Contingency Fee Agreement Questions: What to Ask Your Maritime Lawyer Before You Sign

Section 1

Why the agreement matters

1. Why the contingency agreement is the most important document you sign

Most injured maritime workers sign their contingency fee agreement in the first thirty minutes of meeting an attorney. They are exhausted, in pain, worried about money, and focused on getting a lawyer who will take the case. The document gets a quick scan, the percentages register, the client signs, and the agreement disappears into a folder that nobody opens again until the settlement check arrives months or years later. By then it is too late to negotiate anything.

The contingency fee agreement is a binding contract that survives every other event in the case. It governs the lawyer-client relationship if you settle, if you go to trial, if you fire the firm, if the firm refers you to a different specialist, if you die before recovery, if your dependents step in as wrongful-death beneficiaries, and if the case loses entirely. Every dollar that comes out of the settlement check flows through the formulas in this document.

The financial stakes

A standard maritime contingency fee is one third (33⅓ percent) of the gross recovery before suit is filed, escalating to 40 percent once suit is filed or once the case proceeds to trial. On a 750,000 dollar Jones Act settlement, that is the difference between roughly 250,000 dollars in fees (33⅓ percent) and 300,000 dollars in fees (40 percent) before any costs are subtracted. The cost line typically runs another 35,000 to 90,000 dollars in a fully litigated maritime case, covering expert witnesses, depositions, court reporters, medical records, life-care planners, and economic loss analysts.

Then comes the lien stack: ERISA-governed health plan repayment, Medicare conditional payments, Medicaid recovery, workers comp lien from the LHWCA carrier if any benefits were paid, and the medical providers who treated you on a doctor lien. Each of these reduces what you actually take home. The contingency agreement determines whether your fee is calculated before or after these reductions, and that single distinction can change your net recovery by 50,000 dollars or more on a mid-six-figure case.

Why generalist personal injury lawyers cannot draft a clean maritime agreement

Most personal injury contingency agreements assume a state-court automobile case with a hospital lien, a health insurance lien, and Medicare. Maritime cases add federal-court venue rules, Jones Act and LHWCA fee considerations, vessel limitation petitions that can compress timelines, and the unique structure of maintenance and cure benefits that are owed regardless of fault. A generalist firm using its standard contingency agreement on your Jones Act case is almost certainly miscalculating the fee base, mishandling the maintenance and cure piece, and ignoring federal-court fee disclosure rules that govern certain plaintiffs.

The maritime specialty firms that handle these cases full-time use contingency agreements drafted specifically for offshore injuries. The fee bases are defined, the cost-shifting language is explicit, the lien treatment is spelled out, and the walk-away rights are clearly stated. The difference between a maritime-specific agreement and a generalist firm standard form is roughly the same as the difference between a maritime specialist settlement results and a generalist results: substantial, measurable, and worth scrutinizing before you sign.

Section 2

Standard fee: 33⅓% / 40%

2. The standard maritime contingency fee: 33⅓% pre-suit, 40% post-suit

The 33⅓ percent pre-suit and 40 percent post-suit structure is the working standard for maritime injury contingency fees in 2026. It evolved from decades of state bar rules, federal court fee approvals, and case law on the reasonableness of attorney compensation in personal injury work. The structure reflects the actual cost of litigating a maritime case: pre-suit settlements require investigation, demand preparation, and negotiation; post-suit work adds depositions, motion practice, expert development, and trial preparation that easily triples the attorney time invested.

Variations exist within this standard. Some firms use a three-tier structure: 25 percent if the case settles within 60 to 90 days of intake (rare but does occur), 33⅓ percent if it settles after that but before suit, and 40 percent post-suit. Other firms use a flat 40 percent regardless of pre-suit or post-suit posture, on the theory that maritime cases almost always require suit anyway. A small number of high-volume firms quote 25 percent pre-suit to win the case from a competitor, then escalate to 40 percent the moment a complaint is filed.

How the percentage compares to other practice areas

In general personal injury practice, the standard contingency fee is 33⅓ percent pre-suit and 40 percent post-suit, matching maritime norms exactly. Medical malpractice often runs higher (up to 40 percent on a sliding scale, sometimes 50 percent on appeal). Mass tort cases frequently use a 40 percent base. Workers compensation contingency fees are capped by statute in most states, usually between 15 and 25 percent. Maritime is firmly in the middle: a third before suit, forty percent after.

Why 33⅓ became the pre-suit standard

The one-third figure has roots in 19th-century commission-based representation and was codified informally through state bar fee committee opinions in the 1950s and 1960s. By the 1970s, courts reviewing contingency fees for reasonableness consistently approved 33⅓ percent pre-suit as within the range of customary fees. The federal Lodestar method (hours times reasonable rate) is sometimes applied as a check on contingency fees in class actions and federal-court approval contexts, but in straight maritime injury cases, the 33⅓ / 40 percent structure operates as the industry baseline.

When you see a maritime contingency agreement quoting numbers significantly above this standard, ask why. There are legitimate reasons a firm might charge more (extraordinary complexity, unusual venue, plaintiff has been turned down by other firms, case involves novel legal theories), but the firm should be able to articulate the reason in writing. A firm that quotes 45 or 50 percent without explanation is either inexperienced in maritime work, has unusual confidence the case will settle quickly with minimal effort, or is testing whether the client will accept a higher rate than the market normally bears.

Section 3

Escalator clause triggers

3. Escalator clauses: what triggers the jump from 33⅓ to 40 percent

The escalator clause is the engine that drives the fee structure. Without an escalator, a contingency agreement would just say 33⅓ percent or 40 percent flat. The escalator allows the firm to take less money for fast settlements that require less work, while preserving the higher rate for cases that require litigation. From the client perspective, the escalator is a financial tripwire: cross it, and you owe an additional 6.67 percent of every dollar that comes back.

The most common trigger is filing of suit or filing of the complaint. This is straightforward: the day your lawyer files the lawsuit, the fee jumps. Some agreements use service of process, which means the fee does not escalate until the defendant has been formally served, giving the client a slightly longer window for pre-suit settlement. Other agreements use first response from defendant or filing of answer by defendant, which extends the lower-rate period further.

Hidden escalator triggers to watch for

Read the escalator language for anything beyond filing of suit. Some firms include triggers that activate the higher rate without any litigation at all: preparation for trial, rejection of demand by defendant, expiration of 90 days from demand letter, or simply engagement of expert witness. These extra triggers can shift a case to 40 percent before the firm has actually filed anything in court. If the firm engages an expert in week three and the case settles in week eight, you may be paying 40 percent on a settlement that never required a complaint to be filed.

The reverse: ratchet-down clauses

A small number of maritime agreements include a ratchet-down provision: if the case settles after suit but before depositions are completed, the fee stays at 33⅓ percent rather than jumping to 40. These are unusual but client-favorable, and worth requesting if a firm is open to negotiating. The argument is that the bulk of post-suit work happens in discovery and trial preparation, so a quick post-filing settlement should not automatically trigger the higher rate.

Trial escalator clauses

Some firms add a second escalator: 33⅓ percent pre-suit, 40 percent post-suit, and 45 percent if the case proceeds through jury verdict (or sometimes if it proceeds to a specific procedural milestone like pretrial conference). The justification is that trial dramatically increases the time and risk the firm carries. The counter-argument is that the firm should be paid for the result, not the procedural status, and that a 45 percent rate on a verdict creates an incentive against settlement that may not be aligned with the client interest.

If you see a 45 percent trial escalator, ask three questions: when exactly does it trigger, does it apply to the entire recovery or only to amounts above a defense settlement offer, and is there a written exception for offers the client wants to accept that the firm wants to reject. The answers tell you a great deal about how the firm thinks about its relationship with clients during the final phase of a maritime case.

