How To Challenge Your Lawyer’s Bill
Most billing disputes between attorneys and their clients can be resolved quickly. And, as with many aspects of the relationship with their lawyer, clients have more leverage than they realize when it comes to complaining about or objecting to their lawyer's bill or invoice.
The most important thing a client can do is to object to the attorney's bill in a specific way as quickly as reasonably possible.
A timely and specific objection to your lawyer's invoice can be much more effective than a similar complaint to another service provider, such as a plumber. That's because lawyers and plumbers are subject to very different rules relating to how they handle money they receive from their clients. What do you think happens when you write your plumber (or most other service providers) a check at the beginning of a project? They deposit the check into their business bank account and are free to spend it right away. That's not true of lawyers.
In most states, lawyers are required to maintain at least two separate business accounts. One, which is generally called the Client Trust Account, is reserved for money that the lawyer is holding on behalf of clients and unearned fees. The second is a General Business Account, from which lawyers run their business and pay for expenses such as payroll. When a lawyer receives your check or other payment when you first hire them, the lawyer is generally required to deposit your money into the Client Trust Account. Moreover, lawyers generally may not withdraw money from the Client Trust Account until they have earned your fee. Once they earn the fee, however, lawyers must promptly withdraw the money from the Client Trust Account. This is because lawyers must keep your money separate from theirs. Thousands of lawyers have been disciplined and some have lost their law license because they didn't keep your money separate from yours. Lawyers who mix the two together are said to have commingled the money and that is a very bad thing for a lawyer to do.
So what happens when your lawyer sends you an invoice or bill? If you don't complain about it or object to it within a reasonable time, the lawyer is deemed to have earned that fee and must withdraw the earned fee from the Client Trust Account and deposit it into the General Business Account. But, and this is the critical part, the lawyer can't withdraw from the Client Trust Account funds that are disputed by the client. Thus, a written and specific objection to the bill can be much more effective than, for example, contesting the charge with a credit card company. Lawyers aren't happy when clients challenge credit card charges, but they are often even more interested in making sure that the State Bar or other disciplinary authority doesn't get involved in billing disputes. A rational lawyer will not want to mess around with any obligation relating to their duties to keep their money separate from their client's money. This does not mean they will necessary agree with your complaint or objection, but it does mean that your complaint is unlikley to be ignored.
Because lawyers are obligated to withdraw money from the Client Trust Account as soon as it is earned, it is important that you act quickly. Review the bill as soon as it arrives and if you have a specific question or objection, let the lawyer know as soon as possible. Better yet, put the objection or question it writing. Be specific. Let the lawyer know what aspect of the bill is confusing or potentially wrong. Don't just say that you have general questions about the bill without providing any details. Indicate the specific line items on the bill that you object to or don't understand. The more specific your complaint, the harder it will be for the lawyer to transfer the full amount of the invoice out of the Client Trust Account. The lawyer should, when receiving your objection, withdraw from the Client Trust Account an amount that is equivalent to the undisputed portion of the fee or invoice.
Nothing about this discussion means that you can't object to a bill, in part or in whole, after the lawyer has earned the fee and transferred the money into his or her General Busines Account. You can, and there are procedures in almost every state for resolving fee disputes between lawyers and their clients. Most lawyers will act reasonably when they receive your objection, whether or not they have already withdrawn the money from their Client Trust Account. You have more leverage, however, if you provide specific objections as soon as you reasonably can. It's the difference between preventing money from being withdrawn in the first place and trying to get it back later on.
Burning Through Your Retainer
"I know lawyers who won't even start discussing settlement until they have burned through their retainer." This comment was made by a family law attorney about other lawyers in that field.
I wish I could say the comment shocked me, but it didn't. There are some lawyers who feel entitled to the retainer they collect. They view it as a minimum payment for every case. That, of course, isn't what a retainer is designed to do. It's supposed to be a way for the lawyer to make sure that clients are serious about moving forward. It's a way for the lawyer to deal with a legitimate problem--clients who ask the lawyer to do work on their behalf, but don't pay for the lawyer's work. The retainer is especially appropriate if the attorney and client haven't worked together before.
But that doesn't mean that the lawyer is automatically entitled to be pocket the entire amount of the retainer. Retainers come into play when clients are paying by the hour. Thus, lawyers are entitled to the retainer only if they legitimately devote enough time to cover the retainer amount.
As the client, there are a few things you can do to avoid lawyers who see the retainer as a minimum down payment. First and most importantly, avoid non-refundable retainers. Second, negotiate the smallest retainer you can. It's hard to know in advance which lawyers have the entitlement mentality, so protect yourself and put the lawyer in the position of having to invoice you for the vast majority of the hourly work they do for you. You can save thousands of dollars in legal fees by holding firm and negotiating a small initial retainer.
Posted by Gideon on 07/11 at 03:38 AM
Categories: Attorney Fees |
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Money Saving Tips When Your Lawyer Charges $425 an Hour
What do you do when your lawyer is charging you $425 an hour? That's more than seven dollars a minute or roughly what you would pay 58 minimum-wage workers for an hour of their time.
