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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.

The recalls made by Toyota, and the product defect problems surrounding some vehicles, have been news for quite some time.  These issues have spawned a myriad of lawsuits against Toyota by Toyota owners. But what about those individuals who have not been injured because of a defective Toyota, but whose vehicle's value has decreased because of all the bad press?

Plaintiffs who have not been injured in their Toyota, but nevertheless feel they have been harmed, may be able to sue Toyota for "economic harm" to their vehicle.  An example is the value given to certain Toyotas by Kelley Blue Book.  The Blue Book has lowered the resale value of certain Toyotas, and given that bad press is certain to continue, many industry experts believe the value will decrease further.  This is potentially an example of economic harm.

To be successful in such a suit, a plaintiff must show that the manufacture or design caused injury (Soule v General Motors Corp. (1994) 8 C4th 548, 560, 34 CR2d 607).  Plaintiffs could argue that their injury is the decreased value, or "economic harm" to their property.  

This type of class action suit could, potentially, expose Toyota to even greater liability then the class actions involving individuals who were physically harmed in a Toyota.  Will these types of claims succeed?  Stay tuned . . . because this is just the beginning of the legal fallout for Toyota.

What is a Structured Settlement?

A structured settlement most commonly results from a personal injury lawsuit involving product liability, vehicle accidents, wrongful death, medical malpractice and negligence.

A structured settlement is a second option when settling a personal physical injury claim.  The settlement plan can be designed to meet the unique needs of the injured party. Instead of accepting a cash settlement in a single lump sum, the injured party may receive payments spread out monthly or yearly via an annuity contract issued by an insurance company.  The damages awarded are funded in the form of an annuity contract issued by an insurance company. 

The settlement structure is typically as follows:

• A company (usually an insurance company) is selected by the defendant to structure the settlement.

• The structured settlement company purchases an annuity contract and sends the payments from the annuity to the plaintiff. The payments are fixed in time and amount.

• The structured settlement company retains ownership of the annuity even though the plaintiff is the beneficiary.

Structured Settlement – Tax Benefits and Principal Protection

Instead of receiving cash in a lump sum, a structured settlement allows the injured party to receive future periodic payments made through a structured settlement annuity. There are three main advantages of a structured settlement.

First, it is TAX FREE. Structured settlements are covered under section 104 of the Internal Revenue Code of 1986 and therefore totally tax free, both federally and at the State level.  This tax treatment differs significantly from a lump sum settlement because investment proceeds made with lump sum settlement proceeds (such as interest and dividends) are subject to both Federal and State taxes.

Second, structured settlements offer inherent spending protections. Since the settlement money is received over a period of time, the injured party enjoys protection from bad judgment, bad advice, bad spending habits, or bad luck. The injured party does not have the worry associated with managing a huge sum of money that must last a lifetime. In fact, a structured settlement can survive bankruptcy.

Third, a structured settlement is guaranteed by highly-rated life insurance companies and their benefits do not fluctuate based on the volatile financial markets.  Put simply, the injured party has peace of mind knowing that their future payments will be made as promised and in an amount expected. 

Should you Structure Your Personal Injury Settlement? 

If you suffer from a personal injury resulting from any type of accident, a structured settlement may be the strategic choice for you.  In addition to additional tax incentives, it guarantees you and your family a stream of income over a period of time.  Managing a large lump sum settlement can cause additional stresses in life, knowing that you and your loved ones will have a certain payment each month or year can provide a tremendous feeling of security.  The attorneys at The Digesti Law Firm LTP can help you make a decision whether your personal circumstances counsel you to receive your personal injury settlement in a lump sum or in a structured settlement.