Attorney Fees – 4/14/2015

We’re going to discuss attorney fees today, because I heard Big Bills: A Hidden Side Effect Of Cancer Treatment by Sarah Jane Tribble on NPR this morning. The story relates to cancer treatment and cost, and focuses in part on the lack of meaningful discussion between doctors and patients about cost.

So what does the doctor-patient conversation about fees have to do with attorney fees? It’s not “pick on doctors week” hear at MRW, although in too many instances I have not seen a meaningful appreciation for cost in the doctor-patient relationship. Instead, the story prompted me to think about the attorney-client discussion.

Generally, I think the legal profession does a good job of disclosing fees and costs. I suspect the disclosures occur because, in almost every case, the client pays the legal fees. With medicine, we usually pay a fraction of the bill, and at that we don’t really know how much gets paid for the services we receive.

While I do think attorneys adequately disclose fees and costs in attorney-client situations, I do think we can do a better job about explaining fee arrangements more generally. And that is where we begin today.

There are five basic fee arrangements: hourly, flat fee, earned upon receipt, retainer, and contingent-fee. Some of these arrangements can be blended with others, but these are the five basic arrangements.

Hourly is just what it sounds like. You pay for attorney time, typically charged in six minute increments. (I did have a partner many years ago who told me his clients liked to be billed in 15 minute increments, as they felt like .1 of an hour was “too petty.” Not good for the client!)

Generally, hourly rate matters get billed monthly, with a printed bill which shows all tasks and time charges. Attorneys expect hourly rate clients to pay within the month during which the bill gets sent, unless other arrangements have been made.

Flat fee arrangements involve a fixed sum for a task. Attorneys worry about flat fee arrangements, as they worry about unknowns. Clients like flat fee arrangements, as they know what their cost will be. Flat fee arrangements worked very well for discrete tasks involving the attorney and client only, like estate planning and business formations. Flat fee arrangements are often less successful in litigation matters, where the other half’s actions may result in the need to spend lots of time.

Earned upon receipt arrangements are a variant of the flat fee. They’re not common, and not looked upon with favor by the ethics people. In earned upon receipt arrangement, the flat fee is deemed to be earned when it is paid, without regard for when or if any work gets done. Notwithstanding this fact, the State Bar requires a disclosure from the attorney that the client may have a right to a refund of some or all of the fees, if the fee is unreasonable, as measured against the services to be provided, and those services actually provided. Earned upon receipt fees are most commonly seen in criminal defense matters and domestic relations cases. These arrangements are not good for clients.

Retainer arrangements are also rare. They involve a monthly payment, in return for which the client usually gets routine services—advice, small tasks, etc.—and, as well, protection against someone else using the attorney against the client. Retainers are rarely seen and, when they do occur, they usually involve a business which wants access without paying directly for each and every contact.

Contingent fee agreements involve the payment of a fee, usually measured against a recovery, if the recovery occurs. Almost all personal injury cases involve a contingent fee, and such arrangements are common in substantial commercial litigation and real estate condemnation cases. Less common, but seen more and more frequently, are blended arrangements, where the client pays a discounted hourly rate and a smaller percentage of any recovery.

*By the way, it’s pledge week on public radio, and at perfect opportunity to help pay for an essential part of life!