For much of my working life I have been on the receiving end of this transaction. I was largely walled off from its real impact because I worked for large law firms where the accounting department handled the invoices and I rarely had to talk to clients directly about their bill. Now I'm in the unusual position of paying for a lawyer's time. What I'm about to write is not an indictment of or a reflection on the specific lawyer involved. But in a word, paying someone $7 a minute is shocking.
So here are three money-saving tips when you are meeting your lawyer and they are charging you hundreds of dollars an hour.
First, find out the increment at which a lawyer bills. There can be a big bottom-line difference between a lawyer who charges in quarter-hour segments and one who charges in ten or six-minute segments. When the smallest increment of time is 15 minutes, the minimum itemized amount is more than $100. Thus, everything the lawyer does at a rate of $425 an hour costs you at least $106.25. That's the downside of quarter-hour billing. By contrast, in this example the minimum charge for a lawyer keeping time in tenths of hours is $42.50. I don't believe that quarter-hour billing is inherently unethical for lawyers, although some courts have so ruled in specific circumstances. Moreover, there is no guarantee that it will be more efficient for you to work with a lawyer who charges in smaller increments. It depends on how much they accomplish with their time. All things being equal, however, I prefer working with lawyers who charge in something other than quarter-hour increments.
Second, and more importantly, it's essential that you eliminate or delegate non-essential activities. I could pay the lawyer's paralegal $175 to prepare some documents. That's certainly cheaper than having the lawyer do that work. Better yet, figure out if you can do the work yourself. That's what I'm doing. This lawyer was selected in part because of her willingness to let me prepare some of the forms and have her staff review them. I know that many of you are not in the position I am and therefore filling out your own forms may be a less attractive option. But even if you are not inclined to fill out your own forms or, for example, to provide your own documents in response to discovery requests in litigation, you may be able to find someone with some legal experience to help you. This isn't a substitute for working with your lawyer; it is, however, a way to reduce the costs of some of the more labor-intensive and routine aspects of working within our legal system.
Third, and this is the most difficult strategy for me to carry out, you have to throw out some of the accepted rules of social interaction. You won't be surprised to know that I can be chatty. But that's not a smart strategy when paying $7 a minute. Don't be rude. But be firm, precise, and even ruthless about how you spend the time with your lawyer. Let them know that you are all about taking care of the business at hand. Don't spend your time listening to war stories, or sharing funny anecdotes. Prepare a written agenda. I'm planning to bring an alarm or egg timer to my next meeting. I especially like the idea of turning over an egg timer every ten minutes. It's a handy visual refrence point for you, your lawyer, or anyone else attending that meeting.
I'll let you know how this egg-timer strategy pans out.
The $25 Per Hour Corporate Lawyer
Outsourcing legal services has been around for more than ten years. In the 1990s several companies sprung up that offered outsourced services for legal research. Rather than pay hundreds of dollars an hour for junior lawyers to conduct legal research, companies such as Los Angeles-based LRN charged a flat fee for research conducted by more experienced lawyers. The research services were marketed to other lawyers, especially those working for large corporations. Outsourcing has always seemed like a promising low-cost alternative to certain aspects of legal work, but it hasn't really taken hold.
On New Year's Day, the Los Angeles Times published the most recent article that touts the possible future of legal outsourcing: "Growth of legal outsourcing may herald era of cheaper lawyering."
Thomson Reuters, a media and information-services company, acquired Pangea3, a legal-process outsourcing firm with most of its lawyers in India, in November. A month earlier, Axiom Global Inc., which provides lawyers-for-hire to big corporations, bought another legal staffing company, LawyerLink.
Just how cheap are lawyers in India? "$25 to $35 an hour for routine corporate work such as drafting contracts and complying with regulation. This, according to Ganesh Natarajan, president and CEO of Mindcrest, a Chicago-based rival of Pangea3.
It appears that much of these services are still being directed to large companies. But at these rates, it makes you wonder why small and medium sized businesses, and the trade associations that represent them, haven't reached out to see if they can make legal outsourcing work for them.
Would you consider having your contract be drafted by an outsourced lawyer?
New Year’s Day Attorney Fee Increases
Let's start the new year by showing you a little known tip that can save you thousands of dollars on your legal bill.
Clients need to consent to fee increases imposed by their lawyers. In some states, such as California, judges have explicitly decided that this is the rule. In other states the situation is more informal. But whereever you and your lawyer are located, you should make sure that you understand how you are being billed by your attorney and for what. If you are being billed by the hour, review the bills for January especially carefully. On January 1, some lawyers automatically increase the hourly rates they charge for themselves and their staff (such as other more junior lawyers and paralegals). Trouble is that too many lawyers don't notify clients of this fee increase in advance. They just include the new, higher rates in the first bill or invoice of the new year. I'm not suggesting that you object to every fee increase. That's not sensible; attorneys also have to run a business. But if you do have questions or objections to the new fees, speak up. Don't just let them pass without comment. If you ever do get into a fee dispute, the lawyer may argue that your silence shows that you agreed to the higher hourly rates. And even if you don't have a problem paying the new fees, it may be a good idea to let the lawyer know that in the future you want advance written notice of any proposed fee increases or changes. Remember, working with a lawyer is like working on other personal and professional relationships. If you want to be treated better, it's wise to comunicate and let the other person know what bothers you and what you want.
