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Contingent Fee Agreements in Estate Litigation

contingent fee

Occasionally I am asked if I can accept a contingent fee arrangement to represent a client in an estate-related matter.  A contingent fee means that the attorney’s fee is based on a percentage or fraction (e.g. 1/3) of the amount recovered for the client.  No recovery means no fee.  This type of arrangement is typically (and almost always) used for cases like personal injury claims.  However, it is used very rarely for estate-related matters.

Contingent fees make a lot of sense for personal injury cases.  Often, individuals do not have the wherewithal to pay fees as a case plays out for years, or to pay if they lose.  For PI attorneys, they are often able to evaluate cases like these early on and gauge the potential and expected value of the case.  And for attorneys that take a lot of these cases, they are able to manage the risk of losing by spreading that risk over many cases.

Such an evaluation is often not feasible for estate-related litigation.  For example:

  • The value of the estate and its assets may not be known or certain early in the process.
  • It will not be known early on whether there are claims against the estate, claims that could end up consuming the value of the estate.
  • Cases like will contests are very fact-intensive and often the facts are not well fleshed out until after the discovery process has progressed.
  • Potential settlement may involve many parties with varying interests, both financial and emotional: heirs, beneficiaries and creditors, whereas a typical PI claim usually has an identifiable plaintiff and defendant(s).
  • Estate litigation may involve assets transferred through multiple vehicles (i.e. probate, trusts, joint tenancies, beneficiary designations) — how do you define what will be included in the fee calculation?  And is the fee based on a person’s entire interest in the estate/trust, or only a specific portion which is subject to the controversy?

The predictive nature of personal injury cases just doesn’t typically present itself in estate matters.

However, in rare situations it may make sense for both the attorney and the client.  In such cases, defining the basis of how the fee will be computed is extremely important, and may not be as intuitive as with personal injury cases.  Full disclosure and understanding is a must.

In large personal injury cases, when viewed through the lens of an hourly rate the ultimate contingent fee may well seem exorbitant.  The attorney may spend 100 hours to successfully investigate and negotiate a $3 million settlement.  At the standard 1/3, the fee would be $1 million.  $1 million into 100 hours is $10,000/hour.  Not bad.  Is this unconscionable?  Probably not.  The attorney may spend a lot more time, or may end up losing and receiving no fee.  Larger fees tend to compensate for other cases that don’t work out as well.  And clients entering into these agreements tend to understand the risks and rewards.

Does this same principle apply to estate litigation?  If the following case is any indication, maybe not so much.  Recently, a New York state appeals court threw out a contingent fee award (Lawrence v. Graubard Miller) in an estate matter and reduced the original $44 million fee all the way down to $3 million.  Now I know you’re thinking $3 million is still a lot of money (it is), but in accepting a contingent fee arrangement a lawyer takes on the risk of spending a lot of time and losing, along with the cost of the time value of money.  In this instance, apparently the law firm got into trouble by changing the fee agreement well into the case after litigation had become well established.

Granted, this NY case is unusual for a number of reasons, but a case like this highlights the rarity of this type of arrangement for estate litigation and the substantial problems that can be associated with them.  This case might also means that attorneys who were probably already leery of accepting this type of arrangement as a compromise for a client in estate litigation, will now view such potential agreements with even more hesitance or reject them outright.

UPDATE 10/31/2014: The New York Court of Appeals reversed the lower court ruling and reinstated the $44 million attorney fee. The Court ruled that “…she was a competent and shrewd woman who made a business judgment that was reasonable at the time, but which turned out in retrospect to be disadvantageous.”

4 Comments

  1. As a Nevada probate lawyer I usually decline offers to take probate litigation on a contingency fee. However, there are a few probate lawyers in Las Vegas who do take contested probate matters on a contingency fee. I have great respect for them because they trust their instincts and knowledge of probate law. I referred one such case to a fellow probate lawyer (no referral fee) and the lawyer made a third of a million dollar fee. This lawyer has no problem with court approvals.

    • Hi, Gents.

      Having a long background as a litigator before I added the “probate” prefix, I have developed a “nose” for a good contingency case.

      I am picky about what I will take on a contingency, but the good thing about probate is that there can be a large fund of money or assets from which to take a contingent fee.
      If the legal and factual issues are on my client’s side, and there is a fund of money sitting in the estate, I take contingent cases.

      • Jeffrey R. Gottlieb says:

        Jonathan & David, thanks for your comments. I’m glad to hear that there are attorneys out there successfully using contingent fee agreements for estates. There are certainly some situations where it can make a lot of sense. Lawrence v. Grabuard seems a bit spooky, although maybe it’s mostly just an example of a “bad facts” outlier case, or how not to go about it.

  2. Contingent fee estate litigation requires greater risk probability modeling skills than are used by finance businesses in litigation funding matters. Someone above appropriately noted that there is greater difficulty in evaluating probability of success in estate lit. cases than one would find in a typical PI case. That said, hybrid contingency and hourly fee arrangements can provide somewhat of a hedge against risk especially for law firms with excess capacity, and it is helpful that the client will have some skin in the game as well. Scaled fee arrangements add a layer of additional risk-benefit. In such cases, the fee increases from 30% to 40% as trial approaches so if the game is played over and over, statistically the law firm can remain in the black and have a niche practice.