Evaluating Legal Fees

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Last December, two law firms that had done work on a class action lawsuit in Delaware were awarded $305 million in legal fees, a massive sum considering the case took less than 9,000 hours to close (that’s over 30 grand an hour). As with many services where professionals are required, attorneys are entitled to add their mark-up to your costs, whether it’s a real estate agent brokering a home or a lawyer winning a lawsuit. But when do the added costs become excessive?

Why We’re Asking:

If you’ve won money in a lawsuit, legal fees are a lot easier to stomach. But what about cases where you must pay your costs out of pocket? Legal fees can come in any number of forms, from hourly charges to contingent fees, flat fees, and retainers. No matter how they add up, you want to ensure that you’re getting the most for your money. We’re always interested in finding new ways for clients to work more effectively with lawyers, so we’re turning to our panel of attorneys to find out more about fees and legal costs.

So it’s time to weigh in:

How Should Clients Evaluate Legal Fees?

Does more money ensure you’ll win?

What are some tips for spending money effectively on legal services?

Are there online resources that can answer simple questions you might otherwise have to pay for?

Is there work you can do before seeing a lawyer to ensure you aren’t running the clock unnecessarily?

Is it best to have a lawyer on retainer?

When should a client choose hourly vs. contingent or flat fees, and vice versa?

The last thing you want to worry about when getting involved in a legal case is the cost. Check back later in the week to find out how to get the best services for your dollar.

Post your answers in the comment field below!

7 COMMENTS

  1. Lawyers charge what the traffic will bear. If they do volume and you have some sort of standard type case — traffic, foreclosure etc. — the fees can be reduced on the retainer but there is a monthly fee.

    Sometimes paying more is an invitation for the lawyer to charge you still more. Once you are in the middle of a case or transaction it is difficult to switch lawyers without paying a whole new retainer to a new lawyer who must familiarize themselves with the case and perhaps errors he or she perceives.

    Generally it is the older more senior attorneys who charge more and there is something to be said for that kind of experience. It is not all about the books. It is about how your side is presented, whether there is a plan, strategy or tactic that will be followed. You should ask exactly what the Lawyer has in mind in terms of your goals (if you can state them clearly).

    The more work you do before seeing a lawyer in terms of putting the required documents in chronological order and getting analytical reports if you think you might need them, the more attractive your case will be for the lawyer. It might even effect how much is charged as an hourly rate and it most certainly will reduce the lawyer’s perception of how much work he will need to do before getting up to speed on your case.

    Lawyers on retainer are for people with a lot of money who know they are going to spend more money than the retainer. For most people it is not a viable or good option. Some forms of legal insurance or prepaid legal might give you some benefits but there are drawbacks in that the lawyers who work there are usually young, starting out and might not have the experience to advise you properly. It is somewhat like having a lawyer on retainer.

    Flat fees, hourly and contingency arrangements vary from case to case. A contingency fee case might seem attractive especially if you are dealing with personal injury, malpractice and other areas, but in many cases, as the actual recovery of damages appears to dwindle the lawyer gets less interested. Flat fees should be used for short-term projects. Long term projects covered by flat fees, unless the fee is very high, is likely to have the lawyer losing interest in your case after a while.

  2. Does more money ensure you’ll win?

    A-More money does not ensure you will win, but it does ensure that you case will be well prepared and have the best possibility of success. If your attorney is more incentivized to prevail in this case, as opposed to others, due to the significant amount of legal fees, you have increased the odds that you will prevail.

    What are some tips for spending money effectively on legal services?

    A-Determine the customary billing methods for your type of case. For example, personal injury cases are most often handled on a contingency basis, whereas commercial litigation is on an hourly rate. Learn how attorneys bill for their respective type of work. Some attorneys that do personal injury work will accept less than the standard 33.3% recovery. Inquire the fee structures before you retain any attorney.

    Are there online resources that can answer simple questions you might otherwise have to pay for?

    -Internet sources, such as E Local.com, can provide consumers with valuable information regarding frequently asked questions or basic legal issues. Search the internet for this background knowledge before retaining an attorney. Ultimately, you will want to discuss the specific facts of your case with an attorney, but you can gather general knowledge which will help you understand the legal issues.

    Is there work you can do before seeing a lawyer to ensure you aren’t running the clock unnecessarily?

    A-Initially, confirm with the lawyer if their initial consultation is free or involves fees. Many lawyers offer free initial consultations. Next, in advance of the meeting, obtain all relevant documents and have an outline of the legal issues you seek assistance for. Also prepare any questions you might have in advance. Before you select an attorney to meet with determine the precise practice area of the attorney and see if they

    Is it best to have a lawyer on retainer?