Five Money Saving Tips When Reviewing Your Lawyer’s Bill
One of the things that might be less fun than paying your lawyer's bill is reviewing it. Who wants to read page after page of vague descriptions? It can be tempting just to write the check. Many clients do this because they don't know what to look for. How to review a lawyer's bill could be the subject of an entire book. There are lots of subtle things to review, but the basics are straightforward.
1. Understand the Why—Most clients don't know how to review a bill because they don't know why lawyers do what they do or how they spend their time.
When a lawyer charges you a flat fee or you are paying the lawyer on a percentage or contingent basis, it isn't critical to know everything the lawyer did, just as it isn't necessary for a patient to know everything a surgeon does during an operation. But when you are paying for a lawyer's time in 6 or 15 minute increments, it is essential to know how lawyers are spending their time and how that time is being spent to help you.
If you receive a bill and can't tell why the lawyer did what he or she describes in the bill, call the attorney and find out. Better yet, ask the lawyer to include in the bill and the specific time entries a description of the purpose or goal that is associated with the time entry. Thus, for example, if a lawyer's bill says they spend an hour on the phone with a potential witness, and you don't know why that witness is relevant, ask the lawyer (and the lawyer's staff) to include such explanations in their future time entries.
2. Focus on the Big Ticket Items—When I was a lawyer I primarily represented large corporations. The bills were almost always huge—regularly exceeding $1 million a month. I was surprised that the clients would disproportionately focus on relatively small items--the $50 spent to overnight a document rather than the $100,000 spent on a particular project. This behavior is understandable; the client often understood messenger fees and Fedex expenses better than how lawyers spent their time.
It's easy to feel nickel and dimed when you see small, seemingly unnecessary charges. There's nothing wrong in questioning such charges, but it's better to focus on big ticket items. And when you are being charged by the hour, focus on those projects and tasks that collectively take up most of your lawyer's time.
3. Be Suspicious of Block Billing—Block billing refers to the practice of describing a lawyer's time in large blocks of time. For example, lawyers block bill when they write that they spent 3.5 hours researching a particular issue or drafting a particular document. The larger the block of time, the more questionable it is likely to be. Thus, you should generally ask lawyers to provide more detailed descriptions about how they are spending their time.
Block billing sometimes makes sense, especially if a more detailed description would not provide additional information to the client. For example, a bill showing that a lawyer spent 9.0 hours in court at trial is probably sufficiently descriptive, especially if, as is usually the case, the client or client's representative also attended the trial. In general, however, it is better if the lawyer describes what they do in smaller chunks of time. Be especially suspicious if you see the same generic description used day after day.
4. Look For Duplicate and Inconsistent Items—Most lawyers hate to record their time; it's annoying to keep track of one times in small increments. It's also time consuming to generate and review detailed bills.
You should therefore expect that your bill will sometimes include mistakes. The most common ones are duplicate time entries, where for example the same telephone call or meeting is billed to you more than once.
A related error involves inconsistent time entries. For example: two people attend a meeting, and one lists that it lasted 45 minutes whereas the other bills you for an hour. Most of the time, these errors are inadvertent. You should bring them to the lawyer's attention. My experience is that most lawyers will fix these errors. I am also aware of cases in which seemingly minor errors on the bill lead to the discovery of much more serious problems.
For example, one lawyer billed the hour for a phone call on a day in which the client was on a plane. A closer review of the bill revealed that it was full of many questionable if not fraudulent time entries. The client got a complete refund, but only after threatening to file a disciplinary complaint against the lawyer.
5. Don't Pay for Lawyers to Prepare or Explain Their Bill—Beware of lawyers who charge you for the time it took them to prepare your bill. This is an overhead charge that the lawyer should pay for. Likewise, the lawyer shouldn't charge you for the time it takes to explain the bill or respond to reasonable questions.
They key concept is reasonable. If you are polite and raise billing questions in a non-accusatory way, a vast majority of lawyers will be responsive. You won't necessarily get everything you want, but most lawyers want to keep their paying clients happy.
Non-Refundable Fees In Divorce Cases
Florida, you have a problem.
I have across several clients expressing their frustration at their inability to get a refund from a Florida divorce lawyer. Here is part of one question that was posted on lawguru.com:
I paid an attorney $3000.00 to prepare an Agreement and Divorce. I met with him twice and subsequently changed my mind and decided to work it out with my husband. I requested the remaining funds of $900.00 to be refunded to me. . . . I sent a letter requesting the remaining funds in trust be refunded. Does he have the right to keep my money although I have nothing to show for the money I spent? Please advise.
I have previously written that several states including California severely restrict a lawyer's right to collect a non-refundable fee. Florida, however, permits non-refundable fees. In a 1993, the Ethics Department of the Florida Bar issued an ethics opinion (93-2) indicating that, "Nonrefundable fees are permissible, but remain subject to the rule regarding clearly excessive fees." Thus, lawyers may charge non-refundable fees, but may violate the ethics rules if they do no work or otherwise make the fee excessive. It is hard to tell from the question quoted above whether the lawyer's fee is excessive. The question suggests that the lawyer did something to earn $2,100 of the $3,000 fee. I have not researched Florida law on this topic, but based on the cases I have read about this issue, my best guess is that most courts would conclude that the lawyer would not need to return any portion of the $3,000 fee. This is not a case where the lawyer took the money and did no work.
