AMERICAN
CONTINGENCY FEES
HERBERT M. KRITZER
William Mitchell College of Law
SPECIAL THANKS TO:
National Science Foundation
University of Wisconsin Graduate School The RAND Corporation
Are contingency fees a uniquely American
What do I mean by “contingency fee”?
• No win, no pay
• Percentage vs. other calculation
• Fully vs. partially contingent
Use of Contingency Fees
• United States
• England (“conditional fees”)
• Scotland (“speculative basis”)
• Canada; some provinces allow percentage fees
• Ireland (“no goal, no fee”)
• New Zealand (“speculative basis”)
• France
• Australia (at least in some class actions)
• Greece (percentage fees)
• Dominican Republic (percentage fees)
• Brazil
• Israel
While in most contingency fee cases there is a
recovery, that does not mean that lawyers face
little or no risk in handling cases on a contingency
Elements of Risk in Contingency Fees
• Nonrecovery (“no-win, no-pay”)
• Size of recovery (and hence size of fee)
• Investment (time and disbursements) required for recovery
Contingency fee lawyers are key gatekeepers. They turn away more cases
Case Screening, Wisconsin Acceptance Rates 0% 10% 20% 30% 40% 50% 60% All 1-10 11-25 26-75 76-200 201-1000 over 1000
Case Volume (per year)
Case Screening, Wisconsin
Why Cases Are Declined
0% 10% 20% 30% 40% 50%
All Cases All Cases without High Volume
Low Volume Medium Volume
Lack of Liability Inadequate Damages Both Liability and Damages Outside Lawyer's Expertise Other Reasons
Case Screening, Texas 0% 10% 20% 30% 40% 50% 60%
All Heavy Hitters Bread and Butter
Per
cent
Si
gned Up
2000 (mean) 2000 (median) 1995 (mean) 1995 (median)
SOURCE: Stephen Daniels and Joanne Martin, "It Was the Best of Times, It Was the Worst of Times: The Precarious Nature of Plaintiff's Practice in Texas," 80 Texas Law Review 1781, 1789 (2002).
While the most common contingency fee is one
third, lawyers vary
significantly in the fees they charge on a
Fee Percentages Wisconsin variable percent 31% other 5% flat 33 percent 57% other or unknown flat 5% flat 25 percent 3%
Fee Percentages: Federal CJRA Study
33 percent 55% more than 33 percent 20% less than 33 percent 25%
Fee Percentages:
RAND Injury Study (1991)
33 percent 53% more than 33 percent 11% less than 33 percent 36%
Fee Percentages:
Insurance Research Council Consumer Study (1999) 36 percent or higher 7% 21-30 percent 20% 31-35 percent 54% 20 percent or less 19%
Most contingency fee cases general at best
modest “profits” for the lawyer. Most lawyers
profit most from a small proportion of their
Measuring Return on Contingency Fee Work
MHR fees
hours
= ∑∑
• Effective Hourly Rate
• Mean Hourly Return
EHR fee received hours
Baselines for Comparison
• Auto mechanic: $75-$100 per hour
• Twin Cities Plumber: $150 per hour
• Routine doctor’s exam: $300-$500 per hour
• Neurosurgery: $3,000-$5,000 per hour
• Median hourly rate for lawyers charging by the hour
Wisconsin: $125 per hour
Returns from Contingency Fee Work, Wisconsin Data
$0 $50 $100 $150 $200 $250 $300 1
Mean EHR Median EHR
Mean Hourly Return 10% Trimmed Mean EHR 10% Trimmed Mean Hourly Return
Returns from Contingency Fee Work and Selected Case Characteristics I
DISPOSITION $0 $100 $200 $300 $400 $500
Unfiled Filed, not tried Tried
STAKES $0 $100 $200 $300 $400 $500 <$20,000 $10,000 - $50,000 >$50,000
Returns from Contingency Fee Work and Selected Case Characteristics II
Area of Law $0 $50 $100 $150 $200 $250 $300 $350 $400 $450
Auto Accident Medical
Malpractice Other Personal Injury Workers Comp/Soc Sec Contracts Other *
Returns from Contingency Fee Work and Selected Lawyer Characteristics I
Years of Experience $0 $100 $200 $300 $400 $500
Five or less Six to ten Eleven to twenty More than twenty *
Returns from Contingency Fee Work and Selected Lawyer Characteristics II
Practice Area $0 $100 $200 $300 $400 $500 Personal injury plaintiffs
Other litigation General practice
Other type of practice
Returns from Contingency Fee Work and Selected Lawyer Characteristics III
Case Volume $0 $100 $200 $300 $400 $500 1-5 6-10 11-25 26-100 more than 100
Returns from Contingency Fee Work: National Comparisons
$0 $100 $200 $300 $400 $500 $600 $700 $800 Federal Cases 1991 Federal Cases 1992-93 All Wisconsin Cases "High Stakes" Wisconsin Cases All Wisconsin Court-Filed Cases "High Stakes" Wisconsin Court-Filed Cases
Lawyers may have short term interests in resolving
contingency fee cases
because with modest cases the fee potential is limited.
hours recovery fee rate stage 4 $3,000 $1,000 $250 16 $6,000 $2,000 $125 prefiling 40 $12,000 $4,000 $100 pretrial 120 $18,000 $6,000 $50 trial 200 $18,000 $6,000 $30 appeal
Economics of the Contingency Fee
$125/hour
$20,000 case, 1/3 contingency fee “effective hourly rate” = fee/hours
Clients should not necessarily prefer the hourly fee as an
Is an Hourly Fee Better? hours contingency fee hourly fee net recovery hourly fee net recovery contingency fee 4 $1,000 $500 $2,500 $2,000 16 $2,000 $2,000 $4,000 $4,000 40 $4,000 $5,000 $7,000 $8,000 120 $6,000 $15,000 $3,000 $12,000 200 $6,000 $25,000 -$7,000 $12,000 $125/hour
The long-term interests of contingency fee lawyers is
best served by pursuing what is in the best interests of their client rather than by pursuing the lawyer’s short-term
LONG TERM AND SHORT TERM INTERESTS
• The importance of good results for the lawyer’s reputation.
• The role of reputation in obtaining clients.
• Lawyers are like investors, they need to approach their set of cases as a
portfolio rather than being too
MORE INFORMATION?
Visit my home page at:
http://www.wmitchell.edu/faculty/kritzer
Full results of the study:
Risks, Reputations, and Rewards: Contingency Fee Legal Practice
