1 chapter 6 legal fees. types of legal fees 2 retainer hourly flat contingency statutory combination
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Chapter 6
Legal Fees
Types of Legal Fees
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RetainerHourlyFlatContingencyStatutoryCombination
Ethical Limits of Legal Fees
Fees must be reasonableFees must not be unconscionable
Reasonable Fee Factors
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Experience, reputation, and ability of the lawyers
Novelty or difficulty of caseOther Employment OpportunitiesAmount Involved and Results
ObtainedTime and Labor RequiredClient’s informed consent to the feeCustomary FeesProfessional Relationship with Client
Types of Retainer Fees
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True RetainerNonrefundable ChargeableNonrefundable Nonchargeable
Refundable Chargeable
Hourly Rate FeesFees 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
Blended Hourly Rates
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Blended hourly rates are an average of each timekeeper’s hourly rate
Attorney $300 per hrAssociate $200 per hrParalegal $100 per hrTotal $600
$600 3 = $200 per hr
How to Determine Hourly Rates
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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
Another Methodto Determine Billing RatesDetermine estimated total overhead
and profit for firm for one yearDetermine 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 yearAdjust the rate, the number of hours
or amount of overhead and profit
Contingency FeesFee is dependant or “contingent” on the
outcome of the caseCan be used is variety of cases but most
common in Personal injuryCollectionMalpractice
Ethical restrictions in Domestic Relations and Criminal Cases
Contingency Fee Statutory Requirements:
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Fee agreement must be in writingMust include how costs are determinedSpecial Rules for MICRA Actions
Must use net recovery method Limits on costs that may be charged
Medical care and office overhead not deductable
Calculating a Contingency Fee
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Gross Fee Method
Judgment $15,000Attny’s fee (1/3) - 5,000Subtotal $10,000Costs - 1,000
Total to Client $9,000Total to Attorney $6,000
Net Fee Method
Judgment $15,000Costs - 1,000Subtotal
$14,000Attny’s fee (1/3) - 4,667
Total to Client $9,333
Total to Attorney $5,667
Variations on Contingent Fee ArrangementsPercentage increase at various times in the
caseSliding scale – fee decreases as recovery
increasesReverse contingent fee for defense
Based on the amount the client savesCombination of hourly rate and contingent fee
Client agrees to pay hourly rate – may be reduced rate
Attorney entitled to a percentage of the recoveryClient may be entitled to credit for fees paid
Reverse Contingency Fee
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Based on the difference between the amount at issue and the amount of final recovery
Used by defense firms
Amount of potential liability: $500,000Amount of recovery: $200,000Fee: 1/3 of savings: $300,000
= $100,000
Contingency/Hourly CombinationClient agrees to pay firm hourly at $200 per hourClient 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 $1,000,000Attorney’s fee = 1/3 of $1,000,000
$333,333Less: Hourly fees paid
35,000Net Fee to Attorney $298,333
Types of Fixed or Flat Fees
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Per Case Per Service Fee covers the services regardless of outcome Typical for routine services
Estate planning, corporate formation criminal, divorce, bankruptcy
Determining Flat Fees
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Factors considered are the:Time it takes to complete a caseTimekeeper’s hourly rate
Attorneys time 1 hr. @ $200Paralegal’s time 3 hrs. @ $100 = $300$200 + $300 = $500
The flat fee should be $500
Statutory Fees
Fees are set by a statuteMost common statutory fees
Probate CasesAlso, attorneys fees that can be charged in
default judgmentsSet forth in local court rules
Statutory Fees – California Probate Code
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4% of the first $100,0003% of the next $100,0002% of the next $800,0001% of the next $9,000,000½% of the next $15,000,000Over $25,000,000 – reasonable fee determined by the court
Calculation of Probate FeesEstate is determined to have a value of
$5,000,000Fee calculated as follows:
4% of first $100,000 = $ 4,0003% of next $100,000 = $ 3,0002% of next $800,000 = $ 16,0001% of next $4,000,000 = $ 40,000
Total statutory fee = $ 63,000
Combination Examples
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20% contingency plus $150 an hour Hourly billings may be credited against recovery
$1,500 flat fee plus 25% contingencyNonrefundable (true) retainer plus hourly billings33 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
Firms also Charge for Costs Advanced
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Filing FeesExpert witness
feesDeposition costsAppraisal feesPhotocopiesTravel and meals
FaxesLong distance
telephone callsPostageSuppliesOutside services
Other Fees and Charges
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SecretariesClerksMessengersTemporary employeesFixed percentage of monthly fees for “overhead”
Lodestar and Multipliers
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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
Types of Liens
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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 lienOther Lien - Promissory note secured by a
deed on the client’s real property Ethical issues
Paralegal Ethics
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Paralegals may not set fees.Paralegals should not quote fees.Attorneys cannot share fees with
Paralegals.