From a client's point of you, the solution to this problem is fairly straightforward. Avoid lawyers who charge non-refundable fees. I am aware of one family law firm in Florida that specifically promotes the fact that they don't charge non-refundable fees. I have no idea whether that law firm is any good, but it does show that you have options.
If you do pay a non-refundable fee, make sure the amount is so small that the lawyer will continue to have an incentive to do good work for you. It's not clear, but the person who submitted the question above may have paid the entire fee upfront as a non-refundable fee. Please don't do that. And if you already have paid a non-refundable fee and you are unhappy with the lawyer, you may want to consider notifying your lawyer to stop working on your case and telling them that if they don't return the unearned portion of the fee, you may file a complaint against them with the state bar or other agency that regulates lawyers in your state.
Understanding Class Action Law Suits
Last week, ProPublica.org, the online investigative journal, published an article about a current class action lawsuit filed against Lowe's for allegedly selling defective drywall originally manufactured in China.
What caught my eye is the article's headline, "Proposed Lowe's Drywall Settlement Offers Small Payouts to Victims, Big Fees for Attorneys."
This article has been circulated on Twitter, with one person commenting, "This is why people hate lawyers. And understandably so."
Lawyers certainly do have a bad reputation, especially for being greedy. So this seems like a good chance to delve into the world of class action law suits and see whether the Lowe's cases is a good example of attorney greed in action.
The Case In Question
According to the ProPublica story, Lowe's has agreed to tentatively settle the law suit and pay customers $6.5 million, while the lawyers will collect $2.1 million.
The $6.5 million settlement would pay relatively small amounts to individuals who had the tainted drywall in their homes. But the handful of attorneys who quietly negotiated the deal will receive a separate payment of $2.1 million. Victims will be compensated mostly in Lowe’s gift cards, offered in the amounts of $50, $250 or $2,000, depending on the level of documentation they can provide. Those who can prove they’ve suffered more than $2,000 in damages may also receive up to $2,500 in cash.
Customers would not necessarily receive full refunds for the defective product they purchased. For example, someone who spent $10,000 on drywall would still only qualify for a maximum of $4,500 in cash and gift cards.
Not only will purchasers not be fully compensated, some plaintiffs may receive as little as $50, paid in Lowe's gift certificates.
Under the proposed Georgia settlement, people who bought defective drywall from Lowe’s are eligible for three levels of compensation, depending on their record keeping and proof of damage to their home or health.
To receive the maximum amount —a $2,000 gift card plus $2,500 in cash — they need a receipt or a credit card statement showing that they bought drywall at Lowe’s. They must also prove through an independent third party that they have more than $2,000 of damage to their home or more than $2,000 in medical bills.
It is not clear what qualifies as “independent” proof. It’s also unclear whether they must already have spent money on remediation or doctor’s bills, or if they can show they’ll need to spend it in the future to remedy the problem.
Customers who have a receipt but can’t supply independent proof of damages are eligible for a maximum of $250 in Lowe’s gift cards.
Those who have neither proof of damages nor proof of purchase, but claim their drywall was bought at Lowe’s, are eligible for a $50 gift card if a settlement administrator hired by the plaintiffs determines that those claims are valid.
There does seem to be something disproportionate about lawyers walking away with $2.1 million and some of their clients getting only $50. If this was all there is to this story, I would be hating the lawyers too. But there is a whole lot more going on.
The Class Action Lawsuit
The Lowe's case seems like a very appropriate and typical use of a class action lawsuit. Lawsuits work best when there is an identifiable victim who suffered a great-enough loss to warrant suing the person or entity that is alleged to have caused the loss.
But what do you do when a company makes millions of dollars by doing a relatively small amount of harm to a large number of people? For example, what do you when a credit card company miscalculates interest on thousands of card holders, or a publicly-held corporation misstates a key financial term, causing thousands of stockholders to lose a small percentage of their investment? The alleged wrongdoer can make millions knowing that the individual victims are extremely unlikely to go through the trouble and expense of trying to recover a few hundreds or thousands of dollars.
What do you do? You allow all the victims to be represented together or in groups. That's what class actions are designed to do.
Class actions lawsuits are in many ways similar to personal injury cases that are handled on a percentage or contingency basis. The client doesn't pay the lawyers anything unless the lawyer gets some money in a settlement or by winning in a trial. The lawyer bears the risk of losing and pays all the expenses of taking the cases to trial.
These expenses can easily reach five figures, especially if the lawyer needs to retain experts to help prove the case. Expert witnesses don't work for free; they get paid by the hour and lawyers have to pay those fees whether or not they get a dime from a case. In exchange for taking this risk, lawyers will generally take between 25 percent and 40 percent of the total amount recovered. When dealing with an individual client, the exact percentage is negotiated at the beginning of the representation between the attorney and client. Most states require that this percentage be stated in writing as part of the initial contract between the lawyer and the client.
In class action cases, the attorney's percentage is handled differently. There may not be an individual contract between each lawyer and all of their clients. Even if there is, the judge presiding over the case must approve the lawyer's compensation. Here, the judge will need to decide whether it's appropriate for the lawyers to receive a bit less than a quarter of the total amounts paid by Lowe's ($2.1 million of $8.6 million).
So are the lawyers being greedy? Are they fleecing the people who were potentially fleeced by Lowe's?
