Civil Litigation Legal Topics New Lawyers Practice of Law

Covering Costs in Contingent Fee Agreements

When you’re working for a contingent fee, i.e., you’ll be paid a percentage of the recovery, don’t forget to discuss the payment of costs in your fee agreement with your client. Here’s what you’ll need to include to be sure you cover costs.

You may decide that you want to advance costs and then be reimbursed at the end of the representation, unless the recovery is insufficient, in which case you’ve agreed to bear the loss. This type of arrangement is permitted by Cal Rules of Prof Cond 4-210(A)(3).

If you want to take this road and wait on cost recovery, state something like the following in your fee agreement:

Attorney will advance all “costs” in connection with Attorney’s representation of Client under this agreement. Attorney will be reimbursed out of any recovery before any distribution of fees to Attorney or any distribution to Client. If there is no recovery, or the recovery is insufficient to reimburse Attorney in full for costs advanced, then _ _[Attorney will bear the loss/Client will pay to Attorney the unreimbursed balance of the costs advanced]_ _.

Alternatively, you may want to be reimbursed for costs as you incur them. If that’s the route you want to take, state that the client will pay all “costs” in connection with your representation under the agreement. And make sure to explain how this will work:

Costs will be advanced by Attorney and then billed to Client _ _[unless the costs can be met out of Client deposits]_ _.

When the client isn’t providing any deposit, consider requiring the client to pay certain substantial costs in advance.

And don’t assume that what your client considers to be costs is the same as your meaning. Make sure to define “costs” by stating that

Costs include, but are not limited to, _ _[e.g., court filing fees, deposition costs, expert fees and expenses, investigation costs, messenger service fees, photocopying expenses, and process server fees]_ _.

If there will be costs that require the client’s advance approval, such as costs for consultants over a certain dollar amount, make sure to specify them. Also specifically list any items (e.g., in-office photocopying, mileage, computer time) that will be charged to the client other than those strictly at cost. See ABA Formal Opinion 93-379 (Dec. 6, 1993) (absent specific agreement to contrary, attorney should only charge client direct cost associated with service).

And finally, try to anticipate and list any items that aren’t included in costs but that the client might believe are included. This is particularly important when the client will incur medical expenses or may be ordered to pay costs of other parties. The client should be expressly informed that he or she must bear such obligations without any advancement or contribution by you.

For a sample contingent fee agreement as well as many other fee agreements for specific types of cases, turn to CEB’s Fee Agreement Forms Manual. This book will help you prepare agreements for new and returning clients, with all the clauses you might need for a valid, enforceable fee agreement. And find out more about getting your costs covered in CEB’s program How to Hang Your Shingle: Getting Paid, available On Demand.

Other CEBblog™ posts you may find useful:

© The Regents of the University of California, 2016. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

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