Sections within this essay:Background
Types of Fee Arrangements
Flat or Fixed Fees
Prepaid Legal Plans
Pro Bono Services
What is Covered by Fees
Fees vs. Costs
Fee Sharing and Fee Splitting
American Bar Association Code and Model Rules
Recourse and Remedies
Fees Owed to Attorneys Who Are Fired
Escrowed Funds and Retainers
At the outset, it must be said that in the United States, the long-standing rule (derived from common law) is that each side to a legal controversy must pay for its own attorney. The prevailing litigant is generally not entitled to collect a reasonable attorney's fee from the loser. Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 247 (1975). This is often referred to as the American rule (as distinguished from the English rule, which permits fee-shifting and derives from court-made law).
Of course, there are numerous common law exceptions and nearly two hundred statutory exceptions, some, if not most, having been enacted by Congress to encourage private litigants to implement public policy. For example, an award of attorney's fees is often statutorily designed to address the unequal bargaining and/or litigating power of big corporations or government against individual plaintiffs. Accordingly, provisions awarding attorneys' fees are most often found in consumer or citizen-oriented litigation, such as that found in civil rights, environmental protection, and consumer protection areas of law.
Under these exceptions, federal courts (and some federal agencies) may order the losing party in a lawsuit to pay the winning party's attorney's fees. In 1997, Congress enacted a statute that provided for the award of attorney's fees in some criminal defense cases. Additionally, the Equal Access to Justice Act (EAJA) provides for the United States to pay attorney fees in many court matters and some administrative proceedings in which the United States is a losing party and has failed to prove that its position was substantially justified.
All this having been said, in most matters of private litigation between private parties, the American rule still applies. Despite tort reform efforts by the Bush Administration to adopt a "loser pays" rule, as well as the Common Sense Legal Reforms Act, which was part of the "Contract With America" legislation proposed by Republican House Members in 1994, the American rule continues.
The American rule has two major common law exceptions, mostly affecting federal court litigation: the common benefit doctrine and the bad faith doctrine. The common benefit exception generally applies in cases where a particular plaintiff or number of plaintiffs have born the legal expenses for the benefit of a larger group of potential plaintiffs, as in shareholders' derivative suits or class actions. In these matters, district courts may equitably order that attorney fees for the plaintiffs be reimbursed from the total amount of the judgment.
The bad faith exception may be invoked under circumstances in which either an attorney or a party has acted in bad faith when filing or pursuing litigation, often evidenced by the frivolous nature of the particular claim. In this set of exceptions, the underlying rationale behind the award of attorney fees is not that of fee-shifting per se, but rather punitive in nature. [See, for example, Hall v. Cole, 412 U.S. 1,5 (1973)].
Attorneys charge for their services using a variety of fee structures and arrangements. Prospective clients who retain counsel to represent them should know in advance what such services will cost, commit the fee agreement to a writing, and understand their recourse if they believe there has been a deviation from the agreement. This does not imply dishonesty or misrepresentation on the part of counsel, but rather, the possibility of misunderstanding or miscomprehension between counsel and client.
Attorneys consider several factors when setting their fees. These include the area of law invoked, the experience of the lawyer, the simple or complicated nature of the issue, and the amount of time it will take to legally resolve the matter. The more aggressively an attorney wages a legal battle, the more expensive it becomes. Moreover, attorneys may not be able to offer a fair quote for their fee if a prospective client has waited until the last minute to obtain legal counsel, and matters must be acted upon very quickly. In such cases, the fees will typically be higher than otherwise.
Importantly, when dealing with a law firm instead of a sole practitioner, a legal client may be surprised to find that the attorney handling much of the case is not the one who initially met with the client. If a client wishes to retain a particular attorney within the firm to handle the case, this arrangement must be expressly articulated and agreed upon.
Finally, it should be noted that many of the routine legal services provided by law firms are performed by paralegals, and not attorneys. When this is the case, any fee arrangement should reflect a lowered hourly rate for these services, charged separately from attorney's rates.
The most common form of charging legal clients is through an hourly rate. Most attorneys charge a rate between $100 and $300 per hour. Top legal counsel, with a reputation for success in complex or highly visible cases, may charge more. Rates tend to be higher in major urban areas, and in matters requiring special legal expertise (e.g., admiralty, tax, patent law).
