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Alternative Fee Arrangements: Pros, Cons and Ethical Considerations

Alternative Fee Arrangements: Pros, Cons and Ethical Considerations. Jean L. Bertrand. Last in vogue in 1990 ’ s For some of us, never went “ out ”. AFA ’ s are “ in ” again. G.C. survey: 24% use billable hour model only

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Alternative Fee Arrangements: Pros, Cons and Ethical Considerations

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

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

  3. 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

  4. Perils and Pitfalls: Ethical Concerns

  5. 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.

  6. 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

  7. 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

  8. Selected Ethical Considerations

  9. 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

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

  11. 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

  12. 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

  13. 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

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

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

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

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

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