1 Chapter 6 Legal Fees

Types of Legal Fees 2 Retainer Hourly Flat Contingency Statutory Combination

Ethical Limits of Legal Fees Fees must be reasonable Fees must not be unconscionable

Reasonable Fee Factors 4 Experience, reputation, and ability of the lawyers Novelty or difficulty of case Other Employment Opportunities Amount Involved and Results Obtained Time and Labor Required Client’s informed consent to the fee Customary Fees Professional Relationship with Client

Types of Retainer Fees 5 True Retainer Nonrefundable Chargeable Nonrefundable Nonchargeable Refundable Chargeable

Hourly Rate Fees Fees computed by multiplying attorney or paralegals hourly rate time the number of hours Most common type of fee May be used for most all types of cases

Blended Hourly Rates 7 Blended hourly rates are an average of each timekeeper’s hourly rate Attorney $300 per hr Associate $200 per hr Paralegal $100 per hr Total $600 $600  3 = $200 per hr

How to Determine Hourly Rates 8 Salary + Overhead + Profit  Billable hours = Hourly Rate $175,000 (salary) + $87,500 (Overhead) + $48,750 (profit) = $311,250 $311,250  1,500 (billable hours) = $208 per hour

Another Method to Determine Billing Rates Determine estimated total overhead and profit for firm for one year Determine number of billing attorneys and paralegals and target billing rate for each Estimate reasonable billable hours (1,500) per year Determine gross billings for the year Adjust the rate, the number of hours or amount of overhead and profit

Contingency Fees Fee is dependant or “contingent” on the outcome of the case Can be used is variety of cases but most common in Personal injury Collection Malpractice Ethical restrictions in Domestic Relations and Criminal Cases

Contingency Fee Statutory Requirements: 11 Fee agreement must be in writing Must include how costs are determined Special Rules for MICRA Actions Must use net recovery method Limits on costs that may be charged Medical care and office overhead not deductable

Calculating a Contingency Fee 12 Gross Fee Method Judgment $15,000 Attny’s fee (1/3) - 5,000 Subtotal $10,000 Costs - 1,000 Total to Client $9,000 Total to Attorney $6,000 Net Fee Method Judgment $15,000 Costs - 1,000 Subtotal $14,000 Attny’s fee (1/3) - 4,667 Total to Client $9,333 Total to Attorney $5,667

Variations on Contingent Fee Arrangements Percentage increase at various times in the case Sliding scale – fee decreases as recovery increases Reverse contingent fee for defense Based on the amount the client saves Combination of hourly rate and contingent fee Client agrees to pay hourly rate – may be reduced rate Attorney entitled to a percentage of the recovery Client may be entitled to credit for fees paid

Reverse Contingency Fee 14 Based on the difference between the amount at issue and the amount of final recovery Used by defense firms Amount of potential liability:$500,000 Amount of recovery: $200,000 Fee: 1/3 of savings: $300,000 = $100,000

Contingency/Hourly Combination Client agrees to pay firm hourly at $200 per hour Client agrees to pay one-third contingent fee based on recovery less hourly rate paid Firm bills and client pays: $35,000 in hourly fees Case settles for $1,000,000 Attorney’s fee = 1/3 of $1,000,000 $333,333 Less: Hourly fees paid 35,000 Net Fee to Attorney $298,333

Types of Fixed or Flat Fees 16 Per Case Per Service Fee covers the services regardless of outcome Typical for routine services Estate planning, corporate formation criminal, divorce, bankruptcy

Determining Flat Fees 17 Factors considered are the: Time it takes to complete a case Timekeeper’s hourly rate Attorneys time 1 $200 Paralegal’s time 3 $100 = $300 $200 + $300 = $500 The flat fee should be $500

Statutory Fees Fees are set by a statute Most common statutory fees Probate Cases Also, attorneys fees that can be charged in default judgments Set forth in local court rules

Statutory Fees – California Probate Code 19 4% of the first $100,000 3% of the next $100,000 2% of the next $800,000 1% of the next $9,000,000 ½% of the next $15,000,000 Over $25,000,000 – reasonable fee determined by the court

Calculation of Probate Fees Estate is determined to have a value of $5,000,000 Fee calculated as follows: 4% of first $100,000= $ 4,000 3% of next $100,000=$ 3,000 2% of next $800,000=$ 16,000 1% of next $4,000,000=$ 40,000 Total statutory fee=$ 63,000

