History of the Billable Hour

1. ETHICAL AND PRACTICAL CONSIDERATION IN ALTERNATIVE FEE ARRANGEMENTS Susan E. EgelandHawkins Parnell Thackston & Young LLPAtlanta Dallas Charleston Los Angeles San Francisco St. Louis Hawkins Parnell Thackston & Young LLP

2. History of the Billable Hour “A lawyer’s time is his stock in trade.” -Abraham Lincoln Hawkins Parnell Thackston & Young LLP

3. Leading to the Billable Hour • 1930 - State bars issue recommended/statutory minimum fee schedules • 1960 – Bills for “services rendered” – and estimation of perceived value • Mid 1960s to early 1970s – Anti-trust concerns, accountants and insurance carriers require more detailed information and a better way to track it. Thus the billable hour is popularized. Hawkins Parnell Thackston & Young LLP

4. Alternative Fee v. Billable Hour Perceived negatives of hourly billing: • Discourages attorney client communication • Discourages expedient resolution of cases • Based on work performed instead of value obtained • Creates a conflict between attorney and client • Slave to the clock – Bad for the Profession Hawkins Parnell Thackston & Young LLP

5. Can Alternative Fee Agreements Improve Attorney Client Communication? Hawkins Parnell Thackston & Young LLP

6. American Bar Association Model Rules of Professional Conduct Rule 1.4: Communication • A lawyer shall: (1) promptly inform the client of any decision or circumstance [requiring] the client’s informed consent… (2) reasonably consult with the client… (3) keep the client reasonably informed… Hawkins Parnell Thackston & Young LLP

7. AFAs and Attorney-Client Communication • Process of creating AFA facilitates communication about expectations • AFAs can set routine communication as part of an overall fee or pay as a line item • Eliminate clock-watching by client • Eliminate needless over-reporting Hawkins Parnell Thackston & Young LLP

8. Can AFAs be used to encourage attorneys to expedite litigation and other legal matters? Hawkins Parnell Thackston & Young LLP

9. American Bar AssociationModel Rules of Professional Conduct Rule 3.2: Expediting Litigation A lawyer shall make reasonable efforts to expedite litigation consistent with the interests of the client. Hawkins Parnell Thackston & Young LLP

10. Expediting Litigation • AFAs can discourage boilerplate excess work • AFAs can encourage attorneys to be efficient • AFAs can expressly reward speedy resolutions Hawkins Parnell Thackston & Young LLP

11. How can AFAs be used to ensure that clients get value for the fees they spend? Hawkins Parnell Thackston & Young LLP

12. THE VALUE EQUATION = Result - Cost VALUE Value is realized when a client’s expectations are met (or exceeded) at what the client considers a reasonable price. It is a subjective assessment of the overall worth of a product or service. Hawkins Parnell Thackston & Young LLP

13. Work Performed and Value Obtained Example #1: Attorney prepares to depose hazard communication expert Hawkins Parnell Thackston & Young LLP

14. Work Performed and Value Obtained Example #2: Attorney deposes same witness second time Hawkins Parnell Thackston & Young LLP

15. AFAs Reward Value Obtained • AFA might pay less than hourly rates in some instances • AFAs should reward expertise and encourage development and use of institutional knowledge • AFAs should encourage best staffing practices Hawkins Parnell Thackston & Young LLP

16. What do the rules of Professional Responsibility require when creating the terms of Alternative Fee Agreements? Hawkins Parnell Thackston & Young LLP

17. American Bar Association Model Rules of Professional Conduct Rule 1.5: Fees A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. The factors to be considered in determining the reasonableness of a fee include the following: Hawkins Parnell Thackston & Young LLP

18. The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; • The amount involved and the results obtained; • The time limitations imposed by the client or the circumstances; • The nature and length of the professional relationship with the client; • Whether the fee is fixed or contingent. Hawkins Parnell Thackston & Young LLP

19. Creating Ethical AFA’s • Time and Labor + Skill Required • Consider the amount of work • Consider the use of work product • Consider the best staffing plan • Consider the expertise of the team Hawkins Parnell Thackston & Young LLP

20. Creating Ethical AFA’s • Amount involved + results obtained • More risk = more reward • Consider contingent component • Consider bonuses for performance • Consider refund for poor performance Hawkins Parnell Thackston & Young LLP

