer in prosecuting the case).

At the conclusion of the matter the lawyer must provide the client with a “written statement stating the outcome of the matter and, if there is a recovery” the writing must set out how much the client is receiving and how it was calculated.[1]

[1] ABA Rule 1.5(c).