Section 4

Costs vs. fees distinction

4. Costs vs. fees: the critical distinction every client must understand

Many clients sign contingency agreements thinking the 33⅓ or 40 percent fee covers everything the firm spends on the case. It does not. The fee is the attorney compensation for time and risk; the costs are reimbursements for money the firm advances to third parties on your behalf. Both come out of your settlement, but they are categorized, calculated, and reported separately.

A typical maritime case generates costs in twelve to fifteen categories. Court filing fees run 400 to 600 dollars per federal court complaint. Deposition transcripts cost 500 to 1,500 dollars per witness deposed. Medical records requests cost 50 to 500 dollars per provider. Expert witnesses (the orthopedic surgeon, the vocational economist, the life-care planner, the maritime safety expert, the marine engineer) bill at 400 to 800 dollars per hour and easily generate 20,000 to 40,000 dollars in expenses per expert. Trial graphics, video depositions, and demonstrative exhibits add another 5,000 to 15,000 dollars in a case that goes to verdict.

What costs typically include

The standard cost categories in a maritime contingency case include: court filing fees and process server fees; deposition court reporters and videographers; transcripts of depositions, hearings, and trial proceedings; medical records and bills retrieval; expert witness fees for evaluation, report preparation, deposition, and trial testimony; life-care planning reports for catastrophic injury cases; vocational rehabilitation assessments; economic loss reports calculating future earning capacity; maritime safety expert reports and depositions; marine engineering reports; accident reconstruction; trial graphics and demonstrative aids; private investigator and witness statements; travel costs for out-of-state depositions; and mediator fees if the case attempts settlement through formal mediation.

The key client question on costs

Ask whether costs are calculated and deducted before or after the attorney fee is taken from the gross recovery. This is the single biggest variable in maritime contingency math and can swing your net recovery by tens of thousands of dollars. The answer determines the formula that turns a 750,000 dollar settlement into your final check.

Most maritime specialty firms use a costs first approach: gross recovery minus costs equals the net amount, then the attorney fee is calculated on the net. This is more favorable to the client. The alternative is fee first: the attorney fee is calculated on the gross recovery, then costs are subtracted from the remainder, leaving the client with less. On a 750,000 dollar settlement with 60,000 dollars in costs, the costs first approach gives the client roughly 460,000 dollars; the fee first approach gives the client roughly 430,000 dollars. That is a 30,000 dollar swing on a single formula choice.

What if the case loses

If the case loses, who pays the costs? Most maritime contingency agreements provide that the firm absorbs the costs if there is no recovery. This is the standard no recovery, no fee, no cost arrangement. But some agreements provide that the client owes costs regardless of outcome, with no recovery only excusing the attorney fee. If your case has 75,000 dollars in advanced costs and loses at trial, the difference between these two structures is whether you owe 75,000 dollars to your former lawyer or nothing. Read this clause carefully and demand a no recovery, no cost provision if the firm has not already included it.

Section 5

Who pays costs upfront

5. Who pays case costs upfront and how recovery treats them

Maritime injury cases are expensive to litigate. A fully prepared trial-ready Jones Act case routinely generates 50,000 to 100,000 dollars in costs before the first day of trial. Catastrophic cases involving spinal injury, traumatic brain injury, or wrongful death can run costs above 150,000 dollars. Specialty maritime firms have the capital to advance these expenses and the experience to know which expenses are worth advancing for which kinds of cases.

The standard arrangement is that the firm pays every cost as it comes up, tracks each expense in a case ledger, and recovers the advances from your settlement when the case resolves. You see the cost ledger at settlement, sign off on the reimbursement, and the costs come out of your gross recovery before or after the attorney fee depending on the agreement. You do not write checks during the case; the firm fronts the money and waits for the settlement.

What advance means in practice

An advance of case costs is functionally an interest-free loan from the firm to you, repayable only if the case wins. The firm carries the cost risk for the duration of the litigation, which can be 18 to 36 months for a typical Jones Act case and longer for cases that proceed to trial or appeal. If the case loses, the firm absorbs the cost loss; if the case wins, the firm is reimbursed from your settlement without interest, penalty, or markup.

Red flag: cost-sharing or client-paid costs

Some firms use contingency agreements that require the client to pay costs as they are incurred or to share costs on a percentage basis with the firm. This is unusual in maritime injury work and a warning sign about the firm financial capacity. If the firm cannot advance 50,000 dollars in costs against a case it expects to settle for 750,000 dollars, the firm is either undercapitalized for maritime work, lacks confidence in the case, or is trying to extract money from the client up front as protection against a loss. Walk away from any agreement that asks you to advance costs in a maritime case.

Reasonable cost advances and reasonable cost recovery

The firm has a fiduciary duty to advance costs prudently. Spending 25,000 dollars on a vocational economist to support a 4,000 dollar lost-wage claim is not prudent; spending 25,000 dollars on a life-care planner to document a 2.5 million dollar future medical claim is. Some firms over-spend costs to inflate the case posture and lock in clients who feel committed once the cost meter is running. Ask the firm at intake what it typically spends on costs for a case of your projected value, and request a cost budget that is updated quarterly so you can monitor where the money is going.

The reasonableness of cost advances is governed by state bar rules and by case law on attorney fiduciary duties. A firm that runs up costs to pad the case file or to discourage you from firing the firm is engaging in misconduct. Quarterly written cost summaries are the simplest defense against this risk and should be part of every maritime contingency engagement from day one.

Section 6

Medical lien resolution

6. Medical lien resolution and its impact on your final check

A typical maritime injury case generates a stack of medical liens that can claim 30 to 70 percent of the gross recovery if left unreduced. A 750,000 dollar settlement with 200,000 dollars in unreduced medical liens turns into a net recovery to the client of perhaps 270,000 dollars after fees, costs, and full lien payment. A skilled lien-reduction effort can frequently cut that lien stack by 30 to 60 percent, pushing the client net recovery to 380,000 dollars or higher on the same gross settlement.

The lien stack in a Jones Act case typically includes: maintenance and cure benefits paid by the vessel owner (which the vessel owner is entitled to offset against any Jones Act recovery); LHWCA benefits if the worker also received longshore benefits (with a statutory lien under 33 U.S.C. § 933); hospital and trauma center liens (often filed under state hospital lien statutes); health insurance subrogation claims governed by ERISA for employer-provided plans; Medicare conditional payment recovery; Medicaid third-party liability recovery; and individual provider liens (doctors, physical therapists, imaging facilities) operating under doctor lien letters.

Lien reduction as part of the fee structure

Some maritime contingency agreements include lien resolution work in the standard 33⅓ / 40 percent fee. Others carve lien resolution out as a separate billable service, charging an additional 5 to 10 percent on amounts saved through negotiation. The first structure is more transparent and more aligned with client interests; the second can incentivize the firm to over-credit itself for lien savings that would have happened anyway through normal negotiation.

Why lien reduction is high-value work

The dollars saved in lien reduction are after-tax dollars in the client pocket. Reducing a 50,000 dollar hospital lien to 20,000 dollars puts 30,000 dollars directly in the client net recovery. Reducing Medicare conditional payment claim from 35,000 dollars to 12,000 dollars puts 23,000 dollars in the client pocket. These reductions require expertise: hospital liens are negotiated against state hospital lien statutes that often cap recovery at reasonable amounts; ERISA plan reimbursement is governed by complex federal preemption doctrine and the make-whole rule; Medicare uses the MSPRC process with specific procedural requirements; and Medicaid recovery operates under state-specific waiver rules.

A maritime specialty firm typically has a dedicated lien resolution specialist or paralegal who handles nothing else. The generalist personal injury firm often outsources lien resolution to a third-party lien resolution company that charges its own fee on top of the attorney fee. Ask at intake who handles lien resolution at the firm, how they charge for it, and what lien reductions they have achieved on cases similar to yours.

The settlement statement and lien transparency

At settlement, you should receive a written settlement statement that shows the gross recovery, each cost category and amount, each lien claimant and the amount paid to each, the attorney fee calculation, and the net recovery to you. Every line should be auditable. If the firm proposes to settle a 50,000 dollar lien for 15,000 dollars and pocket the savings as part of the attorney fee, that is improper. The lien reduction belongs to you, and a transparent settlement statement makes this clear.

