Fees

Terms:


“Contingent Fee” 
Arrangement in which the client’s obligation to pay the lawyer for services rendered is dependent on the outcome of the case.

“Fee Splitting”
The practice of sharing client fees with another attorney. Strict rules generally apply, requiring fees to be paid in proportion to the work performed on a case.

“Referral Fee”
(Generally disallowed by the ethical authorities, with exceptions.) The most basic rule holds that a lawyer may not pay a non-lawyer for referring a client. 

“Retainer”
An amount a lawyer may request from a client at the beginning of a matter which will probably not be refunded to the client; it is technically a fee to “retain” the lawyer’s services for a specified period of time.

Lawyering

While lawyers have to make a living, they are officers of the court and owe special responsibilities to the public that other businessmen do not. 

For one thing, states restrict the content and form of lawyer advertising in a manner that, for other businesses, would represent an overhaul of the advertising system. This is because the ethical rules recognize the incredible power over people that advertisements may hold. The rules are designed so that viewers or readers will not be fooled into accepting inappropriate legal representation based on artsy packaging, beautiful models, or talking reptiles. Lawyer television and print ads are dry and boring, but the ethical rules have made a judgment that it is better to keep them that way than allow their creators to manipulate the public regarding their services. 

Solicitation of clients is another aspect of “lawyering” with which the ethical rules are concerned. As with the advertising rules, the goal is to minimize any undue influence over an individual's choice of a lawyer. The rules prevent a personal injury lawyer, for example, from soliciting sick patients in a hospital who might make great plaintiffs in a civil suit. 

Another aspect of the business of law that differs from your everyday product sale has to do with fees. Contrary to popular belief, there are many strict rules dealing with what and how a lawyer may charge a client for her services, and we will discuss these rules in this chapter. This is not to say that lawyer fees are not inordinately expensive – they usually are, in large part because our society places a premium on professional services, regardless of the profession. But the ethical rules do not sanction fees that are unreasonably disproportionate to the services rendered. 

Fees in General

The ethical rules do not prescribe specific rates that attorneys may or may not charge. Attempts to regulate attorney fees have been made, though. In some jurisdictions, maximum fees have been successfully imposed for certain types of legal work, including workers’ compensation, social security claims, soldiers’ claims against the government, and some contingent fee arrangements. These maximum rates have been imposed by statute, court rules, or by court decisions. 

However, members of a state bar may not take it upon themselves to rid society of high legal fees by making an agreement to set maximum fees. This would be a violation of federal antitrust laws. In addition, the United States Supreme Court held, in a case called Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975), that a state bar’s imposition of minimum fee schedules is a federal antitrust violation. 

The actual fee arrangement in an attorney-client relationship is generally left for the individual attorney and client to work out together. Nevertheless, the ethical rules set forth certain principles affecting how fees are set. The rules also govern what is acceptable as a form of compensation for lawyers. 

"Retainers" are sums of money that a lawyer may request from a client prior to taking on representation, the payment of which is often accompanied by the execution of a retainer agreement. A retainer agreement serves to secure the lawyer’s participation for a set period of time. In the event that, at the end of the representation, the reasonable value of the attorney’s services (measured by factors such as the attorney’s hourly rate, etc.) is less than the paid retainer amount, the attorney must return the excess fees paid.

Fees and Reasonability 

When we contemplate $500.00 per hour legal fees that are often charged by large corporate law firms, it is hard to imagine that the ethical rules mandate "reasonability" in setting legal fee rates. Nonetheless, it’s true. The ethical rules in all jurisdictions require that fees be "reasonable". Those big firm corporate fees, while seemingly outrageous, usually factor in a host of overhead obligations and assorted costs that an ordinary private client might not require for adequate representation. 

And as with any product, if you demand the name brand, you can expect to pay extra. Naturally, certain "name-brand attorneys" from well-known firms and law schools sometimes end up costing a lot to retain. It is a matter of supply and demand; there is a huge demand for Harvard or Yale-educated attorneys, for example, and companies deem it reasonable to pay extra for their services. That does not mean the client will be guaranteed victory in a case, of course. As the system is designed, the truth is supposed to win the out in court.

