Legal Fees and How They Are Charged — An Overview

While most businesses pay for their lawyering by the hour, most consumers simply can’t. Given the time required to take a case from start to trial, hourly-rate billing is cost-prohibitive in most would-be cases. This hard reality has led to the development of alternative fee arrangements, all of which have their own limitations and their own sometimes perverse systems of incentives and counter-incentives.

Consider “flat fee” representation. Here the lawyer typically agrees to charge a flat fee for taking a case from start to finish, whatever that finish might be. Flat fees are most commonly charged in criminal cases for the simple reason that criminal defense attorneys learn very early in their careers that criminal defendants can’t usually be trusted to pay their promised fees over time.

In a flat-fee case, the lawyer’s financial incentives are to (1) charge a large enough overall fee to cover all anticipated work (payable in advance of course); (2) avoid client phone calls (which consume attorney time without adding to the lawyer’s bottom line); and (3) resolve the case with as little time expenditure as possible in order to maximize profits. Flat fees in criminal cases tend to range from a low of perhaps $10,000, to highs in excess of $100,000. Generally, it is only a criminal defendant facing a possible jail sentence who has a story of desperation sufficient to pull enough favors from enough family members to afford this kind of fee. But once the fee is paid, the lawyer is in the case from start to finish, and has incentive to look for ways to get the case resolved, preferably by plea bargain, and preferably without trial, unless there is no other option.

In civil cases, lawyers tend to be more reluctant to charge flat fees because it is extraordinarily difficult to predict how much time a case will consume. In a criminal case, the state’s position on plea and sentence is driven by professional prosecutors who know the likely outcome of the case in front of the particular judge assigned to the case, and who, because they are representatives of the state rather than parties whose personal interests are at stake, tend to leave their emotions out of the plea negotiations. But in a civil case, the ultimate decision-making is driven in large part by the plaintiff and the defendant themselves, who bring to the case their own emotions, their paranoias and, because of their lack of experience with lawsuits, their often unrealistic expectations.

The defendant in a civil case almost always fights to expend as little as little as possible of his or her nest egg in settlement of the case, while the plaintiff fights to take as much of that nest egg as possible. All of these details complicate and confound the potential for an early and reasonable settlement. And whenever a case is not settling, it is costing the parties more in attorney time. In a civil case, the attorney has to assume that either or both parties will be unreasonable in their assessment of the case and its settlement value, and that, because of this, the case may be litigated aggressively all the way through trial, rather than settled early based upon a reasoned and realistic assessment of its strengths and weaknesses.

So, in civil cases, flat fees are the exception rather than the rule. Unless the attorney is reasonably certain that there is a pot of gold at the end of the rainbow (more on that later), the attorney will usually ask for an up-front retainer of perhaps $5,000 to $50,000 or more (against which the attorney will charge his or her time at standard hourly rates), and usually with the warning that the attorney will have to withdraw from the case if the client does not pay additional retainers when the first retainer is exhausted. In this arrangement, the client is often at the mercy of both the system and the attorney. If the client’s attorney or the other side’s attorney refuses to move the case forward or decides to sidetrack the case in expensive motions, the initial retainer can be used up quickly, often without any measurable progress toward a conclusion of the case. The same can happen with the second retainer, and so on.

This sort of retainer-against-hourly-fee arrangement can become unaffordable for the average individual. Most defense attorneys know that, with the result that legal fees can become the primary driver of a party’s litigation strategy — i.e. the tail that wags the dog.

Delaying motions and petitions are a matter of course, and judges have grown to expect them, regardless of whether those motions and petitions have merit. “The side effect of judges expecting these motions is that judges often don’t bother to punish the filing of these motions and petitions when they don’t have merit. And each time a defense attorney files such a motion or petition, the attorney does so knowing that it is costing the plaintiff a few thousand dollars more, making it less and less likely that the plaintiff will be able to afford to actually get the case to trial, all while knowing there is no downside to these delaying tactics.

So, in the lawyers’ world of incentives and disincentives, rewards and punishments, the scales tip in favor of pushing the limits and, when necessary, exhausting an opponent’s resources before a case ever gets to trial. The rules of ethics to which lawyers are bound give lip service to prohibiting lawyers from pursuing claims or defenses “unless there is a basis in law and fact for doing so that is not frivolous.” (Consider how “not frivolous” is not necessarily the same thing as “meritorious”.) The same rules also require lawyers to “make reasonable efforts to expedite litigation consistent with the interests of the client.” (Consider the wiggle room afforded by the phrase “consistent with the interests of the client.”)

But there are some kinds of cases where the lawyer doesn’t need to charge an up-front fee. There are in fact cases where the lawyer doesn’t need to ask the client to ever pay anything out of pocket. Think of the commercials you’ve seen for “the accident lawyer,” or with tag lines like “problems with transvaginal mesh?” or “if you’ve been injured in a slip and fall, call me.” These lawyers do not charge flat fees; they do not charge by the hour. They charge on a “contingent fee” basis, where the client pays nothing up front, and the lawyer’s fee is a percentage of the gross amount ultimately recovered from the defendant, typically 33.3 percent to 40 percent. There are plenty of lawyers and law firms throughout the United States whose entire business model is built on such “contingent fee” representation, where the plaintiff pays nothing at all unless and until the settlement or judgment has been received.

The contingent-fee arrangement would seem the perfect solution to exorbitant hourly rates. So why don’t more lawyers take cases on a contingent-fee basis? Parts of the answer are simple. Some cases, like property boundary disputes and claims for injunctive relief, aren’t really about money, so there won’t be a cash settlement or judgment at the end of the case, and so there also won’t be a fund against which the lawyer can charge a fee. And of course, if the client is the defendant, as roughly half of all litigants are, there will be no money coming in to the client at the end of the case. The defendant’s ultimate goal will not be to collect money, but to prevent money from going out to an undeserving plaintiff.

The rest of the answer is also simple: insurance. A plaintiff’s lawyer is far more likely to take a case on a contingent-fee basis if s/he knows that the defendant has insurance to pay the ultimate settlement or judgment. With insurance behind a settlement or judgment, the insurer typically pays up not just voluntarily, but also quickly. Without insurance to back up the defendant, the plaintiff’s settlement or judgment might never be paid, and plaintiffs’ attorneys know this. Why? Because judgments are not self-enforcing. Without insurance behind the defendant, winning a judgment is only half the battle, and often the easier half. As the saying goes, “you can’t get blood from a stone.” So, if a defendant has no assets and the judgment is not insured, then the plaintiff will not be able to easily recover on that judgment. These details are part of any lawyer’s deliberations in deciding whether to take a case on a contingent-fee basis.

In the end, many if not most legally solid cases never get filed, either because the lawyer’s hourly billing rates place legal services out of reach of the average consumer or because the case isn’t big enough to justify the lawyer’s expenditure of time. And in the end, a lawyer will prefer a legally weak case if there are big insurance dollars at stake. But each case must be examined and considered individually on its merits. A good lawyer will have experience with understanding the likely costs of a particular lawsuit and will be able to steer you in the right direction.

Bruce L. Baldwin, Esquire is a partner in the law firm of Wolf, Baldwin and Associates, P.C., with offices in Pottstown, West Chester, and Reading, and has represented employers and employees in business matters and litigation for over 30 years. He may be reached by calling 610.323.7436, or by e-mail at BBaldwin@wolfbaldwin.com.

like0