Section 7

Reduction provisions

7. Reduction provisions if the case settles low or loses

A standard maritime contingency agreement has no built-in fee reduction. The firm takes 33⅓ percent (or 40 percent post-suit) of whatever the gross recovery is, regardless of whether the recovery is large, small, surprising, or disappointing. A 50,000 dollar settlement on a case the client believed was worth 500,000 dollars still pays the firm a one-third fee, even if the client feels the firm undersold the case.

Reduction provisions modify this default. They are particularly important in three situations: when the client has a strong feeling about minimum acceptable recovery, when the case has clear catastrophic damages that should justify a substantial fee floor for the firm, and when the parties want to align the firm interests with maximizing recovery rather than settling quickly.

Common reduction provision structures

The simplest reduction provision is a sliding-scale fee on settlements below a threshold: 33⅓ percent above 100,000 dollars, 25 percent on the first 100,000. This protects the client from paying a high contingency fee on a low-value settlement and gives the firm an incentive to push for larger recoveries. Another structure ties the fee to the demand letter: if the case settles for less than 75 percent of the demand, the fee is reduced to 25 percent (or some similar formula). This is harder to negotiate but creates strong alignment between firm and client on demand strategy.

Trial-result reduction provisions

A more sophisticated reduction provision applies if the client rejects a settlement offer and the case proceeds to trial with a lower verdict. The provision typically reads: if the firm recommends acceptance of a settlement offer and the client rejects, and the case proceeds to trial with a verdict less than the rejected offer, the attorney fee is calculated based on the rejected offer rather than the lower verdict. This protects the firm from a client who insists on going to trial against advice and then receives a worse outcome.

From the client perspective, this provision is acceptable only if the firm settlement recommendation is documented in writing with supporting analysis. A firm that says take this offer without explaining why is not entitled to charge a fee based on a rejected offer. A firm that documents we recommend acceptance of this offer for the following five reasons, and the additional risk of trial includes the following five factors has earned the right to be paid based on that analysis if the client rejects and gets less.

Catastrophic cases and floor provisions

In wrongful death and catastrophic injury cases, some firms include a fee floor: the firm receives a minimum fee regardless of the percentage formula. A 2 million dollar wrongful death settlement at 33⅓ percent generates 666,667 dollars in fees, which is well above a typical floor. But on a slightly smaller case (say 800,000 dollars), the firm might insist on a minimum fee of 300,000 dollars regardless of the percentage calculation. Floor provisions are unusual and almost always negotiable; they reflect the firm view that a wrongful death case is more labor-intensive than a personal injury case of similar gross value.

If you see a floor provision, evaluate whether the work involved actually justifies the floor. A wrongful death case typically requires probate court appointments, dependency calculations, dual-track work for the survival action and the wrongful death claim under DOHSA or general maritime law, and complex damages presentations. The floor may be defensible. But the floor should always be calculated as a percentage of the gross recovery, not as a fixed dollar amount, because a fixed dollar floor can produce absurd fee percentages on smaller settlements.

Section 8

The walk-away clause

8. The walk-away clause: your right to terminate the agreement

The walk-away clause in a maritime contingency agreement is the section that controls what happens when you fire the firm or the firm withdraws. Every state bar in the country recognizes that the client has an absolute right to terminate counsel; the contract cannot waive this right. What the contract can do is set the terms for how the discharged firm gets paid for the work it has already done.

In most jurisdictions, a discharged contingency attorney has two possible claims: a quantum meruit claim for the reasonable value of services rendered, or a contract claim under the contingency agreement if the contract has specific termination provisions. The default rule in most states is quantum meruit recovery only, calculated as either an hourly rate for time invested or a pro rata share of the eventual contingency fee proportional to work completed.

What quantum meruit means in dollars

Quantum meruit is what is deserved in Latin and operates as an equity remedy for services rendered when no contract governs the payment. In the contingency-fee context, a discharged firm typically argues for either (a) the full contingency percentage it would have earned, (b) a pro rata share based on hours worked relative to total hours estimated for the case, or (c) an hourly rate times hours actually worked. The actual recovery is fact-specific and varies by jurisdiction; the trend in most maritime venues is toward hourly-rate compensation rather than contingency-percentage compensation when an attorney is discharged without cause well before settlement.

The no recovery no fee complication on termination

If you fire your lawyer before a settlement and the case eventually loses with new counsel, the original firm may still claim fees and costs against the eventual non-recovery. Some state courts hold that the no recovery no fee promise survives termination by the client; other state courts hold that quantum meruit can be claimed against the client personally if no settlement ever materializes. Maritime cases that span multiple state jurisdictions further complicate the analysis because the substantive maritime federal law mixes with state-law professional responsibility rules.

The lien on the case file

A discharged maritime attorney typically asserts a charging lien against any eventual settlement or recovery. The lien attaches to the case itself, follows the file to new counsel, and is satisfied from the eventual recovery before the client receives any net proceeds. This means firing your lawyer does not eliminate the financial obligation; it transfers it to a future settlement event. The new lawyer takes the case knowing about the prior lien, and the fee calculations at settlement include the old firm lien claim along with the new firm contingency fee.

What to demand in the termination clause

The termination section of the contingency agreement should specify three things: the right of the client to terminate without cause, the method by which the discharged firm fees and costs will be calculated, and the procedure for transferring the case file to new counsel. A well-drafted clause provides for hourly-rate quantum meruit on time actually worked, full reimbursement of costs advanced, prompt transfer of the file with all work product, and a defined limitation period (typically the eventual settlement event) for the firm lien claim.

If the agreement is silent on these points or contains hostile language (the firm shall be entitled to the full contingency fee notwithstanding termination by the client), that is a warning sign about how the firm thinks about the client relationship. Ask for specific language protecting your termination rights, and if the firm refuses, consider whether you want to start a long maritime case with a firm whose contract treats your termination as a financial penalty rather than a fundamental client right.

Section 9

Quantum meruit after firing

9. Quantum meruit: what your former lawyer can claim after you fire them

The mechanics of quantum meruit in maritime injury cases vary by federal circuit and by state professional responsibility rules. The Fifth Circuit (which covers Louisiana and Texas, the busiest maritime dockets) tends to apply state-law rules from the forum state; the Ninth Circuit (which covers California and the West Coast) similarly applies state law. New York and Florida have their own well-developed bodies of case law on discharged-attorney fee claims. The substantive rules are similar enough to discuss in general terms.

The discharged firm bears the burden of proving (a) the reasonable value of its services and (b) that the services contributed to the eventual recovery. The proof typically takes the form of detailed time records, expert testimony from another maritime attorney on reasonable hourly rates, and evidence of specific work product that was used by successor counsel. Without contemporaneous time records, the discharged firm claim is weak. With detailed records, the claim can approach the full pro rata share of the eventual fee.

The early-discharge scenario

If you fire the firm two months into the case after intake, investigation, and a demand letter, the discharged firm has perhaps 40 to 100 attorney hours invested. At 500 dollars per hour as a reasonable rate, that is a quantum meruit claim of 20,000 to 50,000 dollars. If the case eventually settles for 750,000 dollars at 40 percent contingency (300,000 dollar fee to new counsel), the discharged firm 50,000 dollar claim is a manageable lien on the settlement, and new counsel can negotiate it down with the old firm before disbursement.

The late-discharge scenario

If you fire the firm three weeks before trial after 18 months of work, the discharged firm has perhaps 800 to 1,500 attorney hours invested. At 500 dollars per hour, that is a quantum meruit claim of 400,000 to 750,000 dollars, often equal to or exceeding the eventual contingency fee. This is the worst-case scenario for the client and the reason most clients who are unhappy with their maritime firm should consider switching early rather than waiting until trial approach.