All in all, the Model Rules demand that all legal fees be “reasonable.” Here are some factors to consider when judging reasonableness:

a) The amount of time and labor required on the case.
It is a given that a monstrous corporate litigation assignment lasting years will require teams of admitted attorneys, temporary attorneys, paralegals, clerks, and lots of general administrative support. Therein (in part) lies the reason for the added expense for corporate representation. 

b) The novelty and difficulty of the issues involved in the case. 
As in any profession, there are "garden-variety" jobs, and jobs that require tremendous intellectual and physical exertion. While lawyers don’t risk their lives building subway tunnels, they might be forced to stay up three nights in a row to adequately prepare a brief to a court requesting immediate relief on a novel issue of the law. Such exertion can be reflected in a legal fee.

c) The skills needed to perform the legal service.
Due to the natural forces of supply and demand, attorneys with special skills may end up charging more. Arguing a novel issue of corporate securities or tax law before the highest courts in the land requires special skills which cost time and money to acquire. The same goes for convincing the United States Patent and Trademark Office that a scientific invention should enjoy patent protection. It would not be unreasonable for a lawyer with special training in robotic engineering to factor in the cost of that training, and the value of that special training, in her fee.

d) The interference with other employment of the attorney. 
Attorneys are entitled to charge more for cases that interfere with other work. It is simply a matter of “making up for what must be given up.” It is reasonable that if a case usurps an inordinate amount of an attorney’s time, the attorney may charge more.

e) The usual fee within the locality for similar work 
The mere fact that all attorneys are charging a certain fee for a certain task does not inherently make that fee reasonable. It makes sense, however, that other attorneys practicing in a similar geographic area could represent a source for comparison in determining the reasonableness of a fee.

f) The amount of money involved and the results obtained 
In some cases, this might be a reliable measure of reasonability. Unfortunately, though, results are not always easy to measure in dollars. In transactional corporate work, the grand result of months of labor might be an agreement to purchase a tiny, promising firm that is in terrible debt. Results are also not reflected in dollars in the context of a criminal defense, in which case the desired result is an acquittal after trial. Achieving a billion-dollar deal might mean failure for negotiators seeking 30 billion, whereas achieving a $1 nominal fee as vindication of constitutional rights might represent a great success for a client seeking an injunction. 

g) The nature and length of the relationship between the parties 
Building relationships with law firms is good business for companies in need of long-term outside legal assistance. Having a team of experts who know your business well can be an invaluable commodity. Therefore, it might be deemed reasonable to pay a premium for a legal team with special skills and expert qualifications. 

h) The experience, ability, and reputation of the attorney 
Of course, if you need to hire the best attorney you can find, chances are you are going to first look for one with a wealth of experience in the area of the law in which you are concerned. You will probably seek information about the attorney’s reputation, and you will want to know whether the attorney is able to handle the case that you bring her. Attorneys with impeccable credentials will probably command higher fees.

i) The time limitations imposed by the client or the circumstances
Success in certain matters might be determined by the speed with which an attorney is able to make an appearance in court and file motions or briefs. Some attorneys have reputations as being able to labor under severe time constraints. It takes a strong intellect and a lot of talent to be able to prepare a 150-page brief in support of a motion overnight.

j) Whether the fee is fixed or contingent.
Basic economic principles of risk and return sometimes factor into the assessment of legal fees. Plaintiffs’ lawyers working on contingent fees often take risks, and they are accordingly rewarded with high returns if they succeed. Some plaintiffs’ attorneys are willing to bet their homes on success. (Read Jonathan Harr’s entertaining and enlightening book on a toxic tort case, A Civil Action, for a taste of the risks that plaintiffs’ attorneys might be willing to take).

Contingency Fees

Contingency fees are fees that do not “kick in” unless a case is resolved or settled successfully in favor of a client. In most cases, attorneys take a set percentage of a client’s recovery. If the client loses and does not recover, the lawyer takes home nothing. So, working on contingency can be quite a gamble – especially if the attorney dedicates her entire practice to the resolution of one case. 

All contingency fee agreements must be in writing so that there will be available documentary evidence in case of a dispute between the attorney and the client. The writing must state the method by which the fee is to be determined, including information on:

  • the percentage of the recovery due to the lawyer in the event of a settlement, a trial, or an appeal;
  • expenses to be deducted from a recovery; and
  • whether expenses are to be deducted before or after the contingency fee is calculated. 

When the case or matter is concluded, the lawyer is obligated to give the client a written statement of the outcome of the matter, including information on funds that might be due to the client. Again, this is to ensure the availability of documentary evidence in case of a dispute. 

