Writing An Engagement Agreement: Contingent Fees

Attorneys must meet all statutory requirements and rules of ethics when drafting attorney-client fee agreements. if an attorney fails to comply with any provision of the California statutes applicable to such agreements, the fee agreement becomes voidable at the client’s option and the attorney is only entitled to a reasonable fee. A fee agreement, including all attachments, is confidential and legally privileged.

Typically, attorneys provide those legal services reasonably required to represent clients. They should take reasonable steps to keep clients informed of the progress of their matters, and to reasonably respond to their inquiries. If any court action is filed, attorneys typically represent clients until a settlement or judgment is reached.

A contingent fee agreement is a contract between attorney and client whereby the client’s requirement to pay any attorneys’ fee is dependent on the attorney recovering a settlement or judgment for the client. The client is not required to pay for legal services unless the attorney is successful in recovering monetary compensation for the client, usually a percentage of the client’s recovery. If the attorney loses the case, then the client pays no fees and is usually responsible only for litigation costs.

Contingency fees have traditionally been used in personal injury cases where there is some reasonably strong likelihood that a client will receive a damage award or settlement. However, contingency fees are not just limited to personal injury but are also used in cases involving collections, real estate tax appeals, mergers and acquisitions, securities and antitrust class actions, civil rights, patent litigation, loan transactions, and even where the attorney agrees to a percentage of the amount the defendant saves. Contingent fees are unethical in criminal cases. [Model Rule 1.5(d)(2).]

California Business and Professions Code § 6147 governs contingent fee agreements. It contains the same requirements as the Non-Contingent Fee Agreements discussed in an earlier blog and the following additional requirements:

(a) A statement of the contingency fee percentage amount.

(b) A statement as to how disbursements and costs will affect the contingency fee and the client’s recovery.

(c) 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 not covered by their contingency fee agreement. This may include any amounts collected for the client by the attorney.

(d) Unless the claim is subject to the provisions of Business and Professions Code § 6146 (Claim Against Health Care Provider) a statement that the fee is not set by law but is negotiable between the attorney and client.

(e) If the claim is subject to § 6146, a statement that the rates set forth for that section are the maximum limits for the contingency fee and that the attorney and client may negotiate a lower rate.

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