The with cause versus without cause distinction

If you fire your lawyer for cause (incompetence, conflict of interest, ethical violation, failure to communicate, lack of authority on settlement decisions), the discharged firm may forfeit its quantum meruit claim entirely. State bar rules and professional responsibility cases support reduced or eliminated fee recovery for attorneys who have engaged in misconduct. If you fire without cause (the relationship just is not working, you want a different specialist, you have lost confidence), the quantum meruit claim is intact and the firm gets paid.

If your decision to fire is driven by specific conduct that may constitute cause (missed deadlines, hidden settlement offers, undisclosed conflicts), document everything in writing before you terminate. A demand letter to the firm requesting an explanation, followed by a termination letter that cites specific failures, creates a record that supports a for cause defense to the quantum meruit claim. State bar grievance filings, while serious, also create evidence that supports reduction or forfeiture of fees in subsequent fee disputes.

Negotiating the discharged firm claim

Successor maritime counsel almost always negotiates the discharged firm quantum meruit claim before settlement is disbursed. The discharged firm wants to be paid promptly and avoid litigation over the fee; successor counsel wants to maximize the client net recovery and finalize the file. A typical negotiated outcome is a payment to the discharged firm of 50 to 75 percent of its claimed quantum meruit amount, with both firms releasing each other and the client receiving a clean settlement statement. The client should review and approve any negotiated payment to the discharged firm before disbursement.

Section 10

Co-counsel and referral fees

10. Co-counsel arrangements and referral fees you have a right to know

Maritime injury cases frequently involve more than one law firm. A worker may initially contact a generalist personal injury firm in his home state, which then refers the case to a maritime specialty firm in Texas, Louisiana, or California for the actual litigation. The two firms typically enter a fee-sharing agreement under which the specialty firm handles the case and the referring firm receives a portion of the eventual contingency fee. This is permitted under state bar rules in every jurisdiction, subject to specific disclosure and consent requirements.

The standard fee split in maritime referral arrangements is 75/25 (75 percent to the firm doing the work, 25 percent to the referring firm) or 70/30 in the same ratio. Some splits go as high as 60/40 or as low as 80/20 depending on the work the referring firm continues to do. A pure name only referral with no continued involvement by the referring firm typically receives 25 percent of the contingency fee; a co-counsel arrangement where the referring firm continues to do client communications and local court appearances may receive 35 to 50 percent.

Your rights regarding referral fees

Model Rule of Professional Conduct 1.5(e) (adopted in some form by every state bar) provides that lawyers in different firms may divide a fee only if (a) the division is in proportion to services performed by each firm, or each firm assumes joint responsibility for the representation, (b) the client agrees in writing to the arrangement, including the share each firm will receive, and (c) the total fee is reasonable. The disclosure has to be in writing, has to specify the actual percentages, and has to be signed by the client.

Why this matters to the client

Referral fees do not increase the total fee the client pays. The total contingency fee is fixed by the engagement agreement; the referral fee is a division of that total between firms. From the client perspective, knowing about a referral fee matters for two reasons: it reveals which firm is actually doing the work and which firm is just collecting a referral payment, and it identifies potential conflicts of interest if the referring firm has business relationships that affect its advice on the case.

Joint responsibility versus pure referral

If both firms assume joint responsibility for the case, both firms are professionally responsible to the client and both can be sued for malpractice. If the arrangement is a pure referral with the referring firm taking no further role, only the receiving firm is responsible for the work. The joint-responsibility structure is preferred by clients because it gives an additional set of professional eyes on the case and provides backup malpractice coverage. The pure-referral structure is simpler but leaves the referring firm with payment but no continuing duty to the client.

What to ask about referral arrangements

Ask three questions at intake: is my case being referred to or shared with another law firm, what is the fee split percentage between firms, and what specific work will each firm do. The answers should be in writing in your engagement agreement or in a separate co-counsel disclosure letter that you sign. A firm that hides a referral arrangement or refuses to disclose the percentage split is violating state bar disclosure rules and creating malpractice exposure for itself.

If you discover after engagement that your case has been quietly referred to another firm without your written consent, contact the state bar grievance office in the state of the original firm and request a fee dispute resolution. Undisclosed referrals are a common state bar grievance and frequently result in fee forfeiture by both firms involved.

Section 11

Settlement vs. trial fees

11. Settlement vs. trial fee structure differences in maritime cases

The economics of maritime settlement and trial are different for the firm and the client. A 750,000 dollar settlement in month 14 of representation pays the firm 300,000 dollars (40 percent post-suit) for perhaps 600 hours of work at an effective rate of 500 dollars per hour. The same 750,000 dollars after a 30-day trial in month 24 pays the firm 300,000 dollars (or 337,500 dollars at 45 percent) for perhaps 1,400 hours of work at an effective rate of 215 to 240 dollars per hour. The trial reduces the firm effective hourly rate, even if the percentage increases.

This math is the structural reason most maritime cases settle. The firm economic incentive aligns with settlement at any point where the offered amount approximates the expected trial recovery. Trial only makes sense for the firm when the trial result is expected to be substantially higher than the available settlement, or when settlement is not on offer at all.

The 45 percent trial escalator structure

A trial escalator that increases the fee from 40 to 45 percent is found in roughly a third of maritime contingency agreements. The trigger is usually commencement of trial, which is itself ambiguous (first day of jury selection, first day of opening statements, first hour of evidence). Specify the trigger in writing so there is no fee dispute later.

The strongest version of the trial escalator is a rejected offer structure: if the defense makes a settlement offer that the firm recommends accepting, and the client rejects, and trial produces a higher verdict, the 45 percent rate applies to the entire verdict. If the client accepts the firm recommendation and the case settles, the 40 percent rate applies. This structure aligns the firm and the client on settlement decisions while preserving an upside for the firm when the client overrides advice and ultimately wins.

The weakest version: trial escalator with no rejection requirement

A pure trial escalator that applies whenever the case goes to verdict, regardless of whether settlement was offered or recommended, has perverse incentives. The firm earns more by going to trial whether or not trial is in the client interest, creating pressure against settlement that may push borderline cases toward trial when an early settlement would actually maximize the client net recovery. Avoid this structure if you can negotiate it out.

The reverse: settlement bonus structure

A small number of client-favorable agreements use a settlement bonus rather than a trial escalator: 40 percent on trial verdicts, but 35 percent on settlements that occur within 90 days of suit filing. This rewards the firm for moving the case quickly and aligns interests on early resolution. These agreements are unusual but worth requesting if the firm is open to negotiation.

The split fee approach for mixed-outcome cases

Some maritime cases involve both a settlement (with some defendants) and a trial (against others). The contingency agreement should specify how fees are calculated when this happens: are the settling defendants contributions assessed at 40 percent and the trial verdict at 45 percent, or does the highest rate apply to the entire recovery? The fairest structure assesses each tranche at the rate that applied when it resolved: pre-trial settlements at 40 percent, trial verdicts at 45 percent (if a trial escalator exists). The simplest structure applies one rate to the gross combined recovery; this favors the firm if a trial escalator exists and the trial outcome is large.

Section 12

Tax treatment of fees

12. Tax treatment of attorney fees on Jones Act and LHWCA settlements

The general rule for maritime injury settlements is that compensation for physical injury is excluded from gross income under IRC § 104(a)(2). This includes medical expenses (past and future), pain and suffering, lost wages, and loss of consortium, all when the damages flow from a physical injury or physical sickness. The exclusion applies whether the recovery comes through settlement or jury verdict, in state or federal court, under the Jones Act, LHWCA, OCSLA, or DOHSA.

The attorney fee on a tax-free physical injury settlement is also tax-free to the client. The IRS treats the contingency fee as a reduction in the gross recovery rather than as taxable income that the client then deducts. This was confirmed in Commissioner v. Banks (2005), which held that contingency fees are generally taxable to the client as gross income, with limited exceptions for physical injury cases under § 104(a)(2). The Banks rule means that maritime injury clients generally do not have to report the gross recovery and then deduct the attorney fee; they report the net recovery (which is zero for excluded physical injury damages) without tracking the fee at all.