21. Creating Ethical AFA’s • Whether the fee is fixed or contingent. • Contingent fees can be created for any case • Complete contingent fees based on results • Contingent bonuses • Hybrid – Hourly and Contingent fees Hawkins Parnell Thackston & Young LLP

22. Do AFAs increase or decrease potential conflicts of interest between Attorney and Client? Hawkins Parnell Thackston & Young LLP

23. Conflicts of Interest A conflict of interest is involved if there is a substantial risk that the lawyer's representation of the client would be materially and adversely affected by the lawyer’s own interests or by the lawyer’s duties to another current client, a former client, or a third person. Hawkins Parnell Thackston & Young LLP

24. Inherent Potential Conflict? • Will Client seek lowest cost per service? • Will Client press for more work than necessary under AFA? • Will Attorney seek higher profit margin? • Will Attorney seek to avoid work that would benefit client? Hawkins Parnell Thackston & Young LLP

25. ETHICAL ISSUES INHERENT IN THE TRIPARTITE RELATIONSHIP • Insured may second guess AFA where the fees are paid by a carrier • Motivation by attorney to trim unnecessary work may be seen by insured as a reduction in service • AFAs more workable where insured has Self-Insured Retention Hawkins Parnell Thackston & Young LLP

26. What type of AFA will work best for the situation? Hawkins Parnell Thackston & Young LLP

27. Fixed or Flat Fee PRICE = BUDGETED VALUE • Price charged for defined services • Shifts some of the risk of costs overrunning to the law firm • A total fee or segments of the service • Useful where the litigation is most predictable Hawkins Parnell Thackston & Young LLP

28. Model for Determining Appropriate Flat Fee For Individual Matter • Based on ABA codes • Customized by inputting rates, likelihood of reaching certain phases and whether the firm has experience with similar cases • Experience in the area and trust in the relationship is key www.hawkinsparnell/casetools/flatfeemodel Hawkins Parnell Thackston & Young LLP

29. Time and Talent Projection • A detailed budget for tasks to be completed • And the talent necessary to complete them • Premised largely on the hourly rate system • Provides predictability • Can be separated by tasks • Or based on a prediction of work Hawkins Parnell Thackston & Young LLP

30. “Prediction  is difficult, especially about the future.” - Yogi Berra Hawkins Parnell Thackston & Young LLP

31. Budget With Risk Analysis Hawkins Parnell Thackston & Young LLP

32. Contingent Fee PRICE = RESULT x AGREED % • Depends on results achieved • Price reflects different incentives for firm and client • Useful where there is recovery of damages • Useful where there is a quantifiable risk that all can agree to Hawkins Parnell Thackston & Young LLP

33. Shared Risk Contingent Fee Claimed damage: $10,000,000 Client’s estimated adverse verdict: $ 1,500,000 Settlement: $ 500,000 Saved $ 1,000,000 Less fees charged to date $ 300,000 Net savings $ 700,000 Contingent bonus = 700,000 X 20% = $ 140,000 Hawkins Parnell Thackston & Young LLP

34. Blended Hourly Rate PRICE = TIME x AVG (all rates) • One rate applies to all hours • Rate usually negotiated by the client but can reflect weighted average of timekeepers rates • Risk that firm may not use the high value/experienced attorneys - can be seen as reducing profit Hawkins Parnell Thackston & Young LLP

35. WHAT ARE THE MAJOR ETHICAL RISKS OF ALTERNATIVE FEE AGREEMENTS? Hawkins Parnell Thackston & Young LLP

36. American Bar AssociationModel Rules of Professional Conduct Preamble – A Lawyer’s Duties [2]… As advocate, a lawyer zealously asserts the client’s position under the rules of the adversary system. Hawkins Parnell Thackston & Young LLP

37. Do AFAs make you less zealous? • Should I file the motion for summary judgment? • Should I travel to New York for the deposition? • Should I settle the case sooner rather than later so I can stop working on it? Hawkins Parnell Thackston & Young LLP

38. “The best way to predict the future is to invent it.”- Immanuel Kant, 18th Century Philosopher Hawkins Parnell Thackston & Young LLP