June 2014 Contingent Fee Update

The Fourth Department of the Appellate Division of New York Supreme Court (as well as the other three departments) has modified the fee calculation rule in personal injury cases.

Traditionally, a plaintiff’s law firm pays the costs of proceeding with a case upfront on behalf of the client.  When the case resolves by settlement, trial or otherwise the law firm then pays itself back off the gross dollar figure of the recovered money and then calculates the contingent attorney’s fee on the net recovery.  Essentially, the attorney ends up paying for 1/3 of the client’s costs incurred in prosecuting the case.  This is no longer the only way to calculate a fee in personal injury cases in New York.

All of New York’s Appellate Divisions have changed the rule which, prior to this change, required calculation of an attorney’s fee based on the net sum recovered after deducting costs.  Instead, attorney’s now give their client’s the option of paying for the costs of the case themselves, which almost no one can afford to do, or having the attorney front the costs of the case on behalf of the client.  However, if the client opts for the latter option, the attorney is permitted to take a contingent fee off the gross dollar amount of recovery, not the net after deduction of costs.  Here are examples of each:

Option Number One Example                                                Option Number Two Example

Total recovery                                                  $10,000             Total recovery                                         $10,000

Less expenses and disbursements:         -$1,000            Less 33-1/3% of $10,000:                     -$3,333

Less 33-1/3% of remaining $9,000:           -$3,000             Less expenses and disbursements: -$1,000

Client’s recovery:                                              $6,000             Client’s recovery:                                      $5,667

One rationale behind this change is that “The proposed method of calculation will provide greater incentives for attorneys to assume litigation costs, increase a lawyer’s ability to effectively prosecute a claim on behalf of a client who is unable to underwrite essential costs, increase the likelihood that cases will be brought on behalf of indigent clients, and promote the lawyer’s duty of loyalty to clients.” See, Proposed Amendment Memorandum here.

To read the Appellate Division Fourth Department Rule, 22 NYCRR 1022.31,  please click here.