The answer in large part depends on the strength of the case against Lowe's. And the ProPublico article suggests that, for at least some of the people suing Lowe's, they have a very weak case. Generally speaking, if you want to sue someone and succeed, you need to prove that they caused your injury—basically, that they harmed you. You also need to show to a reasonable certainty the amount of harm you suffered. Thus, if you were hurt in a car accident, you need to be able to identify the other car. You would have a hard time winning if you could only identify the other car as a blue Chevrolet.
But that is the kind of claim some of the plaintiffs in the Lowe's case are making. The lawsuit seems to allege that drywall causes medical issues, but the lawyer for the people suing Lowe's admits that his lead client can't establish who manufactured the drywall.
Barrett, [the attorney for the plaintiffs] said the drywall that the lead plaintiff in his case bought from Lowe’s has no markings to signify its origin.
In other words, the lawyer representing the folks suing Lowe's says that he doesn't know and can't prove where the drywall came from. Lowe's denies that any of its suppliers bought tainted Chinese drywall, and it appears that plaintiff's lawyer has no evidence to the contrary.
This is, to say the least, not a very strong case to take to a jury. This may be why Barrett may be willing to settle for less than he otherwise might want to. It's also possible that some of the confusion in the Lowe's case is the result of the competition for clients between different law firms. The article describes more than one lawsuit. And I wouldn't at all be surprised if Lowe's was trying to settle some of the weakest cases in an effort to undermine some of the others.
In addition, there seem to be other problems with at least some of the cases against Lowe's. Specifically, some of the people who are suing Lowe's dont have very good evidence that they even bought drywall at Lowe's. For people who have no such evidence—no receipt, no nothing, just their claim that they bought drywall at Lowe's—they get $50. In other words, as a courtesy Lowe's is willing to send them a $50 gift card even though it's not at all clear that they bought drywall at Lowe's. For people who clearly did by drywall from Lowe's, their payment will depend on how much they bought and whether they can how at least $2,000 in damage caused by the drywall.
Is $4,500 too low of a limit? Should people be able to get more than that given that replacing drywall can be very expensive? Perhaps. That's one of the things that judge needs to decide when determining whether this settlement is fair.
I don't know enough details about this case to evaluate the $4,500 figure. But I do know that the settlement amount has to be less, perhaps a lot less than what people would get if they had to prove their case to a jury. After all, this settlement just requires people to show that they bought the drywall from Lowes. They don't need to go through the time and expense to prove at trial that the specific drywall they purchased was defective. And the settlement allows them to avoid having to show where their drywall was manufactured.
Are Attorney's Fees Excessive
This brings us to the question of the attorney's fees. Are they excessive? Again, this is for the judge to determine. My experience as a lawyer was that most judges could have done a much better job of scrutinizing attorney's fees in class action cases. Judges tend to mechanically treat these cases as if they were individual contingency fee cases. Too often, the unspoken rationale for judges seems to be that, if a 25% share is fair in a contingency fee case for one client, that's also a fair percentage for representing 100 clients. Thirty years ago this view may have been justifiable, but not today.
In an Internet age, it's much easier and cheaper for a lawyer handling a class action case to sign up one additional client. Likewise, technology has dramatically decreased the lawyer's costs for signing up one additional client. Thus, it's almost as easy for a lawyer to represent 80 clients as 90 or 100 or more. The are of course some additional costs associated with representing larger numbers of clients, but those additional costs are much less than the additional fees approved by most judges. Those additional costs generally don't approach the 25% attorney fee that has been tentatively negotiated. I am therefore inclined to believe that here a $2.1 million attorneys' fees award would be excessive.
What does this mean for you when you are notified that you may be a part of a class action law suit? if you are likely to receive only a small payment, it's much easier for you to just join the class and wait to see how much, if anything, you will get. It probably will be a small sum. But if you think you may be able to get more because you were harmed more than most people, you should strongly consider opting out of the class action law suit and filing one of your own.
Some Non-Refundable Fees Are Refundable
A non-refundable fee should be a simple concept; it seems to be a fee that, once its paid, won't be returned. When it comes to attorneys who charge "non-refundable" fees, the reality is a bit more complicated. I have come across an increasing number of attorney-client agreements that describe certain fees paid by the client as "non-refundable." Often times, the lawyers themselves aren't aware that in several states the Rules of Professional Responsibility severely limit when non-refundable fees can be charged. In most states, a lawyer may charge a non-refundable fee if the lawyer is simply being hired to be available to do work. Sometimes this arrangement is called a "pure retainer." The client isn't asking the lawyer to work on a specific project, just to be available to do the work. This situation rarely takes place. A vast majority of the time, clients are hiring lawyers to do something specific.
The law in an increasing number of states provides that lawyers must return a "non-refundable fee" if they don't do any of the work they were hired to do. A 2005 article describing the law in Washington State exemplifies how lawyers can be disciplined for not returning non-refundable fees:
The [Washington State] Supreme Court, in an October 21, 2004, disciplinary decision, rejected the argument that a lawyer is entitled to keep a nonrefundable fee whether or not services are performed. The Court distinguished a "retainer" to secure a lawyer's availability over a period of time, as discussed in WSBA Formal Opinion 186, from a flat fee for legal services in a specific matter. Because the lawyer failed to provide the contracted services, his failure to return unearned money violated RPCs 1.5 and 1.15(d).
