Legal Fees: Ten Things Your Lawyer May Not Want You To Know
Americans spend over $100 billion in legal fees every year. Fees have increased at double the rate of inflation since 1990, and have shown no signs of slowing down despite a sluggish economy. While most of these fees are collected by ethical attorneys providing valuable, efficient services to their clients, many fees are paid after incompetent lawyering, purposeful padding of bills, ethical violations, or improperly coerced collections. This article provides ten tips for clients who believe their lawyer has over-billed them.
At first glance, the prospect of fighting your lawyer over the propriety of his fees may seem like a daunting task. You are likely to be dependant on your lawyer to represent your interests in ongoing matters. If the representation is over, you may feel compelled to pay outstanding bills, even if they are outrageous, since your lawyer is the last person you want as an adversary in litigation. You recognize that your lawyer possesses superior knowledge about the legal system that will determine any billing dispute. Even if the lawyer was an incompetent sloth in representing your interests, you figure he will probably turn into a 21st century "Matlock" if he has to collect his fees. Spending money on another lawyer -- assuming you could even find one willing to oppose another lawyer's fee request -- does not appeal to you. Finally, you may feel that the legal system will protect its own, and uphold the fee with little regard for the facts of your case.
For the client who receives an unreasonably high bill that is the result of unethical lawyering, waste or incompetence, these concerns can be overcome with a sensible, managed approach. There are steps you can take both during and after the engagement to communicate your concerns to your lawyer. Appropriate questioning of bills often leads to a mutually-agreed upon reduction, and can even strengthen the attorney-client relationship. Should all else fail, fee dispute litigation provides substantial relief from some relatively common examples of attorney overbilling, while protecting an attorney's right to a reasonable fee. Ten points for clients to consider:
- The Retention Letter Or Agreement Cannot Be Used To Justify An Unreasonable Fee
Lawyers will often refer to agreements they have with clients, typically drafted by the lawyer at the beginning of the engagement, as evidence that a client agreed to certain payment terms. For example, there may be agreement as to hourly rates, staffing, or contemplated courses of action. These provisions will be enforced, but only to the extent that the agreement is fairly negotiated, and the fee is reasonable under the circumstances. If either the agreement or the fee is later found by a court to be unfair, the court may either impose a smaller fee or disallow the fee in its entirety.
Courts recognize that clients seldom have the experience or the inclination to negotiate every detail of their engagement agreement. Lawyers have form agreements that clients typically sign with little or no explanation, much less negotiation.
In an effort to ensure that lawyers do not use superior experience or negotiating skills in drafting agreements with their clients, the Code of Professional Conduct and Responsibility that applies to all lawyers in New York State (other states have similar or identical codes) provides that an attorney "shall not enter into an agreement for, charge or collect an illegal or excessive fee." DR 2-106[A].
- Any Promises Made By A Lawyer To A Client Will Be Enforced
While promises to a lawyer may be reviewed by a court, promises to a client will almost always be enforced. Despite this, lawyers often tell their clients they are entitled to a "bonus" over the agreed-upon fee because the matter has become more difficult than expected or because of an unexpectedly favorable result. It is common for such a lawyer to "negotiate" the increased fee in the middle of an engagement. Courts and bar associations will review such "negotiations" for evidence that the attorney asserted improper leverage.
You should not feel compelled to pay your lawyer more than what you agreed to pay him. Of course, there is nothing wrong with paying the lawyer a bonus to reward work well-done, but this is the client's call.
- Diligence In Reviewing A Bill Can Save Money
Clients are best served by addressing a fee problem sooner rather than
later. Good and honest lawyers will explain why your bill says what it says. They will admit mistakes if warranted, and suggest ways to minimize costs without jeopardizing results going forward. If your lawyer is unwilling to discuss the bills, you should put your concerns in writing, and consider ending the relationship.
The downside of not raising billing concerns with your lawyer is substantial. You lose the chance to obtain a mutually-agreed upon reduction. The billing practice that offends you will no doubt continue. Finally, if the fee dispute ever gets litigated or arbitrated, your lawyer will claim that you consented to the disputed billing practice.
