New York personal injury lawyers usually charge on a “contingency fee” basis. The contingency fee allowed in a personal injury case varies from state to state, but generally it is either 1/3 (33 1/3%) or 40%. In New York it’s at most 1/3. It is often less where the lawyer is representing a minor and in medical malpractice cases. For the purposes of this blog post, let’s assume it is 1/3. But 1/3 of what exactly? It depends. Read on to find out!
But before I explain how it works, let me explain why it even exists. The contingency fee exists because most people can’t afford the very high hourly-based fees lawyers would charge. The hourly-based fees might reach over $100,000 in a complicated case. The contingency fee allows regular folks who have a valid personal injury claim to seek justice.The contingency fee is a gamble for your lawyer. If he does not win your case, he does not get paid. If he does win, or settles, he gets roughly a third of the money.
OK, now how does it work? In New York there are now two options the lawyer can give the client on a standard personal injury case. At Michaels & Smolak we give the client both options (and also let them pay by the hour if they can and prefer that). Before I explain the options, I need to explain what “disbursements” a/k/a “expenses” are on a personal injury case.
To pursue a personal injury claim your attorney has to pay out money for certain services. For example, getting your medical records from your doctor will usually cost him 75 cents per page. He may also have to retain investigators, pay storage fees relating to the preservation of evidence, retain expert witnesses and consultants, and pay for parking and transportation. If a lawsuit is filed, he has to pay court filing fees (for filing the lawsuit or motions), service of process fees, subpoena fees, and has to pay the court reporter for producing a deposition transcript, etc. If the case goes all the way to trial, he will have to pay your doctor to come to trial to give testimony on your behalf. There are other expenses too numerous to name here.
When a case settles or a judgment against the defendant is obtained, the insurance company sends you and your lawyer (the check is written to both of you) a check for the total settlement amount or the amount of the judgment entered. This amount is called the “gross recovery”. When all the expenses are then deducted from the “gross recovery”, the remaining amount is called the “net recovery”. Example: A case settles for $100,000, but there were $10,000 in disbursements. The “gross recovery” is $100,000 and the “net recovery” is $90,000.
Now let’s examine the two contingency fee options in New York:
Option Number One: In this option, the client agrees to reimburse the lawyer for the disbursements he paid out on the case should the case be lost or should no recovery be had. Where the client agrees to be liable for these expenses, the lawyer’s contingency fee is based on the percentage of the “net sum recovered”. This contingency fee will be lower than option two, described below, because the client is assuming some of the risk – the risk of getting stuck with expenses in the event no recovery is achieved. In sum, under this option, the client pays a lower fee but risks getting “stuck” with the expenses should there be a bad result.
Option Number Two: In this option, the lawyer agrees to remain liable for all expenses (a/k/a disbursements) in the event there is no recovery in the case. That means you will never get a bill from your lawyer for expenses. If the case is lost, or the case is closed without there being a settlement, the lawyer, and not the client, “eats” the expenses on the case. If the lawyer takes on this responsibility, naturally his fee is going to be higher to compensate him for it. That’s why his contingency fee under this option is one third of the “gross sum recovered”. Compare this to option one, where his fee is based on the “net” sum.
It is easier to understand the difference between these two options by looking at an example. Keep in mind the basic idea, though, which is this: In Option One, the client takes some risk of ending up owing the attorney for the expenses on the case but in exchange the fee is LOWER, i.e., it is based on the “net recovery” rather than the “gross recovery”. In Option Two, the client takes no risk at all – the attorney will be responsible for the expenses should no recovery be had. But in exchange for this additional risk to the attorney, his fee is HIGHER. It is based on the “gross recovery” rather than just the “net” recovery.
The Following reflects the financial consequences of each of the above two options, using as an example a case in which there is a recovery of $25,000 – and disbursements are $10,000.00.
|Option Number One:||Option Number Two:|
|Gross Recovery: $ 25,000.00||Gross Recovery: $ 25,000.00|
|Expenses: -$10,000.00||1/3 contingency fee: – $8,333.33|
|Net Recovery: $15,000||$16,666.67|
|1/3 contingency fee: -$5,000.00||Less Expenses: – $10,000.00|
|Client’s Recovery: $ 10,000.00||Client’s Recovery: $ 6,666.67|
Note that in the example above, the client who picked Option Two ended up with less money. But if the claim had been lost or no recovery obtained, the client who picked Option Two would not have to pay back the expenses to the lawyer as would the client who picked Option One.
Which option is right for you? It depends. Usually, in my experience, the client is better off with Option One. The fee is smaller so the client ends up with more. Option Two makes sense if the case is unlikely to settle, and thus is likely to go to trial, and the expenses are likely to be high. In that scenario, most clients would be well advised to accept Option Two, in which the attorney gets a higher fee but the client does not risk being stuck owing the attorney expenses should he lose at trial.
Whichever option you pick, Michaels & Smolak will be happy to represent you in your New York personal injury or malpractice claim. Call us for a free consultation!