The components that are not tax-free

Several pieces of a typical maritime injury settlement are taxable. Punitive damages are taxable under IRC § 104(c). Pre-judgment interest awarded as part of the settlement is taxable. Emotional distress damages that arise independently of physical injury (rare in maritime cases but possible in workplace harassment cases that overlap with injury claims) are taxable under § 104(a)(2). Damages for lost wages that exceed actual lost earnings (sometimes paid in settlement of front-pay or future earning capacity claims) may be partially taxable depending on facts and circumstances.

The 2017 Tax Cuts and Jobs Act complication

The TCJA eliminated the miscellaneous itemized deduction for unreimbursed employee expenses and most legal fees for individuals through 2025 (and beyond, absent congressional action). This means that for the taxable portion of a settlement (punitive damages, pre-judgment interest, non-physical-injury emotional distress), the attorney fee is no longer deductible against the income. If a client receives 100,000 dollars in punitive damages with a 40,000 dollar attorney fee, the client pays tax on the full 100,000 dollars at ordinary income rates, even though only 60,000 dollars reaches the client bank account.

This treatment was substantially clarified by the Supreme Court in Commissioner v. Banks but worsened by the TCJA. The practical effect is that for cases with significant taxable components, the after-tax recovery to the client may be dramatically less than the gross settlement suggests. Plan for this at intake by asking the firm to estimate the taxable and non-taxable components of any expected recovery.

Structured settlements and tax planning

For catastrophic maritime injury cases involving long-term medical care or lifetime disability, structured settlements offer significant tax advantages. The structured payments are received tax-free if they qualify under IRC § 130 (qualified assignment of structured settlement obligations), spreading the recovery across decades without the immediate tax hit. The attorney fee on a structured settlement is typically paid in a single up-front lump sum, with the structured component flowing directly to the client through a qualified assignment company.

1099 reporting and withholding

Maritime injury settlement checks are typically reported on IRS Form 1099-MISC to the IRS, with the gross recovery in box 3 (other income). The client must report the gross recovery on the tax return and then exclude the physical injury portion under § 104(a)(2). This is straightforward when the entire recovery is excludable but requires careful allocation when the settlement includes taxable components. A tax advisor (CPA or tax attorney) should review any settlement above 250,000 dollars before the agreement is finalized to ensure the allocation language in the settlement document supports the most favorable tax treatment.

Section 13

State bar fee rules

13. State bar rules governing maritime contingency fees

State bar rules on contingency fees derive from the American Bar Association Model Rule 1.5, adopted in some form by every state. The Model Rule requires that fees be reasonable, that contingency agreements be in writing, that the writing specify the percentage, that costs and expenses be addressed, and that the client receive a written statement at settlement showing how the recovery was disbursed. State-specific rules add additional requirements: some states cap contingency fees on certain case types (medical malpractice, workers compensation, social security disability), some require court approval for fees on minors and incapacitated plaintiffs, and some require specific cooling-off periods before agreements become binding.

Maritime injury cases involve a wrinkle: the lawyer may be licensed in one state, the injury may have occurred in international waters or on the outer continental shelf, and the suit may be filed in federal court in a third state. The professional responsibility rules of the lawyer licensing state typically govern the fee arrangement, but federal court rules can layer additional requirements (Local Rule 54 for fee approval on minor and incompetent plaintiffs in some federal districts, for example).

Texas state bar rules

Texas Disciplinary Rule 1.04 governs contingency fees and requires written agreements, signed client consent, and reasonableness. Texas does not statutorily cap contingency fees on maritime cases. The Texas Supreme Court has approved contingency fees up to 40 percent in personal injury cases as presumptively reasonable, with higher percentages requiring justification. Texas also requires a closing statement at settlement showing the disbursement of funds.

Louisiana state bar rules

Louisiana Rule 1.5 of the Rules of Professional Conduct governs contingency fees, with provisions substantially similar to the ABA Model Rule. Louisiana has a unique rule on referral fees (Rule 1.5(e)) that requires written disclosure of fee splits and joint responsibility or proportional work. Louisiana courts review maritime contingency fees for reasonableness under Pannell v. Henry, with a 33⅓ to 40 percent range presumed reasonable absent extraordinary circumstances.

California state bar rules

California Rule of Professional Conduct 1.5 (formerly 4-200) governs contingency fees, with the requirement that fees be not illegal or unconscionable. California has specific statutory caps on medical malpractice contingency fees under MICRA (Cal. Bus. & Prof. Code § 6146): 40 percent of the first 50,000 dollars, 33⅓ percent of the next 50,000, 25 percent of the next 500,000, and 15 percent of any amount over 600,000. Maritime cases in California are NOT subject to MICRA and follow the general reasonableness standard.

Florida state bar rules

Florida Rule 4-1.5 of the Rules Regulating the Florida Bar governs contingency fees and is one of the more prescriptive state bar rules in the country. Florida caps contingency fees on certain personal injury cases at 33⅓ percent up to 1 million dollars and 30 percent on amounts above 1 million dollars (Article I, Section 26 of the Florida Constitution). Maritime cases in Florida are subject to these caps if filed in state court. The Florida rule also requires specific client statement of rights disclosures that must be signed by the client at engagement.

What to do at intake

Ask the firm what state bar rules govern your contingency fee arrangement. Ask which state rules apply if you live in one state, the injury occurred in another, and suit may be filed in a third. Ask the firm to provide a copy of the specific state bar rule that governs the agreement. A specialty maritime firm should answer these questions immediately; a firm that fumbles the answer is signaling unfamiliarity with the regulatory framework that controls its fees.

Section 14

Federal court Local Rule 54

14. Federal court fee approval and Local Rule 54 for minors and incapacitated plaintiffs

Federal court fee approval is a critical issue in two situations in maritime practice: (1) when the plaintiff is a minor or an incapacitated adult who cannot personally consent to the fee, and (2) when the case is a wrongful death action where the recovery flows to surviving dependents who include minors. In both situations, the federal court (typically the magistrate judge assigned to the case) holds a fee approval hearing and issues an order approving the contingency percentage and the disbursement plan.

Local Rule 54 (or its equivalent in your federal district) provides the procedural framework for fee approval. The typical process requires the firm to file a motion for fee approval with detailed time records, a settlement statement showing the proposed disbursement, copies of any expert costs, and proof that the settlement was negotiated at arm length. The court reviews the materials, sometimes appoints a guardian ad litem to represent the minor interests, and either approves the proposed fee or modifies it.

Minor and incapacitated plaintiff cases

If a Jones Act case involves a minor (a deck hand under 18, for example) or an adult plaintiff who has become incapacitated after the injury (TBI cases, severe medical conditions affecting cognition), the federal court will not allow the settlement to be finalized without an explicit fee approval order. The contingency agreement is treated as advisory only; the court determines the actual fee based on reasonableness factors that may include the contingency percentage, but may also include a Lodestar calculation (hours times reasonable rate) as a cross-check.

Wrongful death cases

Maritime wrongful death actions under DOHSA, the Jones Act, or general maritime law typically involve recoveries to multiple surviving dependents, often including minor children. Federal court approval of the fee is standard practice in these cases, and the court frequently appoints a guardian ad litem to ensure the minor children portions of the settlement are protected. The fee approval order typically allocates the gross recovery among the dependents, then applies the fee percentage to each tranche, and may adjust the percentage for minor children portions if the court finds the standard percentage unreasonable for the work involved.

The Lodestar cross-check

In federal court fee approval, the Lodestar method (hours actually worked multiplied by a reasonable hourly rate) is sometimes applied as a check on the contingency percentage. A 40 percent contingency fee that produces a 600,000 dollar fee against 500 actual hours of work translates to 1,200 dollars per hour effective rate. The court may find this excessive even though the contract specifies 40 percent, and may reduce the fee to align with reasonable hourly rates for the work performed. This cross-check is rare in straight Jones Act personal injury cases but common in wrongful death and minor-plaintiff approvals.