The majority of attorneys charge in tenth-of-an-hour increments (every six minutes, expressed as 0.10 hours)for hourly fees. Since one-tenth of an hour (or six minutes) is the least billable amount, attorneys routinely bill for one-tenth of an hour even if only one or two minutes were physically spent on the case, e.g., a quick email or voice mail message; reviewing and signing correspondence, etc. This is neither improper nor illegal. In actuality, an attorney has dropped his or her other work to concentrate on the present case, thinking about what should be done or how it should be done; therefore, the final correspondence or voice mail does not truly reflect the actual amount of minutes spent on the matter.
Hourly charges tend to add up quickly, especially when every tenth of an hour is included. Clients may wish to discuss with their attorneys several moneysaving measures, including discounted rates after a certain number of hours are worked in any month (the discounted rate applying to the excess hours). Clients may also wish to cap the total number of hours or fees charged. By the time most discovery is completed, both sides have a better idea of what the case is worth, and whether it is worth taking to trial. A client may request that the attorney try to settle the lawsuit once legal fees reach a certain amount. Even if the settlement amount is less than desired, it may be the wiser choice if additional legal fees and costs of trial would eat up the difference in dollar amount anyway.
Clients can also negotiate prior approval of major legal maneuvers, although deference to counsel's opinion should be exercised. For example, to save money, an attorney may serve written interrogatories upon a witness rather than take his deposition before a court reporter. However, if the attorney wishes to spring a question upon the witness by surprise (and to which the witness must answer immediately, without preparation), a deposition may be a smarter tactic, even though it costs more. Most conscientious attorneys discuss the pros and cons of various legal maneuvers with their clients as preparation for trial nears.
A final cost-cutting measure is to pay the top hourly rate for the best trial attorney, but ask for a less experienced attorney in the law firm, at a lower hourly rate, to handle the more routine matters. This is often the practice regardless, but either way, should be clarified in advance.
Recognizing the runaway nature of hourly fees, many law firms and attorneys have established fixed or flat rates for routine legal matters, such as a simple will, a power of attorney, or a first DUIL (driving while under the influence of alcohol).
Typically, more complex legal matters are set up on a mixed fee basis. For example, a non-contested divorce may have a flat fee of $1500. But neither party to the divorce can guarantee that it will non-contested; an attorney's duty is to get the best advantage for his or her client. Therefore, an attorney may stipulate in a fee agreement that if some areas of the divorce settlement become contested, an hourly fee will be added to the $1500 flat fee for the resolution of the disputed matter.
Likewise, a prospective client may be quoted a flat fee of, e.g. $750 for a first-time charge of drunk driving. However, if it later turns out that the client had a previous drunk driving charge not communicated to the attorney, the fees will likely increase. Often, in matters involving a lawsuit, an attorney will charge a fixed or flat fee for all work performed up to the point of trial (or settlement), after which a separate fee will be added for each day at trial. This is because preparation for trial constitutes intense labor. Actually trying a case requires an entirely different set of skills and labor; hence, additional fees (usually by hour or day).
In many litigation-oriented legal matters, the attorney representing the complaining party who suffered a loss (plaintiff ) will take a percentage of the money received from either a settlement or a jury verdict (or judge's award) as the applicable fee. This type of fee arrangement is common in lawsuits involving money damages, such as for personal injury, medical malpractice, worker's compensation, employment discrimination or wrongful termination, etc. (Conversely, it is common for attorneys who represent the defendant in such matters to charge an hourly fee.)
Contingency fees are usually expressed as a percentage, and the payment of the fee is contingent upon success at trial or the client having prevailed in the legal matter. The fee may be based upon a percentage of the dollar amount or the value of property secured or won for the client, such as a contract. For this reason, attorneys carefully assess a potential lawsuit to determine the likelihood of success before they agree to represent a prospective client on a contingency fee basis.
Most contingency fee agreements quote a fee between 25 and 40 percent of the settlement, verdict or award. Importantly (see below), this percentage may be based on the gross settlement/verdict amount, or (less commonly) the net amount after deductions for costs and expenses.
Many contingent fee arrangements have a sliding-scale basis similar to the flat fee with add-on charges for complication. For example only, a contingency agreement may stipulate that if the legal controversy is negotiated to a settlement prior to the filing of a lawsuit, the fee will be 25 percent of the settlement amount. If the case continues and is settled in the interim between filing and trial, the fee will be 33.33 percent (the oft-quoted one-third attorney fee). But if the attorney must try the case, the fee will be 40 percent. Again, this sliding scale is meant to reflect the amount of work the attorney does at each stage of the litigation.