Different states treat non-refundable fees differently. But if you paid a non-refundable fee and the lawyer did no work or an unreasonably small amount of work relative to he size of the fee, not only may you be able to get your "non-refundable fee" back, your lawyer could be disciplined for failing to return that fee. That's why non-refundable fees aren't as straightforward as they first appear.
Avoid This Contingency Fee Trap
One word in your fee agreement with your lawyer can cost you thousands of dollars. The word comes up in the context of contingency fee arrangements. This is where the lawyer get paid on a commission basis—as a percentage of the amount you get. This is how most personal injury cases, such as automobile accident, medical malpractice, and slip and falls, are structured. In this or any kind of commission-based arrangement, you need to pay close attention to how the commission is calculated.
Most advertsing by lawyers who work on a commission basis emphasize that you don't pay them unless you get paid. What they don't emphasize is how their share is calcuated when your case is settled or when you win at trial.
This is where one word—gross—can cost you a bundle. Specifically, there is a huge difference between whether the lawyer receives a commission based on your gross receovery or your net recovery.
The following example illustrates the difference: you are injured in a car accident and sign an agreement with a lawyer that pays the lawyer one third of what you get. The lawyer spends $20,000 to handle your case. Most of that money is paid to expert witnesses such as doctors. If you settle this case for $150,000, how much will you cactually receive? Under most fee agreements, you will be responsible for reimbursing the lawyer for the amounts paid to expert witneses and for other costs, such as court filing fees. Here that amount is $20,000. If your contract says the lawyer gets a gross recovery, the lawyer will be entitled to a third of the $150,000 in addition to the costs. In this case, the lawyer would receive a total of $70,000 and you would get the remaining $80,000. But if the lawyer is contractually entitled to a net receovery, the lawyer will get paid a third of what's left over after the costs have been subtracted out. In this case that would be a third of $130,00 or $43,333. Thus, in this example, under a gross recovery the lawyer gets $70,000 and in a net recovery only $63,333.
The lesson should be clear—make sure that your fee agreement provides that the lawyer receives a percentage of what you get after costs are subtracted out. Go for the net recovery. When a lawyer earns a gross recovery in a contingency cases the result for the client can be gross.
How To Save Money When Hiring A Personal Injury Lawyer
For a personal injury attorney, death is a bummer. That's not because of the tragic loss of human life, a life cut short in its prime, or any of that sentimental stuff. It's because on average a dead client is worth less to the attorney than a severely injured but alive client. This is just one aspect of the topsy-turvy world of hiring a personal injury lawyer. There are a few truths you need to understand to get the best value for your money.
Truth # 1: The personal injury lawyer is the functional equivalent of a commission sales person. They work on a percentage basis.
Truth # 2: The value of your case to the lawyer is primarily dependent on the severity of your injuries. The more severe the injury the more valauable your case.
Truth # 3: A second important component of your value as a client is your earning capacity. The more you were making at the time of the injury and the higher your future potential earnings, the more your case is worth to the lawyer.
Truth # 4: A third important component of your value as a client is how sympathetic you might appear to a jury. A vast majority of personal injury cases settle before trial. You tend to get a higher settlement offer if the defendant is worried about how sympathetic you will look to a jury. This is why a seriosly injured live client is worth more financially than a dead one. The defendant can easily imagine how the jury will react to seeing a cute, wheelchair-bound little girl in the courtroom and will pay more money to avoid that from happening. The fact that the deceased can't be in the courtroom makes their case less valuable.
Truth # 5: From the lawyer's point of you, it doesn't take much more time and expertise to handle a more valauble case. For example, it doesn't take ten times as much work or expertise for a lawyer to work on a case that is worth $1 million compared to one that is worth $100,000. There is some additional work involved, but not as much as the difference in the value of the two cases.
These truths lead to a simple two-step process that will enable you to save money when you negotiate the commission (or contingency fee) that the lawyer will receive. First, estimate the value of your case. You know how much the injured person earns and the extent to which the injury intereferes with or reduces the ability to make money. You also have a sense of serious the injuries are and whether they require a short or extended amount of medical care. You also have a rough sense of how sympathetic the injured person is likley to appear before a jury. This is largely a function of how severely injured they are and what they were doing when they were injured. You don't need to calculate these figures exactly. You just need to get a rough sense of the general ballpark of the value of your case to a lawyer.
Second, and most importantly, the higher the potential value of your case, the more you should insist that the lawyer take a smaller percentage of the amount you receive in settlement or after a jury trial. Many lawyers will charge the same contigency fee regardless of the value of the case. Often that percentage ranges from 33% to 40% of the recovery. You can save many thousands of dollars by negotiating a lower commision rate. If your case is potentially worth $1,000,000, each percentage point of commission is worth $10,000. So don't be shy about negotiating a lower rate; if the lawyer suggests 40%, get them down to 33% or 35%. Remember, the value of your case is primarily depenmdent on the seriousness of the injuries. The more serious the injuries, the more likley it is that you will find a good and experienced lawyer who is willing to take your case and take a lower cut. This is because a single $1,000,000 case is much less work for the lawyer than four $250,000 cases.
