Lawyer’s  contingency  fees  are  generally  outrageous

In Canada, a lawyer after passing the bar (permitted to practice as a lawyer) and gets a job in a large productive law firm, will earn on average, $98 thousand dollars for the first year of his practice. By the time he has been practicing seven years, he will earn during that year, $215 thousand dollars.  He will meanwhile have earned during those seven years as much as $904 thousand dollars. And he will no doubt get bonuses so it is conceivable that he will have earned at least a million dollars during that seven-year period. If he works for forty years at 215 thousand dollars a year, that would come to $8,600,000. And if you add 30% bonuses which is normal in large firms, the amount will come to over $10,000,000. 

When I practiced law as a court agent (paralegal) for twenty years in Ontario, I never charged more than $50 an hour and yet, I represented clients in small claims courts, criminal courts, family courts, traffic courts and tribunals and on several occasions, I represented lawyers in court. I prepared appeals a number of times and argued them in court.  I rarely lost a case or an appeal on behalf of my clients.  On two occasions, judges seeing me in court waiting for my client’s cases to come up, asked me to approach the bench and then asked me for my legal opinion on the decisions they were about to make and two deputy judges asked me to help them research law and law firms hired me to research law for them also. I also drew up business contracts for clients along with living wills. A university sent paralegal students to me for thirty days at a time for me to teach them how to research law. I also brought about a two-year court agent program for a college in Ontario and helped draft up the curriculum. I generally saw 80 clients a year and I represented clients in court approximately 70 times a year. I studied criminal law at the University of Toronto and I studied family law at the Guelph/Humber University. The rest I learned on my own. This doesn’t make me smarter than lawyers but it does show why many people use the services of an experienced paralegal instead of lawyers in Ontario. The most I made in any given year was $35,000 and from that I had to pay my office bills. Fortunately, because I worked out of my home, I could write off those costs in my tax returns. I probably earned approximately $600,000 during those twenty years. What is ironic about this is that the kind of work I did was really not that much different than what the lawyers who earned at least $5,000,000 for the work they were doing during twenty-years of legal work.

What is really shocking is what some of these lawyers earn when they work for their clients on a contingency basis. (working for nothing but claiming 30% of the court award when they succeed)

Let me give you an example. Suppose you are in a car accident and as a result, you cannot work again. You are 30 years of age and would have at least thirty-five years left to continue working before you retire at sixty-five.  You earned on average, $30,000 a year. This means that you would lose $1,050,000 in income for the next 35 years because you are no longer being able to work. Let’s presume that you don’t need any medical care by the time the insurance company is going to settle with your lawyer. He and the insurance company agree to settle for $1,100.000. The extra $50,000 is to cover inconvenience and loss of enjoyment. Of the $1,050,000 that the court awarded you for lost income, you will lose $330,000 to the lawyer.. Of the inconvenience and loss of enjoyment award of $50,000, you will lose $15,000 to the lawyer. All told, you will lose as much as $345,000 which will go to your lawyer as his contingency fee. That leaves you, only $755,000.

Now let’s presume that he interviewed you for two hours and his fee is $200 an hour. That’s $400 dollars for the interview. He sends a letter to your medical doctor and pays the doctor $50 for his medical report and charges $25 for the sending him the letter. He sends two letters to the insurance company and that amounts to $50 of his time. He obtains by letter, the police report and charges $50 for reading it. He meets with the insurance company on two occasions for an hour each time and that amounts to $400. He phones you to pick up the cheque for $755,000 made payable to you. He charges $5.00 for the call. You pick up the cheque. He charges $25.00 for his time in talking to you.

If you hadn’t signed an agreement with him that he would claim from you 30% of whatever he collects from the insurance company on your behalf, his fee would only have been $555.00. But because you signed an agreement with him that you would pay him 30% of whatever the award would be or whatever the insurance would pay, you lost $344,445 to the lawyer for the six hours he worked on your case. That would come out to $57,409 an hour. Do you really believe that any lawyer’s time is worth that much?

Many years ago, a client came to me and asked me to try and settle an insurance claim on his behalf. He was definitely not at fault when his car he was driving was struck by a drunk driver. He couldn’t work with his hands for five years and was claiming for loss of income for the five years he was out of work because of the accident. Since he worked as an expert air-conditioner who designed and built air-conditioning units for large buildings, he said he earned a million dollars for each the five years he worked in that field. He offered to give me 10% of whatever I could get from the insurance company of the drunk driver. We signed an agreement to that effect. I made a few phone calls and also sent a lengthy letter to the insurance company which included his doctor’s medical prognosis. The police report was already in the hands of the insurance adjuster. The insurance company also wanted proof that he earned a million dollars each of the five years he worked in that field. They told me that if I provided the proof, he would get the five million dollars.

Guess what? During those five years, he never filed a tax return. He says he kept all the money to himself. Now he realized that if he then declared the money to the Revenue Canada, he would be in real trouble because he didn’t have any more money left and therefore wouldn’t be able to pay the tax money or the penalty. He said that being the case, there would be no way he could provide proof that he actually earned that amount of money over a period of five years.

If he hadn’t tried to cheat the tax man and filed his tax returns during those five years, the insurance company would have given him the five million dollars and I would have got half a million dollars as my commission. Were my efforts worth that kind of money? Of course not but had he gone to a lawyer and the lawyer’s contingency fee was 30%, the lawyer would have got one and a half million dollars and that too would be far too much money for only a few hour’s work.

Here are some examples of real high contingency fees.

The tainted-blood scandal, in which thousands of people suffered after receiving the tainted blood, saw $52-million going to the lawyers. The settlement of the class-action suit in native residential schools could see as much as $85 million to $100 million being paid to lawyers handling those claims.

As many as 7,500 veterans sued in a class-action claim for back pensions were awarded $887,800,000. Part of that settlement involves a request to the court by the law firm than handled the case for an order that will pay the legal fees of the attorneys at McInnes Cooper, who’ve carried the case since its inception in 2007. They are asking the court to take $66,600,000 from the award and give it to them. I realize that the case took years to resolve but these lawyers weren’t working 8 hours a day, five days a week during all those years on that particular case. They had other cases to deal with at the same time.

It must not be forgotten that that class proceeding statutes were adopted to benefit class members and not just enterprising lawyers who are syphoning outrageous amounts of money from their client’s awards. Class-action lawyers should be reluctant to ask the courts for contingency fees as high as 30%.  This way the class-action members will be treated fairly with their awards. 

Lawyers aren’t the only people who demand large fees for their work. Two receivers were appointed by the United States and Antiguan courts to distribute the assets of the fraudulent firm of Stanford Financial Services. Allan Stanford defrauded his investors out of $7 billion dollars with his Ponzi scheme and was sentenced to 110 years in prison. For the past four years, the receiver, Ralph Janvey and another receiver had been fighting for control of the $300 million in US funds that was recovered from Stanford’s bank accounts in the UK.  The UK and the US signed an agreement with both receivers that they will receive $36 million in US funds from Stanford’s frozen funds in the UK. The Antiguan liquidator and Janvey had already received $20 million dollars each. Both receivers have each received all told, $56 million dollars. So far, the victims haven’t received a red cent although I imagine that they will begin getting some of their money back soon.