Contingency fees are not appropriate in all legal matters, and may in fact violate state ethics rules (see below). In divorce cases, for example, angry spouses may be determined to "bleed the other spouse dry" with hefty legal fees, and do so by challenging each and every settlement clause in court. Contingency fees are generally not permitted in criminal defense matters and most divorce cases. Likewise, it would be inappropriate for an attorney to charge a fee con-tingent upon whether or not the client is awarded custody of children (some states do allow contingency fees in property divisions based upon a percentage of the value of property secured for the client).
For representation in a particular legal matter, a true retainer fee is not a separate or distinct fee, but rather an advancement of fees against what will ultimately be owed to the attorney, i.e., a "down payment" or credit toward what is owed. It is a guarantee that a client has "retained" a law firm or attorney for legal representation, and that, as such, the attorney or firm will be paid for work completed in behalf of the client's case.
A variation of this type of retainer fee is actually more like a flat fee paid in advance. Sometimes an attorney will estimate the amount needed to resolve a legal matter (see cautions mentioned above) and require the payment up front to "retain" his or her services.
In either of these retainer arrangements, a portion of the retainer fee may or may not be non-refundable. However, where the fee represents an advancement of fees for work actually done, attorneys and law firms must itemize the actual hours worked, or the work actually completed, in order to draw from the retained fee. Any excess fee will then be returned to the client (see remedies, discussed below).
An exception to the return of excess retainer funds involves still another classic form of retainer fee. This type of fee arrangement involves retaining a law firm or attorney to be at the service of, or on call and on demand for, (usually) a corporate client or wealthy individual with recurring legal problems. For a flat fee (generally on an annual basis), legal service and representation is on demand for the client, even to the extent that other clients or cases are turned down in order to serve the client. The retainer fee ensures that an attorney will always be available or "on call" to answer a client's legal questions, provide counsel and advice, or intervene/intercede on behalf of the client in a pending matter or dispute. This type of retainer fee is generally non-refundable, even if the client ultimately makes little use of the retained services over the subject period of retainer.
For certain legal matters, the attorney fee is set by law. Whether by state law or federal statute, and as previously mentioned, the award or payment of attorney fees is generally invoked in cases involving matters of public concern (e.g., willful environmental pollution), or major violations of constitutional rights (e.g., civil rights violations under federal law).
At one time, the American Bar Association (ABA) favored a statutory scheme to standardize minimum fees or "recommended fee schedules" to circumvent fee-cutting competition and preserve the integrity of the legal profession. However, in 1975, the U.S. Supreme Court held that minimum fee schedules violated the Sherman Anti-Trust Act. Notwithstanding, many states and federal laws restrict maximum fees that may be charged for certain matters, as for probating a will or (with tort reform) in medical malpractice actions.
State laws awarding attorney fees, or providing for a fixed fee or percentage, or mandating court approval for a proposed fee are too varied to include herein. The following federal civil rights statutes provide for attorney fees to be paid:
- Civil Rights Act of 1964, Title II (Public Accommodations)
- Civil Rights Act of 1964, Title III (Public Facilities)
- Civil Rights Act of 1964, Title VII (Equal Employment Opportunities)
- Fair Housing Act
- Fair Labor Standards Act
- Age Discrimination in Employment Act of 1967
- Equal Credit Opportunity Act
- Voting Rights Act of 1965
- Civil Service Reform Act of 1978
- Age Discrimination Act of 1975
- Civil Rights of Institutionalized Persons Act
- Rehabilitation Act of 1973
- Individuals with Disabilities Education Act
- Americans with Disabilities Act of 1990
- Civil Rights Attorney's Fees Awards Act of 1976
Usually associated with employers, unions, or credit union membership, prepaid legal plans oper-ate like prepaid health organizations. Participants pay a monthly fee in exchange for access to legal advice and/or legal representation from one of the plan's member attorneys. However, most plans limit the number of services and/or number of hours of legal assistance each month. Also, types and costs for different services can vary from plan to plan. If, after consulting with legal counsel under the plan, it is determined that litigation or more intense legal work will be required, additional charges (established up front with plan membership) will apply. Additional information about prepaid legal plans can be obtained from American Prepaid Legal Services Institute (APLSI), 321 North Clark Street, Chicago IL 60601 (312) 988-5751, Web site at www.aplsi.org. APLSI is affiliated with the American Bar Association.