Class action and aggregate litigation fees

If your maritime case becomes part of a class action or aggregate proceeding (for example, a chemical exposure case involving multiple plaintiffs against a single vessel owner), federal court fee approval is mandatory under Rule 23 of the Federal Rules of Civil Procedure. The court reviews the requested fee using Lodestar analysis, percentage-of-recovery analysis, and the Johnson factors (a 12-factor reasonableness test from Johnson v. Georgia Highway Express, 488 F.2d 714 (5th Cir. 1974)). Class action fees rarely exceed 33⅓ percent and frequently fall to 25 percent or lower on large common funds.

Ask your maritime firm about federal court approval

If your case involves a minor, an incapacitated plaintiff, or wrongful death, ask the firm specifically how it handles federal court fee approval. Ask whether the firm has appeared before fee approval hearings, what percentage approvals it has received on cases similar to yours, and whether the firm carries the cost of guardian ad litem fees or charges those separately. A specialty maritime firm with experience in catastrophic cases will have a clear, prompt answer to each of these questions.

Section 15

Maintenance and cure fee base

15. Maintenance and cure: should these benefits be in the fee base?

Maintenance and cure is the no-fault benefit owed to injured seamen under general maritime law: daily living expenses (typically 25 to 35 dollars per day) and reasonable medical treatment until maximum medical improvement (MMI). These benefits flow to the injured worker during the pendency of the case, separate from any negligence or unseaworthiness recovery against the vessel owner. The total maintenance and cure paid in a 24-month Jones Act case can easily reach 30,000 to 75,000 dollars or more.

The legal question is whether the maintenance and cure payments are part of the gross recovery on which the contingency fee is calculated, or are separate benefits owed independently of the lawsuit. The correct answer in nearly all jurisdictions is that maintenance and cure is NOT part of the gross recovery for fee purposes. The benefits are owed regardless of fault, they are paid in periodic installments rather than as a lump sum settlement, and they would be paid even if the worker never filed a lawsuit at all.

The vessel owner offset issue

The complication is that vessel owners typically take a credit for the maintenance and cure already paid when they negotiate the final Jones Act settlement. If the vessel has paid 40,000 dollars in maintenance and cure during the case, the vessel owner will offer 600,000 dollars to settle all claims, knowing that 40,000 dollars of past benefits already paid will be effectively credited against the gross recovery. The actual settlement check is 600,000 dollars, not 640,000 dollars, but the gross recovery from the injury could be argued to be 640,000 dollars.

Some firms try to calculate the contingency fee on the higher 640,000 dollar figure, which effectively charges the client a fee on benefits the client has already received. This is improper. The fee should be calculated only on the new money paid at settlement (the 600,000 dollar check), not on the maintenance and cure benefits that were paid currently as living expenses and medical care.

The all maritime recovery language to avoid

Watch the contingency agreement for language defining the fee base as all amounts recovered for the maritime injury, including past maintenance and cure benefits. This phrasing pulls the maintenance and cure into the fee calculation by contract, even though general maritime law would not require it. The fix is simple: insist on language that excludes maintenance and cure paid before settlement from the fee base, calculating the fee only on new money paid at settlement.

Future maintenance and cure

If the settlement includes a lump sum for future maintenance and cure (not yet reached MMI, ongoing benefits commuted into a single payment), that lump sum is generally part of the settlement and properly in the fee base. The distinction is past benefits (already paid currently, not part of the settlement) versus future benefits (paid as part of the settlement, fairly part of the fee base). Make sure the contingency agreement makes this distinction clear.

Punitive damages for maintenance and cure denial

Atlantic Sounding Co. v. Townsend, 557 U.S. 404 (2009), confirmed that punitive damages are available against a vessel owner who wrongfully denies maintenance and cure. If your case includes a punitive damages component for wrongful denial, that recovery is taxable income (per IRC § 104(c)), and the attorney fee on the punitive portion is no longer deductible under the TCJA. The contingency percentage applies to the punitive damages as part of the gross recovery, with the tax consequences flowing to the client.

Section 16

Liens and subrogation order

16. Liens, subrogation, and the order of fee calculations

A maritime injury settlement is rarely a simple two-line check. The gross settlement comes in as one number, but it gets divided into multiple categories before any money reaches the client: attorney fees, case costs, hospital liens, health insurance subrogation, Medicare conditional payments, Medicaid recovery, workers compensation subrogation, and the client net portion. The order in which these calculations occur dramatically affects the client bottom line.

Consider a 750,000 dollar gross settlement with 60,000 dollars in case costs, 40 percent attorney fee, and 100,000 dollars in unreduced medical liens. Under the most favorable structure, the order is: costs first (60,000), fee on net (40 percent × 690,000 = 276,000), liens from client portion (100,000), and the client receives 690,000 - 276,000 - 100,000 = 314,000 dollars. Under the least favorable structure, the order is: fee on gross (40 percent × 750,000 = 300,000), costs from remainder (60,000), liens from client portion (100,000), and the client receives 750,000 - 300,000 - 60,000 - 100,000 = 290,000 dollars. The difference is 24,000 dollars on a single formula choice.

The four standard calculation orders

Structure A (most client-favorable): costs first, fee on net, liens from client. Structure B: fee on gross, costs from gross, liens from client. Structure C: fee on gross, costs and liens both from client. Structure D (least client-favorable): fee on gross, costs from gross, liens deducted before fee calculation (which sounds favorable but isn t, because the lien dollars become tax-free reduction to the firm basis and effectively inflate the fee). The contingency agreement should specify which structure applies.

The ERISA make-whole rule

If your settlement includes payment for medical expenses that an ERISA-governed health plan paid during your treatment, the plan typically asserts a subrogation claim under its plan document. The make-whole rule (the doctrine that a plaintiff should be made whole before subrogation operates) is generally preempted by ERISA plan language, but the actual reimbursement amount is negotiable in nearly every case. A specialty maritime firm with lien-resolution experience can typically reduce an ERISA subrogation claim by 30 to 60 percent through negotiation and procedural challenges.

Medicare conditional payment recovery

Medicare right to recovery for conditional payments is governed by the Medicare Secondary Payer Act (42 U.S.C. § 1395y(b)(2)). Medicare provides an automated calculation through the Medicare Secondary Payer Recovery Contractor (MSPRC) showing the conditional payments to be reimbursed. The actual recovery is reducible through procedural steps: requesting non-related charge removal, applying the procurement cost reduction (Medicare reduces its claim proportionally for attorney fees and costs incurred to obtain the recovery), and appealing any disputed charges. A typical Medicare claim of 50,000 dollars can frequently be reduced to 25,000 to 35,000 dollars through these steps.

Workers compensation and LHWCA subrogation

If you received LHWCA benefits during the case (in addition to a Jones Act third-party action against a non-employer vessel owner), the LHWCA carrier has a statutory subrogation lien under 33 U.S.C. § 933. The lien is reducible by the carrier pro rata share of attorney fees and costs (the common fund doctrine), and is further subject to the formula in § 933(f). Maritime firms with LHWCA experience know these calculations cold; generalist firms frequently miscalculate the LHWCA reduction and either overpay the carrier or underpay the client.

What the contingency agreement should say

The agreement should specify the calculation order, identify which liens the firm will negotiate for reduction (and whether the firm charges separately for that work), and require a written settlement statement showing every line item before any money is disbursed. The client should sign off on the settlement statement, not just on the gross settlement number. This single procedural step prevents nearly all disputes over fee calculation order.

Section 17

Pannell and Lipuma cases

17. Maritime fee reasonableness: Pannell, Lipuma, and the case law

The Fifth Circuit established the standard analysis for attorney fee reasonableness in Johnson v. Georgia Highway Express, 488 F.2d 714 (5th Cir. 1974), identifying twelve factors that courts consider in evaluating whether a fee is reasonable. Although Johnson was a civil rights statutory fee case, its factors have been adopted across federal practice and are routinely applied to maritime contingency fee disputes, federal court fee approvals, and state bar fee dispute proceedings.

