Alternative Fee Arrangements: Pros, Cons and Ethical Considerations Jean L. Bertrand

For some of us, never went “out” Last in vogue in 1990’s For some of us, never went “out” AFA’s are “in” again

Some Statistics G.C. survey: 24% use billable hour model only Companies with revenues > $1B: only 12% use billable hour model only AFA discussions initiated by law firms: 3% Some Statistics

Perils and Pitfalls: Ethical Concerns

Conflict in Every Fee Deal There is an inherent conflict in every fee deal If you win  the client was right all along so why should they have to pay lawyers? If you lose  you messed up and you charged too much.

Solution Give value to the client as defined by the client Let the client set the level of risk it is willing to take Build on a relationship based on trust Incorporate escape clauses for both client and firm Align the interests of firm and client

Selecting an AFA Match the AFA to the client’s driving need If the client’s biggest concern is the end result  contingency fee If cost is the driver  blended fee If predictability is key  flat fee If the client cares most about access to top legal talent  retainer/bonus structure

Selected Ethical Considerations

Our duty to zealously represent our clients  Tension with firm’s economic interests Fixed fees Capped fees Blended rate deals  A different tension if flat fee is too low

Solutions Disclosure, discussion, write it down Motivate lawyers and legal assistants Reward results

Our duty not to impair the client’s absolute right to fire us  Tension with firm’s economic interests Contingency fees Bonus deals Other back-loaded arrangements

Solutions Disclosure, discussion, write it down Motivate lawyers et al. Use a guaranteed reduced hourly-rate set-off against contingency fee recovery Be aware of special rules applicable here

Our fees must be reasonable Tension with firm’s economic interests contingency fees fixed fees partner-only deals bonus deals Reasonableness will be evaluated at the beginning And at the end

Solutions Disclosure, discussion, write it down Motivate lawyers et al. Quantum meruit conversion clause Escape clause Make bonus discretionary

Hourly billing raises ethical issues too Reasonable fees duty Obligation to be efficient

Ethical rules govern the way we handle the client’s money Tension with flat fees bonus deals

Solutions Disclosure, discussion, write it down Agree in advance on “milestones” Use Trust account