Contingency fee contracts (contracts in which a fee is payable to an attorney only if a sum is recovered for the client from someone else) are common in California, particularly for personal injury and related cases. These contracts serve a valuable purpose: they permit injured persons to pursue litigation against someone who has harmed them, irrespective of whether they can afford to hire a lawyer right now.
In 1993, to assure consumer protection for clients of lawyers, California adopted a statute (California Business and Professions Code Section 6147) regulating contingent fee contracts. This statute contains important safeguards for someone hiring an attorney on a contingent fee basis. You should learn and know your rights under this law.
First, the law requires that any contingent fee contract be in writing, and that the injured person (or his guardian or representative) receive a duplicate copy of the contract signed by both the attorney and the client. That rule is important because it eliminates disputes about what someone supposedly “said” that the contract was to include: there must be a written contract to define the contingent fee agreement between attorney and client.
Next, the contract must contain a statement as to how disbursements and costs incurred in connection with the prosecution or settlement of the claim will affect the contingency fee and the client’s recovery. An example would be a personal injury case where there has been a court filing fee of $200 expended and advanced by the attorney, and the case ultimately resolves, during litigation, for $10,000. Is the attorney to be reimbursed the $200 he put out for the court filing fee? If the attorney’s fee set by the contract is 40% of the recovery, is that computed as a percentage of $10,000 or of $9,800? Costs advanced in personal injury cases for medical reports, outside investigation expense, trial exhibit preparation and expert witness consultation and testimony can be substantial, so how these expenses are to be handled, and how they impact computation of the attorney’s fee, should be explained in, and readily understood from, the language of the written contingent fee contract.
Next, the contract must contain a statement as to what extent, if any, the client could be required to pay any compensation to the attorney for related matters that arise out of their relationship that are not covered by the contingency fee contract itself. For example, in a personal injury case there are frequently lien claims presented by the client’s health insurance carrier, employer, or health care providers. If the attorney is going to charge the client some additional sum for attempting to negotiate and resolve such claims, this must be set forth in the written agreement because these are “related matters”, under the regulatory statute.
Next, with the exception of damage claims against a health care provider which are separately controlled by law* , a contingency fee contract must contain a statement that the attorney’s fee is not set by law, but is negotiable between attorney and client.
If a contingency fee contract does not meet all of these standards, it is voidable at the option of the client, meaning that the attorney is then entitled to collect not what the contract says, but instead what the court determines to be a reasonable fee.
Know your rights. Make sure that any contingency fee contract that you are considering entering into meets the requirements of California law. Ask questions, and be sure you understand what you are signing.
* In such cases (frequently called “medical malpractice” cases), the portion of the recovery which may be charged for an attorney’s contingency fee cannot exceed statutorily designated percentages. See California Business & Professions Code Section 6146.
Ralph L. Jacobson of GJEL Accident Attorneys represents plaintiffs in personal injury cases.