    A-Unless you expect to multiple and recurring legal issues, you probably don’t need to have a lawyer secured on retainer. However, if the same legal issues recur, it might be helpful to have a lawyer on retainer so that he/she can quickly respond to the new issues as they occur.

  3. How Should Clients Evaluate Legal Fees?

    I think this question requires a distinction between fee based services and contingency fee services. In the former, the risk is borne by the client whereas the latter it’s borne by the lawyer who is putting their time and money on the line in hopes they will be able to successfully litigate the case and be rewarded for that risk/burden.

    For fee based services, paying legal fees are like any other service. You want to make the most of your money so being prepared is always critical. Write all your questions down before you meet with the lawyer. Oftentimes legal matters can bring emotions to the surface and that can cloud your clear thinking so having questions at the ready is a great idea and will save both you and the lawyer time and money. If you have any documents to show, itemize a list of what they are, what they prove, and then put that list on top of the documents so the lawyer won’t have to take time reading everything and figuring it out for him/herself. Evidence is what proves your case and your lawyer is only as good as what you give him/her to work with so be prepared.

    Don’t forget to always clarify up front if a consultation is free or if a fee is charged. I routinely see both but usually if the lawyer is very successful and handles large cases, they don’t charge for consultations. Some of the smaller practitioners or those with law firms who push them to bill hours will charge. I’m generally against a fee for a consultation because you’re interviewing to hire lawyer. It seems wrong to charge for the privilege of being considered for a job. But in areas like divorce, people will play games by meeting with several lawyers so the ex spouse won’t be able to use them. In those cases, a fee for a consultation could possibly make sense because it insures they are at least sincere about the reasons for meeting. But for the most part, you shouldn’t have to pay a lawyer for a meet and greet.

    Having a lawyer “on retainer” simply means you pay a monthly fee and the lawyer takes his/her fees out of that amount until it’s used up or until it hits a certain level and then you are required to replenish it. It just assures the lawyer that funds are available to pay for the work they’re doing before they do it. Retainers aren’t ‘flat fees’ as some people may think. You can view it as an ‘advance’ so it really only benefits the lawyer and not you.

    “Flat Fees” or what is sometimes called a results-based deal is one for a particular service. You can think of this as purchasing a product. For instance, if you want to file a patent, you may be charged a flat fee of $10k for the paperwork and fees associated with that patent filing. But just be informed about what possible additional fees might follow. For instance, in patents, there are international fees, fees for maintenance, etc. that come in to play down the road and those, of course, are not included. Flat fees are a good idea in general but you will undoubtedly find a lot of disclaimers associated with the flat fee because the reality is all sorts of issues could pop up requiring the lawyer to do more work than anticipated in the original engagement. So while in some cases it can be helpful to know you won’t be spending more than X to achieve Y, on the other hand, if it takes a great deal more time, the lawyer may take shortcuts or give it to a paralegal to complete because it is no longer worth their time. Bottom line, it’s a double edged sword between getting good value for a flat fee and getting too good of a deal that it takes out the incentive for the lawyer to perform at top level. I’ve come to realize it’s good for consumer budgeting but in the end doesn’t really ‘save’ you all that much money.

    “Contingency Fees” are where a lawyer agrees to do the work for a percentage of what is recovered. (ie you pay them no legal fees upfront) Certain cases will be handled for a contingency fee such as medical malpractice, product liability, pharmaceutical cases (ie drugs), car accidents, patent litigation, securities litigation (ie broker lost your $), etc. This is where lawyers do all the work without being paid their hourly fees. The percentage they charge, on average, runs 33% of the recovery prior to trial; 40% if they have to try the case in court; and 50% if they have to appeal your case. This does not include the percentage that will be taken out for case costs. Many lawyers also pay up front all the costs associated with the case (like experts, research, etc.) that can cost hundreds of thousands of dollars if not millions (depending on the size of your case).

    While these fees should be negotiable, unless you have some leverage it’s difficult to get them to lower those percentages. And the flip side is, if a lawyer does lower the fee beyond another 10% (which is acceptable because if another lawyer sends them the case, they will kick back an amount close to this for having been sent the case, or ‘referral’), then they don’t have the same incentive to work hard for a win. So your best bet is to have your case in front of multiple lawyers which may, in turn, give you the leverage you need to get the best fee arrangement. Frankly if you are lucky enough to get a really great lawyer interested to take your case (statistics show they take 1 in 3 qualified cases on average but recover 85-90% of the time) then he/she knows what has to be done. A component of a ‘really great lawyer’ is that the defendant knows them and their reputation and ability to stick it out so your recovery may be greater because the defendant knows they’ll have a big fight if they don’t pay out otherwise legitimate claims. Many defendants just stonewall the best of cases because they know the lawyer isn’t financially stable or good enough in this particular area of law to get a large recovery out of them. So you may get a lower contingency fee, but that could also translate into a lower award if at all (and as such, your percentage of less is much less). As they say, penny-wise pound foolish.

