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Who Deducts Attorneys' Fees After Costs in Contingency Cases?

By George Khoury, Esq. | Last updated on

When it comes to structuring contingency fee agreements, most state bars allow quite a bit of latitude, so long as fees are reasonable. There may be some required magic language about the fee being negotiable that's mandated in your agreement, or some limits, but for the most part, lawyers are as free to undercut competitors and competitively price their services as they are to set prohibitively high fees.

In contingency matters specifically, one of the hot button issues that often results in conflict between clients and attorneys is when costs get deducted, or charged after a loss. No matter how clearly you communicated it to your clients, when the settlement check comes in, ten out of ten clients will tell you that they believed costs would be deducted from the recovery first, then your contingency percentage, rather than the other way around, regardless of what your agreement says. However, if you actively negotiated this term with the client at the outset, it's more likely they'll remember when the check arrives.

Don't Be Afraid to Win Contingency Agreement Negotiations

While many attorneys won't even fathom negotiating the terms of their agreements, despite what the agreement may specifically state, just as many will often be flexible on some terms. However, a negotiation should be give and take. A client is likely to respect a lawyer that negotiates term for term with them better than if you just give in to their demands. In negotiating the deduction of costs, there are a few options, and a few ways to handle it.

For instance, if a client is adamant about costs being deducted before your fees, you can ask the client to pay the costs up front themselves, or alternatively, be liable for costs in the event of a loss. Explaining that attorney fee structures are designed to mitigate the various risks involved, and that the increased risk of investing costs for an attorney warrants the deduction of costs after the fees, can be helpful. Explaining how the case can go belly up in the blink of an eye, if, heaven forbid, the client got hit by a bus the day before trial, while crass, can be also be helpful (if also tactful).

An alternative negotiation tactic for clients that insist on negotiating costs is to play with your contingency fee percentage by a couple points in either direction. Depending on the type of case, it can be wash, but cases involving many experts for a smaller injury, or potential total damages award, could skew the math. Giving the potential client an honest opinion on the estimated costs and recovery, while loathsome, can help to bring together a meeting of the minds, but might make for a tough road of managing expectations. Always be cautious when doing so and include the worst case scenarios (plural), average case scenario, and good case scenario (and never the best case scenario).

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