The Latin term "pro bono," being shortened in common usage from "pro bono publico," literally means for the good of the public. In cases involving social injustices (e.g., sexual harassment by an employer, freedom of speech or religion, spousal abuse, discrimination in housing or employment, whistle-blowing, environmental pollution), legal fees may be waived by attorneys or nonprofit legal organizations interested in the outcome of the case, especially if it raises new and important issues of law.
Some of the organizations that may offer legal resources or pro bono representation include the American Civil Liberties Union (ACLU), the National Association for the Advancement of Colored People (NAACP) Legal Defense Fund, the Natural Resources Defense Council, the National Women's Law Center, and the Lambda Legal Defense and Education Fund (for gay and lesbian rights).
Many attorneys do not charge for an initial private consultation. This is particularly true for plaintiff-oriented cases where the attorney will ultimately charge on a contingency fee basis. During the initial consultation, the attorney will assess the merits of success on the potential claim or lawsuit. However, if the purpose of consultation is for the rendering of a simple legal opinion, most attorneys will charge a relatively small fee, e.g., less than $100.
Since everything communicated during the initial consultation is protected by attorney-client privilege, it is important that clients are open and honest with the attorney, providing all known information and (crucially) even the damaging facts. Even a low consultation fee is worthlessly spent if the attorney is not able to fairly assess the case because of withheld information.
During the initial consultation, the question of fees should be addressed and committed to writing. (This is also an appropriate time for the client to assess the experience, skills, and effectiveness of counsel.)
Unfortunately, horror stories abound in which seriously injured plaintiffs who win their cases nonetheless take home less money than their attorneys. In all fairness, while it is true that an attorney or law firm may receive a large share of the settlement/verdict/award, the money does not all go to the attorneys. Costs and expenses often devour the largest chunk of the proceeds. In their minds, plaintiffs are thinking they will receive two-thirds of any settlement or award, based on e.g., a 33.33 percent contingency fee. But in reality, another third of the proceeds may be spent on costs and expenses associated with the case. In the end, the injured plaintiff may go home with one third, and the law firm will keep two-thirds of the proceeds (but earn considerably less once all costs and expenses are reimbursed). This, precisely, is what contributes to the perception that the "lion's share went to the lawyers."
Such a scenario is particularly true in personal injury/medical malpractice cases that require copious amounts of medical analyses and expert witness opinions. Trial expert witnesses charges thousands of dollars for reviewing files, rendering opinions (upon which reputations may be staked) and appearing to testify at trial.
But in reality, the attorneys only keep the agreed-upon fee. If they also receive monies for costs and expenses, it is merely to repay them for bills they have paid on behalf of the client. Costs are ultimately the responsibility of clients, even if initially paid by the law firm in order to move the case forward. Costs are itemized separately from the fee charged by attorneys for their legal work.
Costs include charges for all court filings (complaint, motions, discovery, etc.), process serving, investigations, mailing, photocopying, service of subpoenas for appearance of witnesses, as well as for records and document retrieval, court reporters and transcripts of depositions, motions, and other related proceedings, jury fees and mileage, expert witness fees and travel/lodging fees for both witnesses and attorneys.
Most often, costs are deducted from the gross amount of the settlement/verdict/award after the deduction of attorney fees. In other words, the attorney fee will be based on a percentage of the gross amount recovered, not the net amount after costs are deducted. Second in line will come such a deduction for costs and expenses paid or owing on behalf of the client. Finally, the remaining balance will represent the client's proceeds or share of the money.
Generally, fee sharing or fee-splitting arrangements between attorneys do not increase the bottom-line fee paid by a client. However, there are ethical and professional rules addressing these subjects, and one recurring theme is that such arrangements must be communicated to a client in advance.
For example, ABA Model Rule 1.5(e) states that a division of fees between attorneys from different law firms may be made only if (1) the division is proportionate to the services performed by the respective attorneys, or a client agrees in writing that each attorney assumes joint responsibility for the representation; 2)the client is advised of and does not object to the participation of the additional attorneys; and (3)the total fee is reasonable.
The Interest on Lawyers' Trust Accounts (IOLTA) program has been adopted by all state bar associations and the District of Columbia as an innovative way to do a public good; simplify accounting on clients' accounts; and prevent the temptation of misuse/abuse of earned interest on those accounts. By authority of state supreme courts or legislative acts, attorneys can deposit client funds that are too small in amount, or are deposited for too short a time to earn interest, in a state-wide IOLTA account. These accounts represent pooled, interest-bearing trust accounts. (Larger amounts from clients are placed in client bank accounts where interest inures back to the benefit of the clients.)
