Chapter 6 Legal Fees

1. Chapter 6Legal Fees

2. Types of Legal Fees • Retainer • Hourly • Flat • Contingency • Statutory • Combination

3. Ethical Limits of Legal Fees • Fees must be reasonable • Fees must not be unconscionable

4. Reasonable Fee Factors • 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

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

6. 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

7. Blended Hourly Rates 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

8. How to Determine Hourly Rates 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

9. Another Methodto 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

10. 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

11. Contingency Fee Statutory Requirements: • 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

12. Calculating a Contingency Fee 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

13. 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

14. Reverse Contingency Fee • 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

15. 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

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

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

18. 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

19. Statutory Fees – California Probate Code • 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

20. 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

21. Combination Examples • 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

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

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

24. Lodestar and Multipliers • 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

25. Types of Liens • 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

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

27. Chapter 7Timekeeping

28. Hours are Placed in Two Categories • 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

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

30. Noncreditable Nonbillable Hours • Educational activities • Personal matters • Association work

31. Tenths of an Hour 1-6 minutes .1 7-12 minutes .2 13-18 minutes .3 19-24 minutes .4 25-30 minutes .5 31-36 minutes .6 37-42 minutes .7 43-48 minutes .8 49-54 minutes .9 55-60 minutes 1.0

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

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

34. Time Sheet Entries 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

35. Work Description Codes • 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

36. 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

37. Time Records in Contingency Cases and Other Types of Fees • 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

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

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

40. Paralegal Timekeeping Ethics • 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.

41. Timekeeping Tips • 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

42. 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