    The reality is, if you have a case that is worth a lot of money, there will be a big, expensive fight over giving you that money. The only way to fight that kind of fight is by finding a contingency fee lawyer who has the credibility and financial wherewithal to make the defendant back down and negotiate/pay. It’s as much who you choose as how strong your case is. The trick here is in picking the lawyer. If it’s a great case, lots of lawyers will want it but getting to those lawyers and then picking the one who has the greatest change of recovering the most for you is the hardest part.

    If you’re unsure, you may consider asking the lawyer (politely) if they’ve handled a case in this area before, and if so, what the results were. If you still have doubts, you can ask if you can talk to the former clients. Some lawyers will be put off by this because in their mind you are questioning their credibility. So it could backfire. If you can find out this information online by looking up what they’ve done, then that works best. If you don’t see anything online then asking makes sense because chances are if they’ve done it before they’d be advertising it in some way. In the end, you’re asking them to take their precious time which can reach into the thousands of dollars per hour and risk it to work on your case with no guarantees of ever getting paid or recovering money they put out on your behalf for costs (if they forgive them with no recovery. Others will still make you pay for the costs even if you lose). So as long as you can see they are conversant in this particular field of law through previous similar cases and have good standing in the industry (ie certain specializations, certifications, etc.), then you should be pretty happy to get a good, decent lawyer to take your case at all. That having been said, if they do take your case, don’t forget the squeaky wheel gets oiled first 😉

    For contingency fee cases, costs are critical. Always always always ask if the lawyer will pay the costs if you lose or if you will be responsible for them. Get that in writing. Also ask if they up-charge you on the costs or if they ‘pass through’ the costs. Passing through means they charge you what they paid. Up-charging means they might charge you, for instance, $1.00 per copy instead of the .27c that they actually pay for those copies. Ideally your “retainer” agreement, or the contract you sign to hire them to represent you, reflects costs as ‘pass through’ and ideally they don’t charge you for those costs if they are not successful in obtaining a settlement or award for you on the case. If they pay for the costs even if you lose, then I’d be less strict on trying to get them to put a ‘cap’ or limit on the percentage of the recovery that goes to costs. Costs can range from about 5%-15%+ depending on the type of case and how much is needed to prove your case. Patent cases, for instance, are very expensive to litigate because the time and work required are great. Other cases that require expert testimony can be expensive. But in general, case costs in terms of routine copying, fedex’ing and the like are not costs which should take up more than 5% of the recovery.

    And finally, I’d be very wary of online resources ‘answering’ your questions. There are lots of people who want to give advice (which incidentally is illegal if you’re not a lawyer) but there are just as many disclaimers about trusting whatever it is that people are saying, lawyer or not. Disclaimers mean if you follow the advice and it’s wrong, that’s your tough luck. Resources like legal aid offices and law school clinics are great places to get pretty reliable advice without having to pay fees but they are limited in what matters they will handle. Getting access to justice has the obvious financial challenges – but it also has quality concerns. One without the other could hurt you more than help.

    *Michele Colucci is currently CEO of MyLawsuit.com.

  4. As with all purchases for services or product – “buyer beware”. Price does not reflect value or competence. The buyer needs to do their due diligence as to the attorney or other professional. Ask for references, ask informed questions as to competence and experience, ask about anticipated fees and any other relevant questions.

  5. Does more money ensure you’ll win?

    It is widely believed that money=victory when it comes to legal battles. While that is not a universal truth, money is certainly a factor. The extent to which money is necessary to legal success depends on the area of law.

    So how does money affect your chances of winning? There are several ways in which money is a factor:

    1) Time – If your attorney is charging hourly (as opposed to charging a fixed fee or a percentage fee), a small budget can act to limit the amount of time and attention your attorney can spend on your case. As with most things, attention to detail and preparation increase the likelihood of success in legal matters. If you limit the time your attorney can spend on your case, he will be less prepared and your likelihood of victory will decrease.

