Contingent Fee Agreements in Estate Litigation

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.”