Combination Examples 21 20% contingency plus $150 an hour Hourly billings may be credited against recovery $1,500 flat fee plus 25% contingency Nonrefundable (true) retainer plus hourly billings 33 1/3% contingency plus $5,000 premium depending on case success (ie. recovery over $100,000) Capped fee – total fees not to exceed a specified amount Must consider what happens if the fees exceed the cap

Firms also Charge for Costs Advanced 22 Filing Fees Expert witness fees Deposition costs Appraisal fees Photocopies Travel and meals Faxes Long distance telephone calls Postage Supplies Outside services

Other Fees and Charges 23 Secretaries Clerks Messengers Temporary employees Fixed percentage of monthly fees for “overhead”

Lodestar and Multipliers 24 Lodestar is based on the amount of hours reasonably spent and applying the attorney’s hourly rate thereto Multiplier compensates the attorney for risk factors

Types of Liens 25 Attorney’s Lien - lien on a judgment or other recovery Created by the written fees agreement Most often seen in contingent fee agreements Retaining Lien - lien on client’s papers, money, or other property in attorney’s possession Ethical issues regarding enforcement of lien Other Lien - Promissory note secured by a deed on the client’s real property Ethical issues

Paralegal Ethics 26 Paralegals may not set fees. Paralegals should not quote fees. Attorneys cannot share fees with Paralegals.

27 Chapter 7 Timekeeping

Hours are Placed in Two Categories 28 Billable hours Directly applied to clients’ matters 75% to 85% of the day Nonbillable Hours Not applied to clients’ matters. 2 types exist: creditable and noncreditable

Creditable Nonbillable Hours Serving on law firm committees Pro bono work Management functions Administrative tasks Training 29

Noncreditable Nonbillable Hours Educational activities Personal matters Association work 30

Tenths of an Hour minutes minutes minutes minutes minutes minutes minutes minutes minutes minutes 1.0

Seven Purposes of Time Records 32 Billing clients Recovery and justification of fees Compensating hourly employees Calculating employee productivity Firm planning Monitoring “Work in Process” Projecting profitability Forecasting income

Time Sheet Information 33 Timekeeper’s name Date File name Client name or number File number Amount of time expended Description of work

Time Sheet Entries 34 Not Descriptive Review file Conference w/attorney Telephone call Research Worked on computer Descriptive Review answers to interrogatories Conference w/attorney re trial notebook Telephone call to client re deposition Research fraud issues on breach of contract Inserted discovery responses in discovery database

Work Description Codes 35 C/W Conference with CT Court trial CH Court hearing D1 Draft pleadings D2 Draft correspondence D3 Draft memorandum D4 Draft other DP Deposition N/C Nonchargeable P Preparation of R Research R1 Review pleadings R2 Review correspondence R3 Review memorandum R4 Review other RV Revision of TC Telephone conference

Billing Process Timesheets/records prepared by attorney/paralegal Data entry into time and billing program Pre-bill generated for review Final bills generated Management reports generated and mailed Aged accounts receivable Attorney/paralegal productivity reports Case type productivity reports “Work in process” reports

Time Records in Contingency Cases and Other Types of Fees 37 Contingency Fee Cases Recover fees in fee disputes Calculate the profitability of a case Determine a case’s settlement value Calculate the amount of lien if terminated Probate Cases Flat Fee Cases

Corporate Legal Departments Use Time Records 38 Bill “clients” Management reports Justify additional staff and budget increases Court-awarded legal fees

Government Legal Offices Use Time Records 39 Management reports Provide statistics Prepare budgets

Paralegal Timekeeping Ethics 40 Do not bill clients for work not performed Do not “pad” time sheets Do not double bill Remember: It is the supervising attorney’s responsibility to make the decision to charge or not charge a client.

Timekeeping Tips 41 Keep a time sheet handy Record the largest amount of time Record the time when it is spent Do NOT estimate time Be accurate Be descriptive and concise Record all time including nonbillable time Develop To-Do lists

Computerized Time Accounting There are many time and billing computer programs available specifically for law firms. SaaS – Software as a Service Applications are hosted by a vendor Made available to customers via a network Vendor provides technical operation, maintenance and support Vendor charges a monthly fee 42