Last night I was watching a special on lawyers in Kansas who scammed their clients for millions of dollars in the Phen-Phen class action suit. Three lawyers represented 400+ individuals and received a $200 million dollar settlement. However, the lawyers only paid about 20% of the amount when they should have paid 33%. The lawyers stole millions for themselves.
Almost all lawyers are ethical and pay their clients what they should. But, there are some bad apples out there and the best way to protect yourself is to (1) understand how lawyers are paid, (2) knowing the fine print, and (3) educating yourself on how to protect yourself from unethical lawyers. Each will be discussed below.
How Lawyers Are Paid
Even though lawyers get paid to simplify things that are complicated, for some reason we have difficulty communicating how we get paid.
Part of the problem is lawyer advertising and those big, bold promises stating “WE DON’T GET PAID UNLESS YOU DO” or “WE ONLY GET PAID IF YOU WIN”. While these statements are technically true, there are enough ifs, ands, or buts to confuse just about everyone. So how about some clarity?
Lawyers get paid in one of two ways.
The Hourly Rate: Under this agreement with the client, the client pays the lawyer for actual time spent on the case.
Example: If a lawyer charges $300 per hour, and spends ten minutes drafting a letter to your insurance company, then the lawyer will charge you $30 for that letter.
With hourly rates, the outcome of the case does not matter. The client pays the attorney for actual time spent performing legal services whether the client wins or loses.
TIP: If you have a litigation budget, or know you can only spend x amount of dollars, tell the attorney at the very first meeting. The attorney may be able to work with you to keep you within your budget or refer you to another lawyer who charges less.
The Contingency Fee: Here is where the confusion kicks in. With contingency fee cases (such as auto accidents), the lawyer and client usually agree that the lawyer does not get paid unless the client obtains a settlement or the judge/jury awards the client money at trial. Essentially, if the client wins money, the attorney gets paid a certain percentage of that amount.
Example: The client and attorney agree that the attorney will get thirty percent of any settlement or judgment. The case is settled for $100,000. The attorney gets paid $30,000.
TIP: Discuss what the contingency fee will be with the attorney before you sign a fee agreement. The contingency fee is negotiable. If the attorney offers to represent you for a 40% contingency fee, you are free to negotiate with them and possibly bring that number down. Some attorneys will state one fee, take it or leave it. But some may negotiate with you.
The Fine Print – Litigation Costs
With contingency cases, there is fine print you must be aware of – litigation costs.
Be very careful with contingency cases. Almost all fee agreements for contingency cases contain a section dealing with “litigation costs”. These costs include court filing fees, copying costs, postage, deposition transcripts costs, investigator costs, messenger services, and more. Almost every fee agreement states that the client is responsible for these costs, REGARDLESS of whether the client wins or loses.
TIP: Discuss litigation costs with the attorney before you decide to hire him or her. Ask the following:
- What costs are you responsible for.
- Will you pay the costs as they are incurred (i.e. every 30 days) or will the costs be deducted at the very end from your settlement or jury award?
- What happens if you lose the case? Will you have to reimburse the attorney for all litigation costs?
These questions are critical because litigation costs can easily reach fifteen or twenty thousand dollars, if not more, depending on the case. It may sound great that you won’t pay your lawyer unless you win, but you will pay thousands in litigation costs whether you win or lose. Clarify these costs at the very beginning and make sure whatever you and your attorney agree to is included in the fee agreement.
How to Protect Yourself Against Unethical Lawyers
Again, the vast majority of attorneys are good, honest people. But some are not and you need to know how to protect yourself against those few attorneys who give the rest of us a bad name.
(1) Make sure you and the lawyer sign a fee agreement before you agree to hire their firm.
(2) Make sure the fee agreement states exactly how the lawyer is paid. If payment is an hourly rate, make sure the fee agreement states what that rate is. If payment is a contingency fee, make sure the fee agreement states exactly what percent of the settlement or jury award the lawyer will receive.
(3) Make sure the fee agreement discusses litigation costs. What exactly will be charged as litigation costs? Who is ultimately responsible for those costs? Will the lawyer advance those costs or will you pay them as they are incurred? Who pays for litigation costs if you lose? When will payment be due if you lose? All at once? In installments?
(4) Ask for a copy of the signed fee agreement right after you and the lawyer sign it. Keep the fee agreement in your personal files.
(5) Ask for a monthly invoice of litigation costs regardless of how they are paid. Keep track of these costs, ask questions, be inquisitive.
(6) As the client, you decide whether to accept a settlement. Don’t let your attorney ever tell you that you have to accept a certain settlement amount. You don’t. It’s your decision whether to accept or not.
(7) If a settlement is reached, ask the lawyer for a copy of the settlement check(s) they receive from the Defendant. This way, you see exactly how much was paid to your lawyer by the other side. If you agree to a settlement of $50,000, the checks from the defendant should equal $50,000 (no more and no less).
(8) If you feel that something unethical has occurred, you have someone to help you. Contact the State Bar’s office of general counsel. You are always free to file a complaint and have the State Bar look into the matter on your behalf.
Hopefully this helps clarify a few things! Fee agreements can be tricky. However, part of our job is to clarify anything that confuses you about fees and costs. Ask questions! We’ll be happy to answer them.