Since the pooled funds generate interest where none had been previously paid, IOLTA provides a public benefit without cost to taxpayers. The funds are earmarked through a local grant process to not-for-profit organizations throughout each state. They are generally used to fund civil legal services for the poor, or for law-related public education or administration of justice.
State bar associations address ethical considerations of attorney fee-setting in their bar rules of professional conduct or professional responsibility. All states have similar rules, most often parallel to, or adopting ver batim, the ABA Model Rules or ABA Model Code of Professional Responsibility.
ABA Model Rule 1.5 states that a lawyer's fee must be reasonable. The rule lists the same criteria and factors to consider (in determining reasonableness) as those used when lawyers first assess a legal matter and then establish their fee arrangement with a client. These factors include the time and labor involved, the requisite legal skills needed, the fee customarily charged for such services, and the experience and reputation of the lawyer.
The ABA Model Code of Professional Responsibility, DR 2-106 prohibits clearly excessive fees. Factors to be considered as guidelines in determining the reasonableness or excessiveness of the fee again parallel the same considerations recommended when first establishing fees (see Rule 1.5, above).
More importantly, ABA Model Rule 1.5(d) prohibits fee arrangements that (1)are contingent upon the securing of a divorce, or the amount of alimony or support; or (2) are contingent fees for legal representation in a criminal defense matter.
Attorneys cannot guarantee results. Clients must pay for the services rendered, whether they agree with the outcome or not. However, there are some measures that can be taken if an attorney has done something illegal or improper.
If a client is unhappy with an attorney's representation, and hires another attorney, there are two caveats worthy of mention here. First, it is a violation of an attorney's code of ethics to work on a file or legal case while another attorney is still officially handling it. Therefore, a client should discharge the previous attorney in writing. Secondly, the terminated attorney is nonetheless entitled to compensation for the work completed thus far, and may place an attorney's lien on the file/case through the court. When the client is finally paid on the matter, the original attorney will receive whatever compensation he or she earned. If the original agreement was for a contingency fee, and the second attorney completed work on the case, the contingency fee will be split, with or without court intervention. Many jurisdictions permit the first (discharged) attorney to be paid a reasonable hourly fee for work completed, rather than a percentage of the contingency. The discharged attorney will need to itemize work done on the file prior to being discharged.
Attorneys cannot spend retainer fees or funds advanced to them (fees, not costs) before earning them. State bar rules require attorneys to deposit all retainer and advance payment funds into interest-bearing accounts, which can only be withdrawn as the legal work is completed and billed against the account. Any interest earned on the account is usually donated to nonprofit legal clinics or (long-term) returned to the client.
If a client believes that an attorney has not returned excess retainer funds, or has not accounted for the entire amount in an itemized statement, the first step should be in the form of registered/certified correspondence to the attorney, requesting explanation. If such a step fails to satisfy the client, the next contact should be to the state bar association, which will have a forum for filing grievances against attorneys.
Even though attorneys have quoted certain fees to a prospective client, they may be open to negotiating a lower fee, based upon the client's articulated reasons. Additionally, attorneys may allow installment payments or other payment plans to help clients meet their obligations.
However, if the fee paid is questionable, or the costs and expenses attached to the file seem unreasonable, the first step should be a registered/certified correspondence to the attorney, requesting explanation. If such a step fails to satisfy the client, the next contact should be the state bar association, which will have a forum for filing grievances against attorneys.
For unresolved fee controversies between attorney and client, arbitration or mediation may offer an appropriate forum for resolution. This is particularly true if the reasonableness of a fee or the costs on a file case are questioned. The state bar association is the best place to start, and may be able to provide either an arbitration forum, or a list of private arbitrators and mediators skilled in this area. Finally, it should be noted that unhappiness with the costs or fees charged by the attorney does not necessarily mean that the charges were unreasonable. If the possibility of high costs was communicated to the client in advance, along with the amount and type of fee, the client's chance of prevailing at arbitration are slim.
Sometimes, as in personal injury cases, a client agrees to the fee and anticipated costs (e.g., for medical expert witnesses) and subsequently prevails at trial, but the verdict or award is less than anticipated. A good attorney may be willing to attempt to negotiate a reduced charge from the expert witnesses, along with some reduction in the attorney fee. However, the attorney is under no obligation to do either.
"Fact Sheet on Interest on Lawyers' Trust Accounts (IOLTA)." American Bar Association Commission on IOLTA. Available at http://www.nlada.org/DMS/Documents/IOLTA