The Nuts & Bolts of a Contingency Fee Agreement

by Richard Gama

Your Fee Agreement should be a comprehensive and unambiguous memorialization of your promises to your new client and your new client’s promises to you. If it’s not, it can lead to costly and uncomfortable disputes between you and your client. The pertinent rules here are Chapter 23.3 of the Colorado Rules of Civil Procedure and Colorado Rule of Professional Conduct 1.5. Chapter 23.3 provides a sample Disclosure Statement and Contingency Fee Agreement but does not preclude the use of other forms, or additional terms, provided that they are not inconsistent with these Rules or the Colorado Rules of Professional Conduct. Some basic things to remember are that contingency fee arrangements cannot be used in criminal or divorce cases (see Rule 3, Chpt. 23.3); a contingency fee may be based on either net or gross recovery (see Form 2, Chpt. 23.3); and no part of the fee agreement can be unconscionable, unreasonable, or unfair (see Rule 3).

 

Attorney Costs: Rule 5 requires a stipulation that the client is to be ultimately liable for case expenses (even if the attorney advances those costs), and an estimate of such expenses be provided to the client. This is based on the inherent conflict of interest that would arise if an attorney was personally invested in the outcome of the case. Rule 5 also requires assigning a limit on the amount of costs you can incur before needing further written permission from the client. Set this limit too low and you’ll be constantly bugging your client for additional authority.

 

Withdrawal or Termination: An attorney’s contingency fee is contingent on recovering a settlement or judgment. However, an attorney who withdraws or is terminated before the settlement or judgment may generally recover the reasonable value of his/her services under a quantum meruit theory, which is an equitable theory of recovery that arises out of the need to avoid unjust enrichment to the client. While time-records may assist the court or tribunal in determining the reasonable value of your services, they are not required to successfully recover under quantum meruit. An attorney may be precluded from recovering under quantum meruit altogether, however, if the fee agreement does not adequately inform the client of the possibility of this alternative compensation.

 

Co-Counsel Arrangements: C.R.P.C. 1.5(d) authorizes the division of fees between more than one law firm only when it is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation, and the client agrees to the arrangement in writing.

 

Disbursing Client Proceeds: The fee agreement must contain a provision authorizing the disbursement to lienholders and others with an interest in the case proceeds. Keep in mind that, regardless of what your client wants you to do with their money, you may have an independent duty to pay and/or protect certain parties (i.e. hospitals with a statutory lien; Medicare/Medicaid; holders of a signed lien from your office or your client). While far from clear, consult Formal Ethics Opinion 94 for further guidance.

 


Gema-RichardRichard Gama received his law degree from Rutgers University School of Law in 2005 and before that was a graduate of the University of Colorado at Boulder. For the past eight years he has represented injured clients in a variety of personal injury matters as a litigation associate for The Law Firm of William Babich, LLC. Because he has a predilection for self-inflicted pain, he recently decided to hang his own shingle and open his own practice, where he continues to focus on personal injury matters exclusively. Mr. Gama is an active member of his community and belongs to various legal associations such as the Colorado Trial Lawyers Association, Colorado and Denver Bar Associations, and the American Association for Justice.

One comment on “The Nuts & Bolts of a Contingency Fee Agreement
  1. Jeff Wertz says:

    Facts: plaintiff is subject to a statutory lien from a prior criminal case with unpaid restitution. Duly recorded with secretary OD state and known to plaintiff’s lawyers for many months whilst case pending.

    The civil case is settled for less than the amount of the statutory lien. What is the proper ethical position of plaintiffs lawyer under Opinion 94? It appears that ALL of the settlement funds should be disbursed to the outside lien holder. The attorney has to “eat” his fees nevermind his unreimbursed costs? That is what ethics opinion 94 seems to say is the result.

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