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Chapter 7
Timekeeping
Hours are Placed in Two Categories
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Billable hoursDirectly applied to clients’ matters
75% to 85% of the dayNonbillable Hours
Not applied to clients’ matters.2 types exist: creditable and noncreditable
Creditable Nonbillable HoursServing on law firm
committeesPro bono workManagement
functionsAdministrative tasksTraining
Nonbillable Hours -
Noncreditable5%
Billable Hours80%
Nonbillable Hours -
Creditable15%
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Noncreditable Nonbillable HoursEducational activitiesPersonal mattersAssociation work
Nonbillable Hours -
Noncreditable5%
Billable Hours80%
Nonbillable Hours -
Creditable15%
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Tenths of an Hour
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1-6 minutes .17-12 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
Seven Purposes of Time Records
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Billing clientsRecovery and justification of feesCompensating hourly employeesCalculating employee productivityFirm planningMonitoring “Work in Process”Projecting profitabilityForecasting income
Time Sheet Information
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Timekeeper’s nameDateFile nameClient name or numberFile numberAmount of time expendedDescription of work
Time Sheet Entries
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Not DescriptiveReview file
Conference w/attorney
Telephone call
Research
Worked on computer
DescriptiveReview answers to
interrogatoriesConference
w/attorney re trial notebook
Telephone call to client re deposition
Research fraud issues on breach of contract
Inserted discovery responses in discovery database
Work Description Codes
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C/W Conference with
CT Court trialCH Court hearingD1 Draft pleadingsD2 Draft
correspondenceD3 Draft
memorandumD4 Draft otherDP DepositionN/C Nonchargeable
P Preparation of R ResearchR1 Review pleadingsR2 Review
correspondenceR3 Review
memorandumR4 Review otherRV Revision ofTC Telephone
conference
Billing ProcessTimesheets/records prepared by
attorney/paralegalData entry into time and billing programPre-bill generated for reviewFinal bills generatedManagement reports generated and mailed
Aged accounts receivableAttorney/paralegal productivity reportsCase type productivity reports“Work in process” reports
Time Records in Contingency Cases and Other Types of Fees
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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 CasesFlat Fee Cases
Corporate Legal Departments Use Time Records
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Bill “clients”Management reportsJustify additional staff and budget increases
Court-awarded legal fees
Government Legal Offices Use Time Records
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Management reportsProvide statisticsPrepare budgets
Paralegal Timekeeping Ethics
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Do not bill clients for work not performed
Do not “pad” time sheetsDo not double billRemember: It is the supervising
attorney’s responsibility to make the decision to charge or not charge a client.
Timekeeping Tips
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Keep a time sheet handy Record the largest amount of
timeRecord the time when it is spentDo NOT estimate timeBe accurateBe descriptive and conciseRecord all time including
nonbillable timeDevelop To-Do lists
Computerized Time AccountingThere are many time and billing computer
programs available specifically for law firms.
SaaS – Software as a ServiceApplications are hosted by a vendorMade available to customers via a networkVendor provides technical operation,
maintenance and supportVendor charges a monthly fee
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