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Why is a Contingent Fee Agreement Necessary?

Occasionally, a new or prospective client of indicates a desire not to sign a formal contingent fee agreement. In most instances, there appears to be a concern that such an agreement somehow obligates the creditor or forwarder to an exclusive relationship, or at least one of a defined time period. In addition, there seems to be a general reluctance to deal with the details of the relationship that are addressed in the agreement. As to the first concern, it can be quite simply stated that, with regard to claim referrals, many contingent fee agreements do not bind the creditor or forwarder in any way -­ they do not demand exclusivity or require a minimum volume or time period. As for the "details," they're really just a few basics that need to be addressed to insure smooth claim handling.

Writing Required

First and foremost, it must be noted that Wisconsin statutes require that all contingent fee agreements be set forth in writing. Specifically, Wisconsin Supreme Court Rule 20:1.5(c) states, in relevant part:

A fee may be contingent on the outcome of the matter for which the services rendered, except in a matter in which a contingent fee is prohibited . . . A contingent fee agreement shall be in writing and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in event of settlement, trial or appeal, litigation and other expenses to be deducted from the recovery, and whether such expenses are to be conducted before or after the contingent fee is calculated.

Beyond this basic statutory command, there are important practical reasons for utilizing a written contingent fee agreement. In general, the agreement provides certain protections for both the creditor and the collection attorney.

Perhaps most important is the language that sets forth the fee structure. Although a fixed percentage on all accounts can be negotiated, some relationships are better served by distinguishing between in-state or out-of-state, large balances or small, non-suit or legal. Further, there should be some provision for fees on the recovery of something other than money (when authorized by the client). In our standard contract, the agreed fees are charged against 50% of the original value of the merchandise or goods recovered.

Other Common Issues

In addition, the contingent fee agreement addresses the important issues of suit authorization and the expenditure of court costs. Some clients prefer to provide a "blanket" authorization to sue, to avoid repeated requests. Others would prefer to evaluate each file on a case by case basis. Under the latter circumstances, a contingent fee agreement usually combines the provision of suit authorization with the advancement of court costs. Since the law requires that the plaintiff (or client) be ultimately responsible for court costs, it is important that the contingent fee agreement set forth terms in that regard.

A similar issue addressed is settlement authorization. Understandably, the vast majority of our clients require that any compromised settlements be specifically authorized at the time of offer and acceptance. Language protecting this right is included in our standard contingent fee agreement. Any alternative arrangement, such as blanket settlement authority, is better addressed in a separate document.

Other items of interest include the application of funds recovered (court costs first, interest second, principal third), the handling of counterclaims, and the referral of claims to out of-state counsel. While these matters and others previously discussed are not often contemplated at initial referral, it should be apparent that they must be addressed to avoid problems during handling and recovery.

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