Contingent Fee Agreements-Watch Out For Costs
BEWARE OF COSTS
In addition to the lawyer’s fee, there will be other costs involved in pursuing your case. These include court filing fees, court reporter fees, expert witness fees, and many things you would never imagine. In major litigation cases, the costs can amount to hundreds of thousands, or even millions of dollars.
Unless the case is extremely difficult, the PI lawyer puts up the costs required to investigate the case, file the legal papers, etc. These are repaid to the lawyer at the successful conclusion of the case. In auto accidents and fall down cases, the lawyer almost always pays for these costs up front. (In medical malpractice cases, unless the liability seems clear and the injuries are severe, the client may be asked to pay the cost of gathering the medical records and having them reviewed. This varies from case to case and from lawyer to lawyer.)
How these fees are paid should be spelled out clearly in the fee agreement. One major issue is whether the costs come out of the client’s share of the proceeds or if they are taken out before the proceeds are split. Because the costs can be extremely high, how this is calculated can make a big difference in the outcome.
Example: Consider a $100,000 award in which the costs are $20,000 and the lawyer gets a fee of 33.3%. If the costs come out before the lawyer takes his or her share, the balance is $80,000. Of that $80,000, the lawyer will get $26,666 and the client $53,334. If the lawyer takes his or her 33.3% before costs are taken out, the lawyer will get $33,333.The client will have to pay the costs from his or her share, so he or she will be left with $46,667 ($66,667 – $20,000). This is a difference of $6,667 between the two calculations.
NOTE: Insist that the costs be taken out of any award first, before the attorney takes his or her percentage. Otherwise you will end up with a much smaller percentage of the net proceeds than you thought.
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