There are some additional factors to consider when negotiating with a fee with a personal injury lawyer. One of these factors is how to handle the costs (such as court filing fees) that the lawyer may want you to pay. I'll address these issues in a future blog post, but for now remember that the key to saving money when negotiating with a personal injury lawyer is to focus on the their commission percentage. Do that and you can save tens of thousands of dollars.
How Not To Negotiate Attorneys’ Fees
The following story is true. The names have been omitted to protect the not-so-innocent. An estate planning attorney practicing in southern California was retained by a new client at a rate of $450 an hour. Approximately a week later, the client, feeling uneasy about the fee, spoke with a competitor of the first lawyer. The client was told that the she was being charged a higher than average fee. The client then called her attorney and expressed some concern about the fee. Within five minutes the lawyer agreed to reduce her hourly rate to $250.
What do you think happened next? Did the client accept the reduced fee? Did she lose all confidence in her attorney and decide to work with someone else?
To some extent the answer doesn't matter. Even if the lawyer managed to keep the client, she severly damaged her reputation and contributed to the low esteem in which lawyers are generally held. Lawyers shouldn't quote fees as if they are reading the results of successive spins of a roulette wheel. And clients shouldn't just accept the fee quoted by the lawyer without understanding how it was derived and how it relates to the value the lawyer is being retained to provide.
In my experience, most lawyers can't explain adequately how they derive their fees. Unlike the lawyer in our story, a simple question won't cause the fees quoted by most lawyers to collpase like a house of cards. But there is little clients can do that will help themselves and lawyers as much as asking lawyers pointed fee-related questions before they hire them. Too many clients start asking tough questions about fees once they start receiving bills. There is no reason to wait that long.
I suspect that the lawyer in our story now wishes she had derived and explained her fees more carefully. At least I hope that's what she thought after her client left.
How To Handle Small Collections Cases
Collections is the unfortuantely vague phrase lawyers use to describe something very basic--how to get money from the other side in a lawsuit.
The process is fairly straigtforward and two recent experiences made me realize something important about the role of lawyers in these kinds of cases.
The first situation involves a lawyer who is owed about $20,000 from another lawfirm. The lawyer doesn't want to handle this by himself and it turned out that few other lawyers wanted to either. It took more than a half a dozen phone calls before a competent lawyer was located who agreed to take the case on a contingentcy basis. Every other lawyer that was contacted would only take the case on an hourly basis.
The second situation involves a friend whose family was involved in a lawsuit involving the operation of a bar. They won the lawsuit and the judge awarded them $60,000. Now they need to get the money from the other side.
These two situations highlight the two basic steps that are needed to get paid when you prevail in a lawsuit. First, as the situation involving the lawyer and the $20k shows, you need to win the lawsuit. And if your lawsuit involves some kind of contract or agreement that was broken, it can be especially helpful to include language providing that the winner of the lawsuit is entitled to reasonbale attorneys' fees. The lawyer seeking to ge his $20k didn't have such a provision in his agreement and that is why it was so hard for him to find another lawyer to take his case. And he didn't want topay by the hour because he correctly concluded that most of the money would go to pay legal fees if he did so. That's why he insisted on paying a contingency fee, so that at most only a third of amount collected would go to the lawyers.
My friend's situation shows that it isn't enough to win the lawsuit. You need to act on that win to get paid. When you win a lawsuit, the judge signs off on a document called a Judgment that says you are officially the winner. But the Judgment is as helpful as wallpaper unless you actually take it to a bank, use it to put a lien on real estate, get the money from the other side's pay check, or otherwise act to convert the Judment into cash--your cash.
When the amount of a Judgment is less than a $100,000, you should strongly consider collecting on a judgment yourself. There are many resources on the Internet that will show you how to do that. Among the best are the materials published by Nolo Press. They have a series of articles and books about going to court without a lawyer and collecting what is owed you.
Because my friend had already gotten a judgment, she was a good candidate to try to collect on it by herself. If you know the person who owes you money has property or bank accounts that you can tap into, this process can be pretty straighforward. But if you are dealing with someone slippery and you suspect they are hiding assets, yoru first step may be to contact a private investigator and establish that the person on the other side has the money or property to pay you. Too many lawyers rush into filing a lawsuit without focusing on where the resources will come from to pay you in the event you win the lawsuit.
Thus, if you want to maximize your chances that a lawyer will handle a small to mid-sized collections case, it's helpful to include an attorneys fees provision into your ontract with the other side. And you should also strongly consider handling such collections cases without a lawyer.
Image courtesy of Mark Kresowik under this creative commons license.
What To Do In A Fee Dispute With Your Lawyer
Many aspects of the relationship between lawyers and their clients are counterintuitive. Nowhere is more true than when a client and a lawyer have a disagreement about the lawyer's bill. The conventional wisdom is that lawyers must have a huge advanatge in these disputes. But the truth is much more nuanced; clients have much more leverage and power in these disputes than most of them realize.