The Johnson factors are: (1) the time and labor required, (2) the novelty and difficulty of the questions, (3) the skill requisite to perform the legal service properly, (4) the preclusion of other employment by the attorney due to acceptance of the case, (5) the customary fee, (6) whether the fee is fixed or contingent, (7) time limitations imposed by the client or the circumstances, (8) the amount involved and the results obtained, (9) the experience, reputation, and ability of the attorneys, (10) the undesirability of the case, (11) the nature and length of the professional relationship with the client, and (12) awards in similar cases.

Pannell v. Henry

Louisiana courts apply Johnson-adjacent analysis in fee reasonableness reviews under Pannell v. Henry, 511 So. 2d 1268 (La. App. 1st Cir. 1987). The Pannell court held that a 40 percent maritime contingency fee was within the range of reasonable fees but emphasized that fees above 40 percent require specific justification. The Pannell case is regularly cited in fee dispute litigation in Louisiana state and federal courts.

Lipuma v. McAllister Brothers

Lipuma v. McAllister Brothers, Inc., 406 F. Supp. 1228 (S.D.N.Y. 1976), is a leading maritime case on contingency fee reasonableness in New York federal practice. Lipuma applied a multi-factor analysis substantially similar to Johnson and approved a 40 percent contingency fee in a maritime injury case as reasonable. The case is frequently cited in Second Circuit fee disputes and in federal court approval proceedings in the Southern District of New York and Eastern District of New York.

The percentage-of-recovery analysis

Beyond Johnson, federal courts apply a percentage-of-recovery analysis as a cross-check on Lodestar calculations. The Third Circuit articulated a useful framework in Gunter v. Ridgewood Energy Corp., 223 F.3d 190 (3d Cir. 2000), considering: (1) the size of the fund and number of persons benefited, (2) the presence or absence of objections, (3) the skill and efficiency of attorneys, (4) the complexity and duration of the litigation, (5) the risk of nonpayment, (6) the time devoted to the case, and (7) awards in similar cases. The Gunter factors are increasingly cited in maritime federal practice as a complement to Johnson.

Practical implications for clients

For an ordinary maritime injury case settling between 200,000 dollars and 2 million dollars, a 33⅓ to 40 percent contingency fee is presumptively reasonable under all of the above frameworks. The firm does not have to justify a fee in this range to the client or to a court, absent specific procedural triggers (minor plaintiff, wrongful death, fee dispute litigation).

For fees above 40 percent or below 25 percent, the firm should be able to articulate the reasonableness factors that justify the deviation. A 45 percent fee in a complex limitation-act case involving multiple vessel owners and a 7-year procedural history may be reasonable under Johnson; a 50 percent fee on a routine slip-and-fall on a fishing boat is not.

What this means for negotiating your agreement

The case law on fee reasonableness gives you negotiating leverage. If a firm proposes a contingency above the 33⅓ to 40 percent maritime norm, ask the firm to articulate the Johnson factors that support the higher fee. A firm that cannot identify the specific factors (novel legal questions, unusual difficulty, extraordinary results) cannot defend the fee in any subsequent dispute. The conversation about reasonableness factors typically results in the firm agreeing to the standard 33⅓ to 40 percent structure.

Section 18

Net vs. gross recovery

18. Net vs. gross recovery: which one is your fee calculated on

The gross-versus-net distinction is the single most important fee mechanics question in maritime contingency agreements. The math: a 750,000 dollar settlement with 60,000 dollars in costs and a 40 percent fee produces 300,000 dollars in fees under gross calculation (40 percent × 750,000), or 276,000 dollars under net calculation (40 percent × 690,000). The 24,000 dollar difference is real money that ends up in either the firm or the client account depending on a single clause in the contract.

The argument for gross recovery calculation is that the firm bore the cost risk during the case (advancing 60,000 dollars in expenses with no certainty of recovery) and should be compensated on the total result it achieved. The argument for net recovery calculation is that costs are reimbursements to the firm for money advanced on behalf of the client, not part of the value the firm created. Both arguments have merit; the contract language is what determines which one applies in your case.

Standard practice in maritime firms

Specialty maritime firms vary on this point. Some use a gross calculation as the default (the firm is compensated for the result, costs are reimbursed separately). Others use a net calculation (costs come out first, then the percentage is applied to the remainder). A few use a hybrid where the gross calculation applies to settlements above a threshold and the net calculation applies below.

The hybrid structure

A reasonable middle ground is the hybrid: net calculation applies for settlements where costs exceed 10 percent of the gross recovery (indicating an expensive case), gross calculation applies for smaller-cost cases. This structure protects the firm from cost overruns on labor-intensive cases while not over-charging the client on simple cases with low cost lines.

How to evaluate the structure

Run the numbers at intake. Ask the firm: On a 500,000 dollar settlement with 40,000 dollars in costs, what is the fee under your structure? The answer should be either 200,000 dollars (40 percent of gross) or 184,000 dollars (40 percent of net), depending on the structure. If the firm cannot answer this question quickly and clearly, that is itself a warning sign about the firm grasp of its own fee mechanics.

Lien handling in the calculation order

Beyond gross-versus-net, ask how liens are handled in the order of calculation. The most favorable structure for the client is: gross recovery minus costs equals net, attorney fee calculated on net, then liens paid from the client portion. The least favorable is: attorney fee on gross, costs from remainder, liens from remainder, leaving the client with whatever is left. The settlement statement should show every step of the calculation, and the client should review and sign off before disbursement.

The no double-dip check

Some unusual contingency agreements include language that allows the firm to take a percentage of cost reimbursements: attorney fee shall be calculated on the gross recovery including any amounts reimbursed for costs advanced. This is a double-dip because the firm collects both the cost reimbursement and a fee on the cost reimbursement. The structure is unusual, almost always inappropriate, and should be negotiated out of the contract before signing. The standard structure is that cost reimbursements are not part of the fee base.

Section 19

Disbursement and IOLTA

19. Disbursement timing and IOLTA trust account rules

The IOLTA trust account (Interest on Lawyers Trust Accounts) is the segregated bank account that every law firm uses to hold client funds. When a settlement check arrives, it goes into IOLTA, not into the firm operating account. The firm then disburses the funds: to the lienholders, to the costs ledger, to the attorney fee account, and to the client. The disbursement is governed by state bar trust account rules that are enforced through bar audits and disciplinary proceedings.

State bar rules require specific IOLTA practices. The trust account must be at an approved bank in the state of the lawyer licensure. The funds cannot be commingled with firm operating funds at any time. The interest earned on the account goes to the state bar IOLTA program (which funds legal services for indigent clients), not to the firm or the client. The firm must reconcile the trust account monthly and maintain detailed records of every deposit and disbursement.

The disbursement timeline

The typical settlement disbursement runs 14 to 30 days from the firm receipt of the settlement check. The timeline includes: deposit and bank clearance (3 to 7 business days for a large check from an insurance carrier), preparation of the settlement statement, lien negotiation finalization, signing of all releases and indemnity agreements, and final disbursement. Some firms move faster; some are slower. A 60 to 90 day delay is unusual and may indicate either cash flow problems at the firm or unresolved lien disputes that should have been addressed before settlement.

The written settlement statement

State bar rules in most jurisdictions require a written settlement statement before disbursement. The statement shows the gross recovery, each cost item, each lien paid, the attorney fee calculation, and the net to the client. The statement must be signed by the client before disbursement occurs. This is your last opportunity to verify the math and to raise any questions about fee calculation, cost itemization, or lien handling.

