When Is a Contingency Fee Agreement Binding in Texas?
When an attorney bills as a percentage of the recovery she wins for the client, the fees are based on a contingency fee agreement. Not all law cases in Texas may be legally billed using a contingency fee agreement. Most often, contingency fee contracts are used in litigation cases. The attorney prepares a contingency fee agreement, and certain elements must be included in the agreement for it to be considered binding in the state of Texas.
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Unlawful Contingency Fees
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In representing a defendant in a criminal case, according to Texas rules 1.04 and 1.5, a lawyer may not charge a contingency fee. Rule 1.5 forbids unreasonable contingency fees. Also, the prevailing party in a Texas Deceptive Trade Practices Act (DTPA) lawsuit may recover attorneys fees only if the fees are a dollar amount. In the case of Arthur Andersen & Co. v. Perry Equipment Corp., 945 S.W.2d 812 (Tex. 1997), the Texas Supreme Court ruled that attorney fees awarded under a DTPA case could not be based on a percentage of the judgment amount, which is how contingency fees are figured.
Domestic Law Contingency Cases
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According to Texas rule 1.04, an attorney may charge a contingency fee for client representation in domestic law cases. However, the rule comments that this "is rarely justified." Some feel a contingency fee in a divorce case might encourage the attorney to pursue a divorce when he should be encouraging a reconciliation instead.
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Contingency Fee Agreements
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Contingency fee agreements, according to Rule 1.04(d), must be in writing. Further, Texas Government Code section 82.065(a) requires that a written contingency fee be signed by both the attorney and the client. However, in one case, Enochs v. Brown, 872 S.W.2d 312, 318 (Tex. App. Austin 1994, no writ), the contingency fee agreement was considered binding if it was in writing and was signed by the party to be charged the fee.
The Contingency Fee
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Rule 1.04(d) states the contingency contract must include how the fee will be determined, what expenses will be deducted before the fee is calculated and whether the fee percentage changes based on whether the case was settled, went to trial or was settled on appeal. The contingency fee may be calculated on the entire recovery amount. At the conclusion of a contingency case, the attorney follows up with the client in writing describing the outcome of the case and the final financial disclosure details.
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