Much of the power that clients have stems from specific laws that have been enacted to address fee disputes between lawyers and clients. Most of these laws are intended to protect clients. Some of these rules are so specific that few lawyers know about them. Thus, the first thing you should do when you get into a fee dispute with your lawyer is to find out which specific rules apply in your state. Some states are more protective of clients than others, but almost states provide more protections to the client than appear on the face of the contract between the attroney and the client. In this respect, the contract between the lawyer and client is like the lease agreement between a residential landlord and tenant. The lease may contain specific language, but the law overrides what's in the lease even if both parties have signed it. For example, in many states a landlord may not unreasonably deny a tenant the right to find a sublettor even if the contract says that the tennat is not allowed to sublease the property.
Likewise, some aspects of the contract between lawyers and clients may be overrdden by a state's laws. The most common example of this relates to fee arbitrations. In most states, a separate arbitration process exists to address fee disputes between attorneys and clients. Thus, a client may have the right to force a fee dispute to be decided by an arbitrator even if the contract with the lawyer says that all disputes relating to the contract will be decided by a lawsuit filed in a particular court. Some states also have specific laws that govern how attorneys' fees are paid in fee disputes. In California, for example, if a case goes to a fee arbitration and the lawyer wins that arbitration, the lawyer is not entitled to receive attorney's fees even if the contract between the attorney and client provides that the prevailing party in a fee dispute is entitled to collect reasonbale attorney's fees. The California provision about the collection of attorneys fees is both narrow and rare. It doesn't apply to every fee dispute in California and very few states have enacted a similar law. It is, however, a good example of why you need to find out the specific rules apply to attorney-client fee disputes in your state.
In addition to the laws that may override specific provisons in the fee agreement, clients may raise numerous arguments and objections that can reduce or in some cases eliminate their obligation to pay a fee to their lawyer. These arguments include:
- The lawyer didnt provide the client with a required written fee agreement; the client is therefore entitled to void (i.e. walk away from) the contract;
- The lawyer raised the fees above and beyond what the client agreed to in writing without obtaining the client's prior written agreement to the higher fees;
- The lawyer charged a late fee that exceeded the late fees permitted by law;
- The lawyer wasn't entitled to charge a late fee because the fee agreement doesn't allow for such charges and the client never agreed in writing to pay such fees;
- The lawyer can't collect his or her fees because the fee agreemnt between the lawyer and client wasn't translated into a language that is understood by the client;
- The lawyer charged a kind of fee that is not permitted for the kind of work performed by the lawyer (e.g., you generally can't collect a contingency fee in family law cases);
- The lawyer collected a fee that the lawyer called "a non-refundable retainer," even though the law doesn't recognize the validity of many non-refundable retainers charged by lawyers.
- The amount of the fee charged by the lawyer was unconscionable, and the lawyer should be disciplined for doing so;
- The lawyer double billed certain aspects of the work performed by the lawyer;
- The bill sent to the client contains computational errors;
- The lawyer charges an hourly rate and then bills in quarter-hour increments, even though some judges have ruled that this practice is unfair to clients.
These arguments won't work in every state. In fact, some of these arguments aren't likely to work in most states. Moreover, most lawyers are sufficiently compettent not to make basic mistakes that might impact the validity of the fees they charge. I am, however, regularly surprised by how often lawyers mess up and break some rule regarding their fees. In light of how complex this area of law is, don't assume that your common sense will lead you to the right conclusion when you have a fee dispute with your lawyer. At a minimum, review your fee agreement and contact your state bar to find out what laws govern your fee dispute. You will often find out that you have more rights than you initially realized.
Image courtesy of juli shannon flickr gallery under this creative commons license.
Happy New Year We’ve Raised Our Rates
This time of year is associated with so many warm and fuzzy moments--opening presents on Christmas morning, gathering with friends and family to light Hannukah candles, or eating too much food as we sit in front of the TV watching football games. Whatever your background, this is the time of year where we are most likley to return to familiar tranditions and habits.
Too many lawyers indulge in a decidedly less friendly tradition this time or year. The beginning of the new year is the most comon time for lawyers to raise their hourly billing rates. And nothing says happy new year more loudly and clearly than a higher bill.
This is one of the most annoying and unjustifiable billing practices that I encounter. It's a tradition that should go the way of the 8-track tape.
In many states, attorneys are prohibited from raising their fees unilaterally. The rates in the fee agreement therefore generally can't be changed unless the client agrees to the higher rates. Some attorneys send notices of the higher rates before the new year starts. In my experience, however, most simply raise the fees and include them in the monthly invoice for January of the new year.
Thus, as the client, you should review the January invoice especially carefully and object to the new rate. At a minimum discuss the new rate with your lawyer. I firmly believe that many lawyers don't value their services appropriately and charge too little. But hiding the new higher fees in the January bill is not the right way to inform clients of proposed fee increases. In many situations, there is no justification to raise the fee simply because a new year has begun. For example, if a lawyer is representing a client in a lawsuit that involves depositions, why should a depostion that takes place on December 28th have a different hourly rate than a deposition that take splace the following week? Fee increases should be tied to increased value provided by the lawyer, not an arbitrary change in the calendar.
So remember, you as the client generally need to agree to any fee increases. Don't just automatically pay the increased rates. Even if you have no problem paying the higher rates, it's better to discuss the new rates before simply paying them. And if you object to the new proposed rates, communicate that fact to your lawyer, and don't simply pay the new invoice. While lawyers and clients may want to avoid what they perceive as a confrontational discussion, this is exactly the kind of conversation that needs to take place for clients and lawyers to work together more effectively.
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