03 Sep Getting the Most out of Your Lawyer’s Fee Agreement
You need a lawyer. You may not want one, but you need one because you need a contract, a shareholder agreement, or more likely, you have been sued. You do your due diligence, you seek out referrals and you find a good lawyer who can help you out and suits your needs. You agree to hire them and then you get their fee agreement. So do me one favor or more importantly do yourself a BIG favor
READ THE FEE AGREEMENT FRONT TO BACK–TWICE AT LEAST!!
Why, because most lawyer fee agreements amount to little more that adhesion contracts that have little that protects your interests as the client. Here is what most fee agreements contain, often in this order:
- Scope of the representation–what you case/engagement is about. You should make sure this is clear to you and to them.
The lawyer’s hourly rate(s)–if you have multiple lawyers working your case you will see their rates and usually a caveat that other attorneys might be assigned to the case for various tasks for which that lawyer may be “uniquely qualified.”
Billing and Invoicing–this section will tell you how often you will be billed, a phrase about “recoverable” costs or other expenses. Usually buried in this provision is a section that says you have only so many days (usually less than 15 days) to dispute a charge.
Termination provisions–for the lawyer, if you don’t pay they can quit plus some generic stuff about how you can terminate the lawyer, but always with a caveat that your rights could be affected if you terminate them.
Other provisions for lack of payment–often this might be reference to an attorney’s lien or some other scary provisions that should be translated as “we will sue you if you don’t pay us.”
Communications–this is usually the warning to keep communications confidential in order to avoid destroying the attorney/client privilege. (This one is actually vital but often overlooked by clients).
You read through it, twice like I asked, and you wonder–so what? Ask yourself, what is missing?
Your rights as a client are often missing. This should come as no surprise, if you were writing a contract for services that the other side is likely to just accept, you are likely to stack the deck in your favor. In that case, however, it is caveat emptor situation since you are dealing with another business at arm’s length and shame on them for not reading. But an attorney-client relationship is fraught with a basic conflict–the conflict between the lawyer’s business interest in earning a fee and their fiduciary and ethical obligation to act to advance your interests–even at their expense.
When negotiating a fee agreement, here is where savvy business owners and consumers of legal services need to do a little pushback with lawyers. A fee agreement is a contract with a law firm, you should treat it that way and negotiate terms on your own behalf for inclusion in the agreement. Here are five suggested provisions that should be included in the fee agreement.
Require the law firm to provide a budget. When you ask for this provision, most law firms will tell you, “well, we don’t really know how much this engagement will cost because legal matters are inherently unpredictable.” Your response, put bluntly should be, “B.S.” When you contract other professional services, do you accept that kind of answer? Would you allow a website programmer to tell you they don’t know how much a project will cost? Would you let mechanic get away without providing an estimate? Would you let your marketing consultant tell you that “This project will cost what I tell you reasonable and you have no say?” No. So why would you accept that answer from a lawyer? Ask for an estimate (a real estimate) for each major portion of your case and discuss it so that you have an idea of what the fees costs will be. Also, for longer term projects, like most litigation, ask for a rolling two month projection of fees and costs. So if a critical deadline is approaching in 45 days that will require a lot of work, you can see it coming and budget for it (as well as not be surprised when that bill comes.) This takes up-front effort by the attorneys and requires them to be a little more conscious of how they spend their time. But remember, their time is your money–make them spend their time wisely so they don’t waste your money.
No Hourly Fee Increases. Hidden in most fee agreements is a clause that says hourly rates are subject to change. Sometimes you get notice of the change and sometimes the clause might say hourly rates are subject to change without notice. Just about every year, law firms will increase the hourly rate for their attorneys, reflecting, in theory, an increase in the value of that lawyer’s time and expertise. Just because they do it to their other clients doesn’t mean they should do it to you. Include a provision that the hourly rates you pay (if you are paying hourly) will not increase during the engagement. You are contracting for services at a set unit price, there is no reason why you should have to pay more per hour just because your case takes time.
Strictly define “recoverable costs.” Law firms, in order to increase their profit margin, will pass on to the client a variety of costs that in other businesses would be considered “overhead.” This includes costs such as copying, scanning, postage, delivery services, research, etc. The costs listings can get very long. That is not to say that there are not some legitimate costs that are passed to the client that the client would have to pay even if they represented themselves (court filing fees for example), but a large part of the “costs” clients are told to pay by law firms should be absorbed into the firm’s own overhead. For example, I recently saw a fee agreement where the law firm was charging $.25 a page for copying and scanning. That is ludicrous and there is no incentive to be judicious in those activities. (By way of contrast, Kinko’s charges about $.04 a page for do-it-yourself black and white copying). Define early on how much you are willing to pay for “overhead” services and the lower the better. DO NOT pay any cost that is not accompanied by a receipt. The Fee Agreement should make clear that you won’t pay for costs without a receipt. You wouldn’t pay an employee for reimbursable expenses without receipts, don’t let your lawyer do differently
Demand time per task billing entries. The practice of “block billing” is quite common among many firms. What is block billing you ask? What you will see on your bill is a long string of tasks, such as “call with client; meet with partner regarding case; email opposing counsel; research case law.” Then after that you will see a time entry reading “2.8 hours.” You have no idea how much time was spent on each task. You might assume that the research and partner meeting might take most of that time, but do you know? No, and if you don’t know, how can you dispute any charge you think unreasonable? Demand each task have a time entry associated with it. And don’t buy the line “our billing software doesn’t do that.” Trust me, the software does and if by chance the software really doesn’t, then the law firm needs to edit your bill to comply with this provision or get a more modern billing software.
Have a Fee Dispute Mechanism with Sufficient Attention to Your Rights. Always have a provision in your fee agreement with any lawyer that gives you at least 5 business days to dispute a charge on your bills. Always have a provision that says you don’t have to pay a disputed charge until resolution of the dispute AND prohibits the firm from deducting the disputed charge from your retainer or trust account until resolution. Have a provision that says the law firm has to prove the reasonableness of the disputed fee/charge, not the other way around. This is important if the dispute has to be mediated before a third party, so that the law firm has to prove the reasonableness of the fee, you don’t have to prove that it is unreasonable. DO NOT accept any provision that says you waive any rights to dispute a bill with the passage of time.
Treat your lawyer’s fee agreement like you would any other contract for services. Don’t just sign off on a contract (and it is a contract) without reading the terms. Oh, and one more thing, you can have another lawyer look at the contract before you sign it.
We can review another attorney’s or law firm’s fee agreement for a flat fee. Give us a call and allow us to give you some help on how to get the most out of your lawyer’s fee agreement.