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