Trust account violations as warning signs

Trust account violations are among the most common state bar disciplinary issues. Common violations include: commingling client funds with operating funds, drawing on client funds before they have cleared, advancing money to the firm or to the client before the settlement statement is finalized, and slow disbursement after the statement is signed. If your firm is delayed in disbursing your settlement, ask for written confirmation of the date the settlement check was deposited and the date you can expect disbursement. A firm that cannot answer is mishandling your trust account funds.

The check writing process

The firm typically issues multiple checks from the IOLTA account: one check to each medical provider with a lien, one check to each insurance carrier with subrogation, one check to the firm for the costs ledger, one check to the firm for the attorney fee, and one check to you for the net recovery. Each check is recorded in the IOLTA ledger. The client check is the last to be issued, typically the same day the lien checks clear.

Wire transfers and direct deposits

Most modern maritime firms offer wire transfer or direct deposit for the client net recovery. This eliminates the time required for a mailed check to arrive and clear, which can save 5 to 10 days on the disbursement timeline. Request wire transfer at the settlement statement signing if you want fastest access to your funds.

Tax reporting on disbursement

The firm reports the settlement to the IRS on Form 1099 for the gross recovery (some firms report differently depending on the structure). You receive a copy of the 1099 by January of the following year and must include the gross recovery on your tax return (with the physical injury portion excluded under § 104(a)(2)). Save all settlement documentation in case the IRS audits the exclusion claim.

Section 20

Red flags in agreements

20. Red flags and warning signs in maritime contingency agreements

The maritime contingency agreements that produce the worst client outcomes share specific features that experienced clients learn to spot. The features fall into three categories: fee inflation (charging more than 40 percent or more than the work justifies), risk transfer (shifting cost or lien risk inappropriately to the client), and transparency failures (vague language that allows the firm to interpret terms in its favor at settlement). The presence of any one feature is concerning; the presence of multiple features is disqualifying.

Fee inflation red flags

The most obvious red flag is a fee percentage above 40 percent without written justification. A 45 percent or 50 percent fee on a routine maritime injury case is not consistent with the case law on reasonableness and not consistent with industry norms. The firm should be able to articulate specific Johnson factors (novelty, complexity, undesirability) that justify a fee above 40 percent. If the firm cannot articulate the factors or refuses to put them in writing, the fee is inflated and you should consult a different firm.

A subtler red flag is the multi-tier escalator with vague triggers. Standard maritime escalators are 33⅓ percent pre-suit, 40 percent post-suit. Some agreements add additional triggers (at first deposition, at engagement of expert witness, at 90 days after demand letter) that escalate the fee without any litigation milestone. Each additional trigger is a chance for the firm to claim the higher rate earlier. Single, clear, court-filing-tied triggers are the standard; multi-trigger escalators are red flags.

Risk transfer red flags

The biggest risk transfer red flag is cost responsibility regardless of outcome. The standard structure is no recovery, no fee, no cost with the firm absorbing costs if the case loses. Agreements that make the client liable for costs win or lose are unusual in maritime work and a strong signal the firm cannot or will not carry the cost risk. Walk away from any agreement that requires you to pay costs out of pocket if the case loses.

A subtler risk transfer is the fee on gross including liens structure that calculates the attorney fee on the full settlement before liens are deducted. This effectively makes you pay attorney fees on money that goes to medical providers, not to you. The standard structure deducts costs and liens before or at the same time as the fee, not after.

Transparency failure red flags

Vague language that can be interpreted in multiple ways is a transparency failure. The fee base should be defined (on the gross settlement amount excluding past maintenance and cure benefits), the cost categories should be itemized (court costs, expert witness fees, deposition transcripts, medical records retrieval, life-care planning, vocational economic analysis), and the lien handling should be specified (liens negotiated by firm without additional charge). Vague definitions invite favorable interpretation by the firm at settlement.

Another transparency failure is the absence of a settlement statement requirement. State bar rules require a written settlement statement in most jurisdictions, but some firms try to avoid the formality by simply disbursing funds with a brief letter. Insist on contract language that requires a written, itemized settlement statement signed by the client before any disbursement.

Walk-away clause red flags

An agreement that purports to waive the client right to terminate counsel is unenforceable, but its presence is a red flag about the firm approach to the client relationship. Similarly, an agreement that imposes termination penalties beyond reasonable quantum meruit recovery is improper. The walk-away clause should provide for hourly-rate quantum meruit on time documented in contemporaneous records, prompt file transfer, and a defined limitation on the firm lien claim.

Hidden referral fee red flags

An agreement that does not explicitly disclose any referral fee arrangement is potentially violating state bar disclosure rules. Ask at intake whether the case is being referred or shared with another firm; if yes, demand written disclosure of the fee split percentages. A firm that resists this disclosure is in violation of its professional responsibility obligations.

Section 21

20-question checklist

21. The 20-question contingency agreement checklist before you sign

The 20-question checklist below covers every meaningful provision in a maritime contingency fee agreement. Walk through each question with the firm before signing. The answers should be either in the written agreement itself or in a written follow-up letter from the firm. Verbal answers without documentation are worthless if a dispute later arises.

The 20 questions

1. What is the contingency percentage pre-suit and post-suit? Standard maritime: 33⅓ percent pre-suit, 40 percent post-suit. Anything materially higher needs specific justification.

2. What event triggers the escalator from pre-suit to post-suit rate? Standard trigger: filing of the complaint. Avoid vague triggers tied to demand letters, expert engagement, or expiration of arbitrary time periods.

3. Is there a trial escalator above the post-suit rate? Some firms use 45 percent at trial. Acceptable if tied to rejected settlement offers with written firm recommendation; concerning if applied automatically to any verdict.

4. Are costs the responsibility of the firm regardless of outcome? Required answer: yes. Walk away from any agreement that makes you responsible for costs if the case loses.

5. Is the attorney fee calculated on the gross recovery or the net recovery after costs? Net recovery calculation is more favorable to the client. Gross calculation is the standard but should be disclosed clearly.

6. Are past maintenance and cure benefits excluded from the fee base? Required answer: yes. Maintenance and cure paid during the case should not be part of the contingency fee calculation.

7. Are you handling lien resolution and is that included in the contingency fee? A specialty maritime firm includes lien negotiation in the standard fee. A separate charge for lien resolution is unusual and should be questioned.

8. Will my case be referred to or shared with another law firm? If yes, demand written disclosure of the fee split, the work each firm will do, and your written consent.

9. What is the procedure if I want to terminate the agreement? Standard answer: quantum meruit on documented hours, prompt file transfer, lien on eventual settlement only.

10. Will I receive a written settlement statement before disbursement? Required answer: yes. The statement should itemize every cost, every lien, and the fee calculation.

11. How long after settlement until I receive my net recovery? Standard: 14 to 30 days from receipt of settlement check.

12. What is the firm experience with maritime cases specifically? Ask for case results, federal court appearances, and named maritime litigation. Vague answers indicate generalist firm.

13. What state bar rules govern this agreement? The firm should answer immediately with the specific rule citation.

14. Are there any federal court fee approval requirements for my case? Required for minor plaintiffs, incapacitated plaintiffs, and wrongful death.

15. How are case costs documented and reported to me during the case? Standard: quarterly written cost summaries.

16. What is the firm malpractice insurance coverage? Specialty maritime firms typically carry 5 million dollars or more in coverage.

17. Will I have access to the case file and work product during representation? Required answer: yes, with reasonable notice.

18. Who will be my primary contact at the firm? Get the name, title, and direct contact information of a specific person.

19. How frequently will I receive case updates? Standard: every 30 to 60 days, with major event updates immediately.

20. What is your response if I want to consult a second specialty maritime firm before signing? Required answer: complete openness. A firm that pressures you against second opinions is signaling problems.

The signature decision

After walking through the 20 questions, you should have clear written answers to each, a draft agreement that matches the answers, and confidence that the firm is competent and forthcoming. If any answer is missing, vague, or inconsistent with the written agreement, do not sign. The maritime case is going to take 18 to 36 months. There is time to find the right firm. There is no time to recover from signing the wrong agreement.