    2) Attorney Expertise – Frequently (but definitely not always) there is a correlation between an attorney’s ability level and his price tag. An attorney’s ability level can be very hard to determine, but advanced degrees, certifications, publications, and experience are all indicators of expertise in a particular practice area. In some cases, a creative legal argument, a keen eye for objections to evidence, or some other unique insight can turn a case around. You are probably more likely to get exceptional legal work from an exceptional attorney, and they tend to be expensive.

    3) Complexity – If you have a routine matter (a simple will, traffic ticket, uncontested divorce, etc.), you can easily find an attorney to help you without paying an arm and a leg. Some attorneys charge $400 an hour or more to do exactly the same routine work that another attorney would do for a $100 flat fee. If your matter is routine, skip the specialist and find someone inexpensive.

    Conversely, if you have a complex legal matter such as suing a major corporation for violating a complex federal statue, there can be a suffocatingly large volume of document review and other paperwork involved. This is not really a problem if you are in a contingent fee arrangement where you pay nothing unless you win. But beware even if you are talking about contingent fees because many law firms agree that they will charge no legal fees unless you win, and will pay the costs of litigation up front, but they may still require that you reimburse them for other expenses of litigation, which can be tens or hundreds of thousands of dollars, depending on the situation.

    What are some tips for spending money effectively on legal services?

    If you are trying to reduce your legal bills, the best thing you can do is find the right lawyer to meet your needs. As mentioned above, you don’t necessarily need the best estate planning lawyer in town to write a will leaving everything to your two kids.

    Conversely, if your needs are more unique, consider whether a specialist will be worth the investment. There are many situations in which the proper legal planning can yield massive savings down the road.

    If you are trying to save money, do as much of the legwork as you can yourself. I can’t count the number of clients who don’t put anything into their cases and just expect the attorneys to do everything for them. Not only will you save money by being involved, but you are often the most qualified person to do particular tasks related to your legal matter. For example, if you are getting a divorce and there are matters of child support, child custody, alimony, and property division involved in your case, you are the only person who can supply the attorney with accurate information regarding the marital history, finances, property, etc. You have to do a lot of homework in order for your attorney to be fully informed and prepared to do his job. If you don’t do it, not only will your attorney’s fees increase as they try to do it for you, but your case will suffer as they will be unable to do it as well as you could do it yourself.

  6. Clients should first evaluate their matter and then determine what they are willing to pay and what they can pay. That being said, more money never ensures that you will win. Attorneys cannot, and do not guarantee results. Additionally, more expensive legal fees may mean a few different things; perhaps the attorney you are retaining has more experience, or perhaps it is a more complicated matter fact wise. However, you should never assume that if you pay your attorney more money he or she will obtain a better result for you.
    That is unethical and improbable.

    To effectively spend your money on legal services, you should ask each attorney you speak with exactly how you will be billed, what is covered and what is not. By clarifying these concerns ahead of time, you will know where your money is going and it should alleviate questions later.

    There are a variety of online resources available where you can try to obtain answers to your legal questions, but in most cases, you can call an attorney and have at least a free 15 minute consultation if you want to make sure that you are understanding something before you take action on it yourself.

    In most cases, an attorney will do his or her own work regardless of whether you do “prep work” for a matter because regardless of what you do, an attorney will have a specific idea of what needs to be incorporated and it is unlikely that what you have done will be able to be used. Additionally, it is much better to retain an attorney at the beginning of the matter and have them file the appropriate pleadings and/or address the necessary concerns rather than trying to backtrack and fix issues later.

    Contrary to popular belief, most attorneys will not allow themselves to “be on retainer”, as in, be at someone’s beckon call. It is difficult to do that and at least in my office, we evaluate each matter on a case by case basis to determine whether or not we can work on it.

    A client does not always have a choice as to whether their attorney will charge them a contingent fee, flat fee or retainer fee. Again, you should consider if you want to pay for actual work performed (retainer), results obtained (contingency fee) or a fixed price (flat fee).

  7. Many injury victims needing legal services have no choice but to make use of contingent fees. Contingent fees benefit both clients and lawyers. Many experienced tort lawyers absolutely prefer contingent fee representation.
    The problem with contingent fees is that they are often predetermined as a standard fee regardless of the merits of the case. The one third fee is too often applied in cases that represent little risk of loss and only a modest commitment of time. The standard contingent fee can only exist in a decentralized market where claimants do not have access to multiple lawyers. Fee splitting, the practice of lawyers referring cases to one another for a portion of the fee, assures the continued existence of the standard fee.
    The only way to assure fair contingent fees are to make them merit based and determined in an open market.

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