Legal Fee Agreements
By: Attorney Jeffrey W. Jensen
The topic of legal fee agreements makes everyone squirm. Clients do not like to discuss fee agreements because the client perceives that he or she is at distinct disadvantage discussing contracts with a lawyer- and, after all, they do not want to seem like they do not trust the lawyer right off the bat. Lawyers hate discussing fee agreements because they fear that all the legal mumbo-jumbo may scare off the new client before he even makes his first fee payment. So attorneys and new clients pretend not to see the big white elephant in the room- until it is too late and the relationship is poisoned with hard feelings and mistrust.
A thorough discussion of legal fees and a clearly-worded legal fee agreement are the very bedrock of a strong relationship of trust and cooperation between a lawyer and a client.
Types of Fee Arrangements
There are generally three types of fee agreements for lawyers: (1) hourly fee; (2) flat fee; and, (3) contingent fee agreements. Contingent fee agreements, where the attorney is paid a percentage of any amount recovered in the lawsuit, may not be used in criminal or in family law cases and, therefore, they will not be addressed here. In an hourly fee agreement the attorney keeps track of the time he spends working on the client's case and then bills the client at an agreed upon hourly rate. It is very common for an attorney to charge an hourly fee in family law cases. A flat fee, as the name implies, is a fee that is paid to the attorney for a given service regardless of the amount of time spent. Flat fees are usually charged for a given increment in the proceeding. For example, one flat fee will be charged for all proceedings prior to trial and then a second flat fee in the event the matter proceeds to trial.
Each type of fee has its advantages and its disadvantages to the client and to the lawyer. Under an hourly fee agreement, if the matter is resolved quickly, the total fee may be much less than what it would have been under a flat fee agreement. On the other hand, if the legal matter becomes complex or if it requires a lengthy trial the hourly fees will add up quickly. Despite Abraham Lincoln's admonition that a lawyer's time is his stock in trade, an hourly fee can be a crude way to compensate a person who is providing important legal advice that may mean the difference between years in prison and months in prison. An experienced lawyer may almost immediately know the correct course to follow without having to open a book. An inexperienced lawyer, though, may spend hours researching legal issues but still not know what to do. Most clients would rather have the correct answer regardless of how little time it takes the lawyer to come to that answer. It makes no sense that the inexperienced lawyer's bill will be much higher for the wrong answer.
Thus, especially in criminal cases, many clients prefer a flat fee. Firstly, the client knows from the outset what the total fee will be. There will be no surprises at the end of the case when the lawyer sends his final bill. It is far less likely that problems will arise over fee payment issues- as is frequently the case when monthly hourly bills are left unpaid by the client. Secondly, a flat fee fairly compensates an experienced lawyer for his wisdom. An attorney should not be financially punished because he knows fourth amendment law without having to spend hours researching the issue.
Despite the disadvantages of hourly fees they are usually the best choice in a family law case. This is because, unlike a criminal case, a divorce case is not easily broken into clear procedural increments. Additionally, there is surprisingly little legal research required in an average divorce case. Rather, the real value that a lawyer provides in a family law case is his procedural expertise and his negotiation skills. Thus, it is unlikely that the client will be billed for hours of legal research.
In any event, when one is considering hiring a lawyer be sure to talk to the lawyer about the advantages and the disadvantages of both flat fees and of hourly fees.
What is covered?
It is almost impossible to over-emphasize the importance of reading the agreement that your lawyer proposes to you. Any lawyer who would allow a client to sign a contract, even a legal fees contract, without reading it carefully is not a lawyer that is worth hiring. Although the attorney-client relationship is based upon trust, no scrupulous lawyer will be offended that a client carefully reads a legal services contract. The lawyer will not be annoyed by questions about the terms of the contract. To the contrary- the attorney-client relationship is greatly enhanced when it starts out with a clear understanding of the terms of the relationship from the very outset.
While reading the agreement make sure you understand:
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What is the basis for the fee? Is it hourly or is it flat? If it is an hourly fee what is the hourly rate and what sorts of attorney activity will be billed (i.e. does it include travel and telephone consultations)? If the fee is flat are the covered services (i.e. the increments) clearly defined?
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How is the fee to be paid? In an hourly fee contract the lawyer will usually request a sum at the outset for advanced fees against which he will bill. Will the advanced fees be put into the attorney's trust account or into his general operating account? Will the advanced fees be returned if the matter is resolved before all the fees are earned? What happens if the monthly bill is not paid on time?
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How will the fees and the costs of the representation be paid? In almost all types of litigation there are filing fees, transcript fees, costs for copying, long-distance, computer research and the like. These fees and costs do not come out of the attorney's fee so be sure you understand how these fees will be paid. Sometimes the lawyer will request that a sum be placed in his trust account to cover the anticipated costs. Other attorneys will "advance" the costs, add that sum to the monthly bill, and it is then expected that the client will pay the attorney back each month.
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In the event that the client decides to discharge the attorney what procedure will be followed? Is the attorney required to refund the fees?
Ethical requirements
The Wisconsin Office of Lawyer Regulation complained to the Supreme Court that fee disputes were by far-and-away the most frequent sort of complaint they received. Therefore, the Supreme Court created new rules of ethics that became effective in July, 2007. The most important aspects of these new rules are that all legal
"[N]o scrupulous lawyer will be offended that a client carefully reads a legal services contract . . ."
service agreements that are reasonably anticipated to generate fees in excess of $1000 (One Thousand Dollars) must be in writing. The writing requirement does not necessarily mean a written contract signed by both parties but it does mean, at the very least, that the client is sent a letter which confirms the terms of the agreement.
Additionally, if the attorney will be putting the fee payments into his general operating account prior to the time that the fees are completely earned the new rules of ethics require that the agreement contain the following information:
At the conclusion of the representation the attorney will provide the client with a written accounting of all fees and costs incurred in the matter, or an accounting of fees and costs incurred from the date of the last billing statement sent to the client, and a refund of any advanced fees that have not been earned or advanced costs that have not been used. If client disputes attorney's determination as to what amount, if any, must be refunded to client, client must provide attorney with written notice of the dispute within thirty days from the date of the final accounting. If the dispute cannot be resolved within thirty days, attorney will submit the dispute to binding fee arbitration through the State Bar's Fee Arbitration Program. The State Bar's Fee Arbitration Program may be contacted c/o State Bar of Wisconsin, PO Box 7158, Madison, Wisconsin. 537070-7158. Client is not required by this agreement to participate in fee arbitration and may pursue a dispute of attorney's fees in other appropriate forums. Further, if attorney fails to refund unearned fees, abide by a fee arbitration award or abide by a final decision of a court with respect to unearned fee, client may file a claim with the Wisconsin Lawyer's Fund for Client Protection to recover such amount. The Wisconsin Lawyer's Fund for Client Protection may be contacted c/o State Bar of Wisconsin, PO Box 7158, Madison, WI 53707-7158.
No client was ever sorry that he or she took the time to completely understand the fee agreement they were making with their new lawyer. No lawyer was ever sorry that he took the time to spell out for the client the lawyer's fee expectations. So don't pretend that the big white elephant is not in the room.
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