- Courts Have Invalidated Many Methods Of Attorney Billing In Recent Years
While a summary of the law surrounding legal fees is well beyond the scope of this article, a steady stream of state and federal court decisions in recent years have invalidated certain billing practices that are still relatively common. Some examples of billing practices often found to be improper:
- Overhead, administrative charges, and clerical services. Unless specified in the retainer agreement or other agreement, you should not have hourly charges for non-legal personnel such as photocopy operators, secretaries, messengers, librarians or receptionists. Nor should you be paying for heating, air conditioning or word processing;
- Time spent on billing and collections. For example, if you call your lawyer to discuss your bill, and you see that call reflected on your next bill;
- Bills that have not been itemized to reflect services rendered. If you are being billed by the hour, you have a right to a bill that shows what your lawyer was doing, and when he was doing it;
- Excessive time to complete a task. While this can be subjective, courts have not hesitated to use their legal expertise to declare work on a given matter to be excessive;
- Excessive staffing of a case or transaction. From a law firm's perspective, the more people billing, the better. Courts may evaluate a matter and determine whether the staffing was reasonable or excessive;
- Not enough delegation. Where a senior partner is billing at sky-high rates but spending a lot of time on routine legal work, such as preparing filings or reviewing documents, a Court may find that the bill is allowable, but at a lower rate;
- Evidence of double-billing. This is where a lawyer bills two or more clients for the same effort;
- Unannounced hourly rate increases;
- Time spent on training new lawyers, or lawyers unfamiliar with a certain field of law; and
- Undisclosed mark-ups on "contract" or "temp" lawyers hired by the law firm.
- A Lawyer Cannot Necessarily Quit Representing You Because Of A Fee Dispute
Lawyers will often threaten to withdraw from a case or transaction when a client misses a payment or two. The client than has two potentially unpleasant options - either pay the lawyer what is possibly an unreasonable fee or spend even more money to hire another lawyer and get the second lawyer up to speed for the representation. A savvy client may consider a third option - state a written objection to the reasonableness of the fee, pay some reasonable portion if warranted, and ask that the lawyer continue with the representation.
Lawyers do not have an automatic right to stop representing a client in the event of a fee dispute. Model Rule of Professional Conduct 1.16, which applies in New York and many other jurisdictions, permits a lawyer to withdraw if "the client fails substantially to fulfill an obligation to the lawyer regarding the lawyer's services and has been given a reasonable warning that the lawyer will withdraw unless the obligation is fulfilled." Since the client is only obliged to pay the portion of the attorney's fee that is reasonable, a lawyer cannot cease representing a client because of a client's refusal to pay an unreasonable or excessive fee.
Of course, if you believe you have been overbilled, you may wish to fire your attorney, or the relationship may be soured on both ends to the extent that it does not make sense to continue. However, keeping your lawyer may be preferable to trying to find another one -- the lawyer will have fiduciary responsibilities, malpractice exposure, and a duty of zealous representation as long as he represents you.
- A Lawyer Is Strictly Limited In What He Can Do To Collect His Fee
Like other businesses and professions, attorneys can take steps to collect accounts receivable. However, the lawyer's unique role as fiduciary and legal advisor subject him to more limitations on their conduct than other professionals.
A New York State ethics opinion prohibits lawyers from hiring a credit bureau to collect their accounts receivable. Moreover, a lawyer cannot use information learned during the course of the attorney-client relationship to apply pressure on a client for payment. Exceptions to this rule apply in attorney fee litigation and malpractice disputes, as the attorney can reveal information as necessary to defend himself or his fee. A lawyer is also prohibited from misleading the client into thinking that the lawyer's claim for fees will prevail in fee dispute litigation.
Lawyers frequently try to coerce payment by asserting an "attorneys' lien" on all or part of a former client's case file pending receipt of payment. Depending on whether the case or transaction is over, this can leave the client in the unenviable position of having to pay the fee to get much-needed papers for an ongoing legal matter. However, in practice a client operating in good faith has little to fear. If the client has a need for the documents in an ongoing matter, and a good faith basis for not paying a portion of the fee, lawyers cannot withhold critical papers. Even after the attorney-client relationship is over, the lawyer has a duty to assist in an orderly transition to replacement counsel to minimize prejudice to his former client.
- A Lawyer Has Many More Reasons Than A Client To Avoid Fee Dispute Litigation
This does not suggest that fee dispute litigation is fun for anybody. Both sides should seek to settle such disputes whenever possible. Clients should certainly avoid fee litigation where they do not believe they have a strong case, or the amounts in dispute are not worth the effort. Lawyers have a right to make a living. Clients also run a substantial risk of losing a fee dispute, and paying the entire fee plus whatever fees they incurred in the fee dispute litigation.
For lawyers, however, the stakes are much higher. A lawyer's professional judgment is at issue in every fee dispute case. Failure to collect a large legal fee can endanger the lawyer's standing in his firm and within the larger legal or client community. Fee collection claims often lead to ethical complaints, and counterclaims for malpractice, fraud, breach of fiduciary duty, or breach of contract. Even if a malpractice claim is weak the lawyer must ordinarily disclose the claim to his partners and malpractice insurer. It is often more palatable for the lawyer and the firm to strike a deal which allows them to collect some of their fee rather than go through the uncertainties of a court or arbitration process.