The Model Rules add that if a lawyer believes that working on contingency might not be in the client’s best interests, the lawyer should at least offer an alternative means of calculating a fee, and explain the pros and cons of the available choices. See Comment to Rule 1.5

In most jurisdictions, contingency fees are prohibited in the following types of cases:

  • Domestic relations cases, especially where payment would be contingent on securing a divorce or on establishing alimony or support. Providing a boon to a lawyer for settling a divorce would be inconsistent with a state’s interest in keeping married people together. 
  • Representing defendants in criminal cases. This prohibition on contingent fees is to prevent the lawyer from exerting an undue influence on the defendant’s decision on how to plead in a case. 

Contingency agreements may be voided if a client discharges his attorney in the middle of a case. The attorney could then be barred from collecting the originally called for percentage of the eventual recovery. However, in such a situation, the attorney would be entitled to recover the reasonable value of her services. 

Fee Splitting and Referrals 

In many industries, referral fees are standard operating procedure, perhaps because referrers keep the members of the industry in business. Brokers exist in the real estate and securities markets. Agents represent authors and artists, and may make a nice fee for referring their clients to a publisher, for example. In the legal profession, for better or for worse, the concept of garnering a “referral fee” is frowned upon and the practice is condemned as unethical if it involves paying a non-lawyer for referring clients. 

One reason for this rule is that adding “middlemen” into the fray might compromise loyalties and confidentiality. The person referring the client to the lawyer might make demands that impact on the lawyer’s independent judgment. Lawyers need to earn money just as anyone else does, and without the prohibition, they might be tempted to take on clients subject to certain demands made by referrers as a condition for the referral. 

Moreover, the practice of brokering or referring clients could increase the already-high cost of legal representation out of proportion to the services actually provided to the clients. Some industries need middlemen to distribute their product. (It would be tough for Campbell’s Soup to distribute cans of “chicken with stars” to every single retail outlet willing to sell them.) In these industries, the presence of wholesalers increases the cost of the product for consumers. The ethical authorities fear such increases in legal fees that will not accrue as value to the consumer of the legal services. 

A referral fee, in the legal services context, would occur when a primary attorney pays part of his fee to another attorney who introduced the primary attorney to the client. Model Rule 1.5(e) prohibits this practice outright, unless:

  • the client consents, and
  • the fee division is proportionate to the services performed by each attorney; or
  • by written agreement with the client, each attorney assumes joint responsibility for representing the client. 

EXAMPLE: Attorney Jacko wants to introduce Attorney Bubbles to a client, but only if Bubbles promises to give Jacko enough money to buy a hyperbaric chamber. Bubbles knows the ethical rules, and tells Jacko that if he wants money, he has to do legal work on the case to earn the fee – and he has to obtain the client’s consent for this two-lawyer representation. 

Therefore, the rules generally hold that a lawyer may not just hand a client over to another lawyer and expect a finder’s fee without doing any legal work for the client. California, as an exception to this rule, permits an attorney to pay referral fees to another attorney who referred a client, but only if 

  1. the client understands all the terms and provides written consent;
  2. the final fee is not unconscionable; and 
  3. the cost of the referral is not borne by the client. 

Fee Splitting with Non-Lawyers

A lawyer will be subject to discipline for paying referral fees or splitting fees with a non-lawyer. As a whole, the Model Rules condemn the practice of lawyers partnering with a non-lawyer if any of the partnership activities consist of the practice of law. See Model Rule 5.4. Splitting fees or providing referral fees is really a form of partnership activity related to the practice of law. 

As with most of the rules we have seen, there are certain necessary exceptions to the prohibition on fee-splitting with non-lawyers:

  • The estate of a deceased lawyer entitled to fees from the lawyer’s firm, partners, or associates may be paid over a reasonable period of time after the lawyer’s death.
  • A lawyer purchasing the legal practice of a deceased, disabled, or disappeared lawyer may pay a lawyer’s estate.
  • Non-lawyer employees in a firm may be included in a compensation or retirement plan, even if the plan is funded by a profit-sharing arrangement. See Model Rule 5.4

Also, lawyers are entitled to participate in prepaid legal service plans that advertise to obtain clients. Additionally, lawyers may be listed with a nonprofit lawyer referral service. Often these services are run for the benefit of a community by a local county bar association. When a lawyer obtains a client through the referral service, the lawyer may be required to pay a referral fee to the service. This is not considered an unethical form of paying a non-lawyer for referring new clients, because of the non-profit nature of the service.