How do you handle fees and expenses in a personal injury or wrongful death case?
Many prospective clients in serious personal injury and wrongful death claims ask questions about legal fees and litigation expenses in handling their cases. As an Atlanta personal injury trial attorney handling serious injury and death cases across Georgia, and as an individual who remembers very well what it is like to be flat broke and in debt, I am very sensitive to those questions.
The short answer is that in handling personal injury and wrongful death cases for individuals and families, I do not require any money up front from clients whose cases I accept. I evaluate the merits of a case much like I would try to evaluate a stock before investing in it. If I take the case, I charge a percentage of what I recover for the client and advance the expenses. Both fees and expenses come out of the recovery from the other side. If we lose, I eat the time and expense invested in the case.
Fees in most personal injury cases are generally one-third of the amount of the recovery, with the percentage escalating if the case is tried, if there is an appeal, etc. While we prepare every case on the assumption that it will go to trial, about 95% of cases that are well screened and well prepared do settle before trial. We can’t work for free, and this is how I provide my family and save for retirement, but when necessary to make the numbers work out for a client, I do sometimes make courtesy discounts.
Occasionally, particularly in trucking cases, there is an opportunity to force the other side to pay the attorney fees and expenses. If we can do it, that goes directly to the client’s bottom line because I don’t charge the same fee twice.
Expenses in personal injury and wrongful death lawsuits include filing fees, process servers, expert witnesses, court reporters, medical records, depositions with both stenographic and video recording, fees to treating physicians for their depositions, exhibit preparation, travel expense, etc. Knowing that if we lose, I will eat the expense, I am somewhat conservative about spending money. Case expenses on the types of cases injury and death cases I accept generally run from $2,000 to $5,000 for a routine car wreck case with limited insurance coverage up to ten times that amount, or more, for a complex commercial trucking or premises liability case.
Products liability and medical malpractice cases can easily run up expenses well into six figures. Once I was co-counsel in an automotive products liability case in which an associated firm spent $500,000 on expenses. That’s pretty bold. Frankly, I figured that if frugal Ken had been running that show my expenses might have been closer to $100,000.
If a law firm advances case expenses out of pocket, that is treated as a loan and cannot be deducted from income for tax purposes until such time as the case is lost and the “loan” is written off. That can severely constrain the capacity of a firm to aggressively prosecute cases as they come along.
The U.S. Tax Court recently reasserted that case expenses advanced by a contingent-fee law firm on behalf of its clients are “in the nature of loans” rather than tax-deductible expenses for the law firm. (Humphrey, Farrington & McClain, P.C., v. Commissioner of Internal Revenue). Like many rulings before it, this case upholds Private Letter Ruling 8246013 (6/30/1982, IRC Sec(s). 162) which states that a law firm “…may not deduct as ordinary and necessary business expenses the various litigation costs advanced for a client on a contingent-fee case…”.
Therefore, in order to free up capital and increase capacity to do what needs to be done to develop serious personal injury and wrongful death cases, I maintain a litigation line of credit with Advocate Capital, which funds most of our case expenses. When cases are settled, the expenses are reimbursed to us out of the recovery. I then pay off the portion of the line of credit allocated to that case, and pass along as a case expense the nominal amount of interest incurred on those expenses. The transaction is a straight pass-through with full transparency and no markups. Because we and Advocate track every expense by case number, that is a very simple bookkeeping exercise.
The impact on my capacity to aggressively develop major cases is huge. If I need to hire a top national expert witness for a wrongful death or catastrophic injury case, I can do it without worrying about the effect on operating capital in office operation or the need to pay for my daughter’s upcoming wedding. If I need to fly around the country to take depositions in a major case, I can just do it without hesitation. Of course, being inherently frugal, I still buy the cheapest web-saver plane tickets rather than flying first class, and stay at an economy motel when traveling for clients rather than a 5 star hotel.
For example, recently I was hired on an interstate tractor trailer wrongful death case at a time when cash flow was slow. Because I had ready access to adequate capital for case expenses without dipping into savings, there was no delay in hiring the best investigators and experts. The trucking company and its insurer had a “rapid response team” at the accident scene almost before the ambulance arrived. But I was able to have my own “rapid response team” on the way almost immediately after the first call from the client’s family attorney.
This makes a world of difference between weakness and strength, between failure and success.
Of course, I am frugal and don’t spend money on cases needlessly. Expenses are scaled to the potential recovery in the case. Having come up the hard way having to do things cheaply, I still resist spending a dime I don’t have to spend. I still know how to hold case expenses under $1,000 when that is what the case needs, using stock drawings out of medical books rather than custom made medical illustrations, snapshots blown up at the drug store and glued to cardboard rather than professional photos professionally mounted, etc. It’s all a matter of what fits the case.
Ken Shigley is immediate past president of the State Bar of Georgia, chair of the board of the Institute for Continuing Legal Education in Georgia, lead author of Georgia Law of Torts: Trial Preparation & Practice (West, 2010-13), and double board certified in Civil Trial Advocacy and Civil Pretrial Advocacy by the National Board for Legal Specialty Certification. His Atlanta-based trial practice is focused on catastrophic injury and wrongful death cases arising from commercial truck and bus accidents and unsafe conditions on commercial premises.