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Contingency Fee Agreements

Most personal injury attorneys take cases on a contingency basis.  It is important that a client understands the basics of a contingency agreement.

A contingency fee arrangement means that if a client does not recover anything through settlement, trial, or appeal, the client is under no obligation to pay his or her attorney’s legal fees.  Conversely, under a contingency fee agreement, the attorney will be entitled to a percentage of whatever is recovered by the client.   In addition, the attorney will recover all costs expended on the litigation.

The rule in New Mexico Rules of Professional Conduct for Attorneys regarding contingency fees can be found in NMRA §16-105 (C).  Under the New Mexico rule, an attorney’s fee can be contingent on the outcome of the litigation except in domestic relations and criminal cases.  A contingency fee agreement must always be in writing and signed by the client.  

In New Mexico, the arrangement must specify the method by which the fee is to be determined including: (1) the percentage that will be owed to the attorney in case of settlement, trial, and appeal; (2) expenses that will be deducted from the recovery; and (3) whether those expenses will be deducted before of after the contingent fee percentage is calculated.  If there is recovery, at the conclusion of representation, an attorney must provide the client with a written statement showing the amount remitted to the client and how it was calculated.

Under NMSA §16-108 (E), litigation costs may also be on a contingent basis.  Additionally, if a client is indigent, the attorney may pay court costs and litigation expenses on behalf of the client.   Where applicable, the arrangement must also clearly specify what expenses a client will be responsible for whether or not there is any recovery in the case.  

One of the most important issues to understand and discuss with an attorney about contingency fee agreements is whether expenses will be deducted before or after the contingency percentage is calculated.  In other words, will expenses be deducted from the gross proceeds or from the net proceeds?  In most cases, the fee is calculated on the gross amount of the recovery which it is important for a client to understand as a case proceeds and settlement decisions must be made.  

In addition, clients should understand that there are other costs and liens that must be paid out of the recovery which are not litigation costs.  These include medical liens and insurance subrogation liens among others.  These must be paid out of the proceeds or the client and in attorney both can have some significant ongoing liability for unpaid liens.  In cases involving Medicare and Medicaid, failure to pay liens can be disastrous in terms of penalties and fines.  

Attorney’s fees and costs under a contingency fee arrangement can be somewhat confusing at first site.  However, all contingency fee arrangements must be clear and in writing so they are not impenetrable.  You should read your contingency fee agreement closely and if you have questions, discuss these questions with your attorney before you sign.  Keep in mind that these are binding contracts and you will be held to the terms of the fee agreement that you sign.