Nor should the client be overly concerned that the "system" will protect the lawyer. Given the legion of cases disallowing legal fees, it is hard to make the case that the system is biased against the client. Judges are former lawyers who often take a pay cut when they leave the business of law. To be sure, some judges will identify with the lawyers. Others will recall their greedy former colleagues and be inclined to favor the client. Most will simply preside over the case without prejudice to either side.
- Even If You Have Already Paid Your Lawyer, You May Be Entitled to Get Your Money Back
Fee disputes occasionally arise after the client has either (1) advanced money in anticipation of services to be rendered (often called a "retainer" or "advance") or (2) tendered full payment for legal services already rendered. In either case, the client is ordinarily entitled to receive his money back if the lawyer has charged an unreasonable fee.
Where money has been advanced in anticipation of future services, the lawyer is usually required to keep the money in a client trust account. The trust account money is considered property of the client in most jurisdictions. The lawyer has a right to withdraw the money after the fees are "earned" by the lawyer.
Client trust accounts raise ethical headaches for lawyers. If the lawyer/client relationship is terminated by either party, or the lawyer's services are completed before the advance is exhausted, the lawyer must refund the balance promptly to the client. If a fee dispute arises over money held in trust, lawyers should freeze the disputed funds in the trust account pending resolution of the dispute. These are tough rules to follow for a cash-strapped lawyer, and many ethical complaints arise out of the handling of client trust accounts. Just remember that it is your money unless and until legitimately earned by your lawyer.
As for cases where the client has already paid in full, the client can seek a refund if facts coming to light after the payment lead the client to believe that the fee was unreasonable. The client will probably not be able to obtain a refund if (1) the client had awareness of relevant facts and paid his lawyer, or (2) the applicable statute of limitations has expired.
- Any Unethical Behavior May Be Grounds For Total or Partial Forfeiture Of Fees
A lawyer is ordinarily not permitted to profit from unethical conduct that harms his client. This provides another ground for potentially challenging legal fees, even where the lawyer's fees are otherwise reasonable. If the ethical transgression is slight or not related to the fees charged to the client, courts are less likely to order a forfeiture of fees. Where the transgression is serious and has a closer nexus to the fees, partial or total forfeiture is likely.
As a client questioning the propriety of your bills, ask yourself the following questions:
- Did my lawyer lie to me at any point in the representation?
- Did my lawyer fail to explain how this matter would be billed?
- Did my lawyer reveal any confidential information to third parties without my consent?
- Was my lawyer conflicted in any way from providing me with appropriate representation?
- Did my lawyer disobey any of my lawful instructions (not including disagreements which were discussed and resolved)?
- Did my lawyer treat advance or retainer payments as his own funds, or otherwise misappropriate my property?
- Was my lawyer incompetent in his performance of legal services?
If you believe a "yes" answer is appropriate for any of these questions, and there is a lot of money involved, you should consult with another lawyer.
- Arbitration Provides A Cost-Effective Approach To Small Disputes
Many state bar associations now provide fee arbitration that streamlines the entire process so that the parties can obtain a judgment without the tremendous expenditure of time normally associated with commercial litigation. In New York State, the fee dispute arbitration program applies to all fee disputes except for criminal matters, where the contested fee is greater than $1,000 and less than $50,000. The program is voluntary for clients but mandatory for lawyers. Both sides have an opportunity to file a lawsuit after the bar association panel renders a decision. If neither side files a lawsuit within 30 days, the panel's determination becomes final.
These arbitration programs can save legal fees since discovery and motion practice are virtually nonexistent. In traditional litigation, or even other forums for commercial arbitration, legal fees can easily exceed $25,000. Therefore, in cases where a relatively small amount is in dispute, the bar-sponsored arbitration programs provide the best way for a client to contest a fee.
The downside of these programs is that many of them (including New
York's) limit their jurisdiction to fee disputes, and refuse to hear cases involving more serious allegations of attorney misconduct. The limited or nonexistent discovery can also be a negative, since courts would ordinarily allow clients to obtain relevant information from the law firm, including records that may be used to verify time entries or expenses, and attorney work product that the law firm has otherwise chosen to withhold. Finally, the proceedings are conducted in private, which at best makes it difficult to judge the fairness of the decisions rendered in those proceedings, and at worst raises the possibility that lawyers are protecting their own. For larger disputes, or disputes where the client has a valid malpractice or breach of fiduciary duty claim, traditional courts are the best option for a client.
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