The Wide World of Legal Fee Agreements
By Beth M. Zelman
An initial meeting with a lawyer can be a stressful time. Emotions often run high which, despite a well prepared agenda, postponing the discussion of certain key issues. Among the most important topics to be addressed during your first meeting with a lawyer is that of legal fees. The discussion should address the cost and scope of the anticipated legal services to be rendered; the experience levels of the lawyers or other legal staff members expected to perform those services; and the anticipated fee payment schedule. Don’t ignore the issue of legal fees. Deal with it head-on and early in the relationship.
When it comes to legal fees, there are almost as many possible variations as there are varieties of cases. In general, however, certain fee arrangements have developed which accommodate the vast majority of conditions between lawyer and client. Briefly summarized, these arrangements are as follows:
Contingent Fees: Under this arrangement, the lawyer’s compensation is based on a percentage of the amount recovered by you (either by way of settlement or verdict) in a given case. Contingent fee billing is the most common fee arrangement in cases involving personal injury and other “tort” cases, although it is periodically used in business cases which involve a high probability of recovery and adequate assured assets from which to recover. The most common percentage charged in contingent fee cases is 1/3 of the gross amount recovered. For example, in a one-third contingent fee case, where your lawyer recovers $300,000, the legal fee charged to the client would be $100,000. This figure does not include the client’s obligation to reimburse the law firm for “case-related disbursements” such as court filing fees, expert witness fees, and the like. In the event that you lose your case, the lawyer collects nothing except the “case-related disbursements.
In some states, such as Massachusetts, a lawyer may be prohibited by law from offering contingent fee billing arrangements in certain cases, such as divorce cases. Be sure to inquire as to whether the category of case you are involved in allows for contingent fee billing.
Hourly Rate: In an hourly rate arrangement, your lawyer will keep a strict time record of each hour devoted to your case as well as the case disbursements incurred on your behalf. Some lawyers charge different hourly rates depending on the type of work (i.e. a different rate for courtroom work as opposed to research time). It is also important to discuss with your lawyer the billing “interval” charged by your lawyer for work performed. For example: does your lawyer bill for a full hour when only 35 minutes of work is performed? Does your lawyer bill in 15 minutes or in six-minute segments? Finally, the hourly rate charged by an attorney should reflect that attorney’s direct experience with particular matter; his/her education and training; and should be in line with the fees charged by lawyers of similar experience levels in the same region.
Flat Rate: The “flat rate” arrangement is usually offered in smaller and less complex matters as well as in connection with certain conveyancing matters, such as the purchase and sale of a home, where the scope of the work may be more easily predicted than, for example, in a complex business litigation case. Again, the amount to be charged should reflect that attorney’s direct experience with particular matter; his/her education and training; and should be in line with the “flat fees” charged by lawyers of similar experience levels in the same region for the same kind of matter.
Retainers: In many instances, lawyers request that their clients deposit a specified amount of money with the law firm against which legal fees are deducted on a monthly basis. The deposit, otherwise known as a “retainer”, allows the firm the fund the necessary work in a given case, which may not be otherwise possible if the client is insolvent or unable to cover the cost of legal fees. The amount of the retainer required by the law firm in a given matter varies widely from firm to firm and by region. Unlike “flat fee” arrangements, retainers do not represent the full amount the client will be charged by the law firm for a given matter. When a retainer is exhausted, the lawyer will request that the client replenish the retainer account, in order to maintain the desired level.
Blended Fee Arrangements: While the fee arrangements outlined above accommodate the vast majority of cases handled by lawyers, there are frequently special circumstances that require modifications of established fee plans, in order to best satisfy the client’s unique needs and the law firm’s billing policy. A hybrid or “Blended Fee” arrangement is one that attempts to reconcile a client’s capacity to pay legal fees, with the firm’s ability to accommodate the client’s limited financial resources. Under a blended fee arrangement, a client may be asked to pay a reduced retainer in exchange for agreeing to a contingent fee in the event the law firm recovers on behalf of the client. For example, instead of requiring a client to remit a retainer of $7,500 for a given matter, the firm may request a retainer of $4,000 plus one-third of the amount recovered on behalf of the client, with a credit to the client in the amount of $4,000 or the total amount previously advanced by the client. Under this arrangement, the client’s reduced capacity to pay the firm’s minimum retainer is offset by the assurance of a contingent fee if the lawyer is successful in the case.
A wide variety of fee arrangements exist and should be explored by clients as early in the attorney-client relationship as possible. The sooner fee issues are addressed and memorialized in a written fee agreement, the less likely a fee dispute is to arise between lawyer and client.
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