Proper Use of Contingent Expert Contracts
LACBA Update, November 2009
By David L. Brandon, member, LACBA Professional Responsibility and Ethics Committee. Brandon is a partner at Morris Polich & Purdy LLP. He serves as an adjunct professor of appellate law at Loyola Law School. The opinions expressed are his own.
As we all should know, contingent attorney fee contracts are generally permissible, subject to the limitation that they not provide for the attorney to receive a fee that is illegal or unconscionable.1 But what about experts? Can a client and/or attorney enter into a contract with an expert that provides the expert will be paid a percentage of the client’s recovery if the client is successful in the litigation for which the expert has been retained? Assuming such contracts are valid, they could be of assistance to a client who is prosecuting an action—and to the prosecuting attorney. Experts can be expensive, and a contingent expert agreement could relieve the attorney or client of a great deal of financial pressure.
So, are contingent expert agreements permissible? Several California cases cast light on this subject.
Some time ago, in Wilhelm v. Rush,2 an attorney retained an accountant to perform expert consulting work on a contingent basis. The accountant became dissatisfied and sued to invalidate the contract on the ground of illegality and recover the reasonable value of his services. The court of appeal rejected the argument that the contract was illegal. The court noted that while contracts for the procurement of specific testimony are illegal—i.e., where the “‘plaintiff agree[s], for a consideration, to procure testimony that would win the lawsuit,’”3—contracts to provide services that assist in the prosecution of a lawsuit are not. The court then turned to the contingent aspect of the contract noting that contracts for services in support of lawsuits are generally valid unless they have a “‘tendency...to prevent or impede the due course of justice.’” The court held that “‘[t]he mere fact that the recovery of compensation is to be contingent upon the success of the suit is not sufficient to nullify the contract.’”4
Many years later, in Medical Legal Consulting Services, Inc. v. Covarrubias,5 an appellate court was again faced with a contingent expert agreement. There, a plaintiff minor in a medical malpractice case hired MLCS to provide “medicolegal” assistance to the attorney on a contingent basis. The contract also provided that any expert testimony would be compensated on a noncontingent basis, i.e., hourly or per diem. This contract was signed by the minor’s guardians and attorney. After the case settled, the plaintiff was fired and not paid. The plaintiff sued for breach of contract. Pursuant to the contract, the case was filed in Maryland; the plaintiff prevailed. The plaintiff applied for entry of a sister state judgment in California; in that proceeding, the California trial court vacated the Maryland judgment. On appeal, the minor argued that enforcement of the Maryland judgment would violate fundamental California public policies. The court of appeal rejected this argument, in part because it found that “no important California interest...has been contravened because of the contingency fee arrangement....”6 The court noted, for example, there was no evidence that the plaintiff was to procure false testimony for the litigation, and, in addition, the contingent fee agreement did not apply to any potential expert testimony.7 Similar to Wilhelm, the court held that contingent expert agreements are not per se invalid, which brings us to Ojeda v. Sharp Cabrillo Hospital.8
In Ojeda, the plaintiff minor sued for medical malpractice and hired a consulting company on a contingent basis to assist the attorney. Expert witness services were to be compensated under separate agreements. The minor’s attorneys also signed this contract and agreed to pay the consultant pursuant to its terms. When the case settled, the consultant agreed to take a reduced fee. Nevertheless, the trial court refused to approve any payment to the consultant, finding the contingent fee contract to be unlawful, unethical, and contrary to public policy.9
As with the previous two cases, the court of appeal in Ojeda did not have trouble with the contingent nature of the fee, noting that the contract did not provide for the consultant to provide expert witness testimony on a contingent basis.10 Instead, the court focused on the interplay between this contract and the statutory limitations on attorney fees in medical malpractice actions,11 which include specific requirements regarding the calculation of the fee after deductions for “disbursements or costs.”12 In this regard, the court observed that it is important to properly differentiate between costs and attorney fees, while noting that “[t]he line between ‘costs’ and attorney overhead included as part of the lawyer’s fee is an undefined and changing one.”13 In addition, the court noted that if the consultant’s services were actually services that the attorney would normally perform, the client might be paying an attorney fee in excess of the statutory limits on fees in medical malpractice actions.14 Therefore, the court remanded the case and instructed the trial court to analyze the consultant’s services and determine whether any were services that the attorney should have performed.15 If the trial court determines that any portion of the consultant’s services should have been performed by the attorney, that portion of the consultant’s fee is to be deducted from the amount paid to the attorney.16
The few reported California cases strongly indicate that contingent expert contracts are permissible within certain limitations, but that attorneys should be cautious in using such agreements or recommending their use to clients. While holding that such contracts are permissible, the appellate courts have noted that the permissible contracts provided for the payment of expert consulting services on a contingent basis, and specifically noted the contracts did not provide that experts were to be compensated for expert witness testimony on a contingent basis. Even if an expert could be compensated for testimony on a contingent basis, such an expert would be certain to face a rigorous cross-examination on the terms of the expert contract; the attorney, prior to using such an expert, would do well to advise the client of the potential detrimental effect on the expert’s credibility. In addition, the services that the expert provides must be scrutinized to determine if the expert is providing services that the client expects the attorney to provide. If the client is paying the expert for those services, the attorney could be held to have violated the limitations on attorney fees in medical malpractice actions and, potentially, could be held to have charged an unconscionable fee.
1 Cal. R. of Prof’l Conduct R. 4-200.
2 Wilhelm v. Rush, 18 Cal. App. 2d 366 (1937).
3 Id. at 368.
4 Id. at 370.
5 Medical Legal Consulting Services, Inc. v. Covarrubias, 234 Cal. App. 3d 80 (1991).
6 Id. at 92.
8 Ojeda v. Sharp Cabrillo Hospital, 8 Cal. App. 4th 1 (1992).
9 Id. at 6.
10 Id. at 15.
11 See Bus. & Prof. Code §6146.
12 Ojeda, 8 Cal. App. 4th at 8.
14 Id. at 17.
15 Id. at 21.
16 Id. at 20.