Many collections lawyers handle cases on a contingency basis. They don’t bill by the hour, but, instead, they keep some percentage (usually 33%) of the money they actually collect for the clients. Sounds fair, right?
A recent study showed that a Nashville lawyer’s average rate exceeds $500 per hour, and that adds up pretty quick. With lawyers being so expensive, it makes sense that some clients would ask their attorney to share in the success (or, maybe, frustration) of the collection process.
(As a quick disclaimer, I rarely take collections cases on a contingency and, when I do, I’ve done my advance homework and am confident that, candidly, we’re all going to make a lot of money.)
Because the contingency fee attorney is not sending bills that track every minute of his time, a down-side is that he may not have a clear measure of how much in fees he has expended on a case. This is important in breach of contract cases, when the lawyer asks the judge to add an award of attorney fees to the creditor’s judgment. Under Tennessee law, a trial court must consider whether the fees requested are “reasonable,” using very specific guidelines established by the Tennessee Supreme Court.
If the lawyer hasn’t kept track of her work, then what amount does the attorney ask for? Generally, contingency-fee lawyers simply ask for their contingency-fee amount to be added to the judgment. That is generally allowed.
Not so fast, a September 2023 Tennessee Court of Appeals opinion says.
In that case, after they were awarded $50,000 on their breach of contract claim, the plaintiffs asked for attorney’s fees “in the amount of one-third of the total Judgment, or sixteen thousand six hundred and sixty-six dollars and sixty-six cents ($16,666.66).” See Fulmer v. SARCO, GP, No. M202201479COAR3CV, 2023 WL 5787082, at *2 (Tenn. Ct. App. Sept. 7, 2023).
In questioning the attorney fees, the Court of Appeals wrote that “[w]hile a one-third fee may have been what [plaintiffs] agreed to pay their counsel, it is not what [defendants] agreed to pay in the Note” (which only referenced “reasonable attorney fees”). Id. The defendants were not party to the contingency fee agreement, and “what [plaintiffs] agreed to pay their own attorney is not dispositive of what constitutes a reasonable fee under the circumstances of this case.” Id.
Instead, the trial court must have some proof substantiating the fees and services provided, consistent with the factors listed in Tennessee Supreme Court Rule 8, RPC 1.5. Id.
I understand the reasoning here, but I disagree with the general premise that a contingency fee is, per se, not reasonable.
As an example, consider my practice. If I accept one of my no-brainer, “we’re all going to make a lot of money” contingency fee cases mentioned above (and my homework is correct), I could possibly make a $333,333.33 fee on a lawsuit that lasts two months. Does that the fact that I got the matter resolved quickly and efficiently necessarily mean that my fee violates the Tennessee standards for reasonableness? This opinion suggests it might.
In my limited contingency practice, I lean really heavily on my skills, expertise, and homework (i.e. the “novelty and difficulty” referenced in the Rule) in picking my cases. In short, on those cases where I hit a grand slam, it can occasionally look easy, but a lot goes into that. It’s like the ship repairman, who charged $2.00 for tapping the engine with a hammer one time and $9,998.00 for knowing where to tap. He is worth every penny.
In the end, the Court of Appeals remanded the question back to the trial court, and there’s some chance that the plaintiffs make these same arguments in defense of their contingency fee.