Client: You're charging me on an hourly basis in this case, right?
Attorney: Yes, $250 per hour for my time, which is my standard fee arrangement when I’m representing a defendant in a civil lawsuit, like you are here. My associate attorneys in the office charge $150 per hour. However, if you were a plaintiff suing someone else, there would be other fee options.
C: You mean, other than straight hourly rates?
A: Yes. Attorneys can handle lawsuits for plaintiffs in several different ways besides straight hourly.
C: Such as what?
A: Sometimes I can take a case on a fixed fee basis. That means a set, flat price for the entire case, either until it settles or all the way through trial. I would put that fixed fee in the attorney retainer agreement that the client signs at the beginning of the case.
C: When would you be willing to do something like that?
A: If it was a type of lawsuit that I was already familiar with, and had some prior experience handling, then I would have a rough idea of how much a case like that should cost, from start to finish. That would allow me to feel more comfortable quoting a fixed fee for the entire case. Otherwise I wouldn’t do it.
C: I’m the defendant in this case. Why can’t you charge me a fixed fee in this case, instead of straight hourly?
A: Some attorneys might do that, but I’m just not as comfortable doing it on the defense side. When I’m acting as the plaintiff’s attorney, I have a little more control over what happens in the case. The plaintiff is the one on the offensive in any lawsuit, because they have the burden of proof at trial. That sense of control means I can decide what amount of work I need to do to get the case ready for trial, which affects the ultimate amount of the legal fees.
C: So the amount of control you have affects whether or not you’ll work on a non-hourly basis?
A: It has to, because control relates to the level of risk I face in handling the case on a non-hourly basis.
C: Isn’t a fixed fee, or any non-hourly fee arrangement for that matter, always riskier for an attorney than straight hourly?
A: You bet. That’s why attorneys call non-hourly fees “risk-sharing with the client.” When I set a fixed fee, I’m trying to predict the future. There are a lot of variables, a lot of unexpected twists and turns, in a civil lawsuit that can cost extra in legal fees. If I guess wrong with the fixed fee at the beginning of the case, I’m stuck. The client only pays the fixed fee, nothing more. If I end up setting the fixed fee for the entire case too low, I might end up working for free for part of the case.
C: So how do you compensate for that?
A: Sometimes clients agree to periodically review, or perhaps even re-negotiate, the fixed fee with their attorney to make sure it stays fair to the attorney as well as to the client as the case progresses. It isn’t good for the attorney-client relationship if either side feels like they’re getting a lousy deal, no matter what the reason.
C: But what about the situation where the client agrees in the beginning to pay the fixed fee, but the case ends up being over much sooner than they expected. They still owe the fixed fee. Couldn’t the client be overpaying in that situation?
A: Yes, they could, which is why both the attorney and the client need to be willing to review, and possibly even re-negotiate, the fixed fee to keep it fair to both sides.
C: Can you do anything else to balance the risk between attorney and client, so that it’s fair to both sides?
A: Sometimes I handle part of a case for a fixed fee, the rest of the case on a straight hourly basis. There’s less risk for the attorney that way. For example, I might handle the initial pleading stage of the lawsuit on a fixed fee basis, because it’s more predictable and manageable. Then I’ll switch to straight hourly for the pre-trial discovery part of the case, because it’s more unpredictable. Then maybe back to a fixed fee for the trial phase itself, which is a finite period of time.
C: What if you didn’t want to work on a fixed fee basis at all? What else could you do?
A: A second approach might be “blended” hourly rates. Here’s basically how that works, although there are variations. My normal rate is $250 per hour. My associates’ rates are $150 per hour. If I add the two rates together, which equals $400, then divide by 2, it leaves $200. $200 per hour becomes the “blended” rate for myself and my associates. It’s an average. I would charge $200 per hour for all my time and my associates’ time on the case, regardless of which of us did the work.
C: That sounds good to me as a client on the surface, but does it really end up being fair to both sides?
A: It depends on how much work I personally would have to do on the case compared to my associates. If I had to do most of the work myself at $200 per hour, when I normally charge $250, it’s not going to be a good deal for me. On the other hand, if I delegated nearly all the work on the case to my associates at $200 per hour, when they normally charge only $150, it’s not a good deal for the client.
C: So how do you strike a balance with blended rates?
A: Usually if my associates bill more than 50% of the total hours on the case themselves, but I still devote a significant amount of my own time to the case, albeit less than half, it works out well enough.
C: I’ve heard that every plaintiff wants their attorney to work on a contingency fee basis, where the attorney gets paid their legal fees only if they win the case, but nothing if they lose. Is that true?
A: To a point. Let me explain how contingency fee cases work. First, if the plaintiff’s contingency attorney collects any money at all for their client, either at trial or by settling the case pre-trial, they get paid a percentage of the recovery as their legal fees. These days, it’s around 40% of the amount recovered.
C: But there’s more than just legal fees, right? What about all the costs and expenses in the lawsuit? Who pays for those?
A: The client does. Sometimes the client pays all the costs and expenses themselves each month as the case progresses. The attorney sends their client a legal bill each month just for costs and expenses. The attorney doesn’t want to get stuck with the costs and expenses if the case turns out to be a loser. Other times, if the client doesn’t have enough money, the attorney will pay the monthly costs and expenses out of his or her own pocket. That’s called “advancing” the costs and expenses for the client.
C: Does the attorney have to wait to get repaid for those?
A: Yes. If the attorney collects a settlement for their client, or wins at trial, then when the money is paid by the defendant, the attorney takes the costs and expenses right off the top as reimbursement, before any legal fees are paid.
C: That raises an interesting question. How is that 40% contingency fee actually calculated?
A: I’ve seen it done two ways. It’s either 40% of the grand total amount collected from settlement or trial, which includes the costs and expenses. Or it’s 40% of the net amount, after costs and expenses have been deducted off the top. For obvious reasons, the first way produces a bigger dollar amount of legal fees for the attorney. The client gets less.
C: What determines which approach to use?
A: Basically, the stronger and better the client’s case is, the more attractive it will be to contingency fee attorneys. Hence, the client will probably have a wider choice of contingency attorneys to hire, which means the client can negotiate a better deal for themselves on how the contingency percentage is calculated. That’s an entire separate discussion for another day.
C: What kinds of cases are contingency fee cases?
A: Usually personal injury cases. Sometimes employment or workplace lawsuits, like for discrimination, harassment, or retaliation. Virtually always on the plaintiff’s side.
C: Can a case ever be handled on less than a 100% contingency basis?
A: Actually, yes. Sometimes plaintiffs’ attorneys will handle a lawsuit for a reduced hourly rate, maybe half of what they would normally charge. They also get a half-portion of the typical contingency rate. That’s called a “partial hourly/partial contingency” hybrid fee arrangement.
C: How would you charge for a case like that?
A: I might charge only half of my standard $250 per hour rate, or $125. But I would also get half of the typical 40% share, or a 20% contingency fee along with my reduced hourly rate. There’s less risk for the attorney that way, and the client keeps a bigger share of any recovery in the case. It’s a midway deal, a middle ground, between straight hourly and 100% contingency.
C: When would you use a partial hourly/partial contingency fee arrangement?
A: One example is if I was the plaintiff’s attorney in a business or contractual lawsuit of some kind. Regardless of the type of case, what’s most important is that my client, the plaintiff, has to have a strong chance of recovering a sizeable amount of money damages from the defendant in the case, at least in the six-figures. Otherwise, it would make no sense for me to work on a partial contingency basis. I might as well charge straight hourly for my time.
[TO BE CONTINUED]
© 2008 Ken Moscaret. All rights reserved.