Small Law Firms

Some Lawyers Offer Interesting Fee Arrangements

Clients may not be happy with the billable hour fee arrangement since the lawyer and client’s interests may not be aligned.

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hidden fees shutterstock_574650166Perhaps the most common way attorneys bill their clients is by the billable hour. Under this arrangement, the lawyer and client agree to a rate the lawyer shall charge the client for an hour of the attorney’s time, and the lawyer records her time and invoices the client for the amount owed. Clients may not be happy with the billable hour fee arrangement since the lawyer and client’s interests may not be aligned, the client might not be able to expect how much she will need to pay for legal work, and for other reasons. In recent years, many law firms have begun to offer alternative fee arrangements to be more equitable to clients and to better align the interests of attorneys and clients. Throughout my career, I have heard of some lawyers offering some unusual fee arrangements that sometimes have interesting consequences for a representation.

One time, I was working at a firm that mostly handled mass torts cases in one particular mass tort. There was a firm that represented numerous defendants in this mass tort, and attorneys at that firm would routinely attend depositions representing five or more clients. The rumor was that clients of that firm agreed to be charged a bargain basement low hourly rate that might not have even cracked triple digits per hour. In exchange, the clients agreed that the firm could also work for other clients for the same appearance and each client would be charged that same low rate even if other clients were simultaneously represented at a deposition, court conference, or other appearance.

I am not sure of the ethical implications of such an arrangement, and I leave that question to better minds than mine. What I can say is that this sometimes made it difficult for attorneys at that firm to handle issues for all of their clients. Sometimes, the lawyers would even forget who they represented, since they had to keep tabs on five or more clients at a given proceeding. However, this arrangement ensured that the client would pay one extremely low hourly rate notwithstanding the circumstances, and clients may feel that there was less of a chance of being overcharged by their counsel with this arrangement.

Some lawyers have hybrid arrangements that combine multiple fee structures in a single representation. Some lawyers charge a flat fee for certain types of legal work so that clients and lawyers can set expectations about how much money will be charged for legal work. One time, I worked at a law firm that agreed with a client that for a certain stage of the litigation, the client would only pay a flat rate. If the case proceeded past that stage of the case, then the client would be charged at a reasonable hourly rate.

This created some perverse outcomes in our representations. For instance, when the case was in the flat fee portion of the representation, the firm did not go the extra mile in the representation, and we would usually double-book court appearances and take other steps to save money. However, once the case was past the point when we could start charging by the billable hour, attorneys would work up cases more. To the extent practical, I got the feeling that some attorneys waited until they could charge by the billable hour to complete certain tasks. In any event, the law firm was more flexible than others in how they structured fee arrangements, and this led to some unique outcomes in the representation.

When it comes to contingency cases, some lawyers take an interesting approach that perhaps more lawyers should consider. Usually, when a lawyer takes a matter on contingency, there is one flat contingency rate that is charged no matter when the matter resolves, and this is typically one-third of the recovery. However, sometimes lawsuits resolve early in the litigation, while other times, lawsuits are not resolved until a jury renders a verdict. It might seem unfair for a client to fork over a third of a recovery if the lawyer merely wrote a few letters and made a few phone calls, and some lawyers structure fee arrangements to deal with this situation.

I once worked at a law firm that broke down contingency percentages based on when the litigation was resolved. If I am not mistaken, the lowest amount that could be charged was 15% of the recovery if the case settled early and 40% of the recovery if the case was resolved after trial or on appeal. Of course, some states have mandatory maximums for contingency percentages in certain types of cases, but such nuanced contingency percentages could bring more fairness to a contingency representation.

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All told, everyone should do their research to see if the fee arrangements discussed in this article are ethical in the jurisdictions in which they practice. However, lawyers should be more creative with their fee arrangements so that they are fairer and better align the interests of attorneys and clients.

Rothman Larger HeadshotJordan Rothman is a partner of The Rothman Law Firm, a full-service New York and New Jersey law firm. He is also the founder of Student Debt Diaries, a website discussing how he paid off his student loans. You can reach Jordan through email at [email protected].

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