Chapter 7: Fees & Client Funds
Terms in this set (50)
What are the most common billing methods?
1) Fixed Fees
2) Contingency Fees
3) Hourly Fees
Fixed Fees (set amount)
(Flat Fees) Usually for routine legal services where the length of time is known. Client is paying for expertise & time expended. Includes filing a default divorce, forming a corporation, & handling a wage-earner bankruptcy.
What is an example of a variation of a fixed fee?
One based on the percentage of the worth of the matter, either by statute or by type of practice.
What is an example of a fixed fee?
In probate law where the fee is collected based on the value of the estate according to statute.
Based on % of the recovery in a case. Risk. Typical for plaintiff's lawyers in a civil litigation case. This is good for those who cannot afford legal aid.
Why aren't contingency fees allowed in criminal cases?
Because they're thought to encourage corruption & discourage plea bargaining. ABA rule 1.5(d)(2)
Why are contingency fees prohibited by most jurisdictions for marital dissolution, divorce, & separation cases?
They are thought to discourage reconciliation & settlement. Legal services may not even be needed, yet the court could award attorney fees to the spouse w/o the means to pay them.
What is the federal law max contingency fee?
20 or 25% depending on the case
Are contingency fees required to be in writing?
Yes & also signed by the client
Are contingency fees subject to judicial scrutiny?
Yes if the % seems to high for the work
Why would a client arrange for a contingency fee?
To encourage the lawyer to win or settle for the $
Typical fee for PIP claim
Most common in matters other than civil litigation on the plaintiff side. 90% of lawyers charge by the hour. Based on expertise & complexity of services, as well as the market in the area.
Lawyer average hourly charge?
$130-1500/hr. For paralegals $50-200/hour
Why have many law firms moved away from hourly billing?
Increased efficiency through specialization & technology. Firms want to be compensated for value, not time. Also, time encourages dishonesty with long & ineffective working hours.
Alternative Fee Arrangements
1) % of transaction value
2) premium for achieving results that benefit client
3) fixed fee that reflects value of result>time
4) capping of fees, discounts for major clients, average rates, contingency fees for defense clients, etc
Clients charged an agreed-on flat rate for specific functions/tasks
Guideline 8 of the ABA Model Guidelines
Lawyers may charge for paralegal services
What state prohibits nonlawyers from receiving fees for providing legal services?
In what state are paralegals not allowed to directly collect fees from clients?
What fees are prohibited?
Those that are illegal (exceed statutory limits or for illegal purpose), excessive, unconscionable, or unreasonable.
Factors used to determine if a fee is unethically high:
1) time/labor, skill required, & difficulty of issue
2) if the work will prevent the lawyer from doing work for other clients
3) the fees others charge for similar work
4) amount involved & results
5) client imposed time limitations
6) nature/length of relationship w/client
7) reputation/expertise of lawyer
8) if fee is fixed or contingent
ABA Model Rules 1.5 (1-8)
Most important factors in determining if a fee is unethical?
Time & client's understanding of the fee agreement
Billing fraud or abuse:
Inflating time spent on hourly fees
What improper billing practices have come as a result of the pressures to bill?
Double billing, billing full rates for recycled work product, overbilling, overstaffing by sending 2+ lawyers to hearings unnecessarily, billing for overhead costs, padding hours, doing unnecessary work, & excessive time that isn't needed.
Abuses highlighted in ABA formal ethics opinion
Doublebilling, surcharges (photocopying & computer searches), & full disclosures when agreement is made & when client is billed
Stating several tasks with one hourly amount
NFPA Model Code Canon 1.2
Advises paralegals to prepare thorough & accurate/honest work
ABA Rule 1.5
Says lawyers should communicate agreements with client preferably in writing
Are paralegals prohibited from setting the contingency fee?
Yes, they are also not allowed to establish the attorney-client relationship
What must written fee agreements cover?
1) Scope of firm's services
2) Responsibilities of the client & firm
3) Details determining the method of fee
4) Rates (if hourly) of potential billers (such as paralegals)
5) Costs client is to pay & by when
6) Termination rights/responsibilities of both parties
7) Method + time of fee payment
8) Procedure for & frequency of billing
Nonrefundable fee paid at the commencement of agreed-on work to ensure the availability of the lawyer to handle certain issues.
Fee paid for legal services in advance. Is refundable if not earned.
Where can funds be deposited?
Advances: client trust account until earned
Retainers: directly into firms opening account
What direct expenses are clients expected to pay?
Filing fees with courts & gov bodies, transcripts of depositions & trials, expert reports/testimony, travel expenses, outside printing/messaging
ABA Formal Opinion 338 (1974)
Lawyers can accept payment via credit card as well as financing with a bank
Law that allows a court to award attorney's fees to one of the parties. Typically award fees to prevailing plaintiffs not defendants.
Enable plaintiffs who can't bring an attorney to get one in order to vindicate their rights.
Missouri vs. Jenkins
Upheld an award of attorney fees that included compensation for paralegal time under the federal civil rights statute. Paralegal fees as part of attorney fees awards. Included paralegal fees at MARKET RATES.
Some courts have disallowed fees for paralegal time to bankruptcy trustees, who are entitled to compensation which is capped.
"In re Jenkins"
Bankruptcy courts may award compensation for trustee duties performed by paralegals employed by the trustee, so long as the compensation does not exceed statutory cap.
What docs are supplied to a court if seeking paralegal fees?
-Credentials & expertise
-Detailed descriptions of work to make sure they aren't just clerical work
-Data on firm & market practice/rates
Can a court allow a firm to use blended rates in its request for fees?
Reduced Fee Awards
When the work billed at attorney rates could have been done by a paralegal
When does the ABA Model Rule 1.5(e) permit splitting fees amount lawyers not of the same firm?
1) Division is in proportion to services or the client agrees in writing & lawyer assumes joint responsibility
2) Client agrees to arrangement
3) Fee is reasonable
If they involve nonlawyers they are prohibited. All states prohibit these fees paid to nonlawyers & prohibit fee splitting b/w lawyers + nonlawyers.
Exceptions to fee splitting
Lawyers to pay for the purchase of the practice of a deceased, disabled, or disappeared lawyer & for the lawyers to share court-awarded fees w/a nonprofit corporation that retained/recommended the lawyer.
They cannot be compensated directly for a case, but for the overall profitability of the firm
Partnerships with non-lawyers
ABA Model Rule 5.4(b) prohibits this because it encourages UPL
Why do lawyers hold client funds?
Accounts may contain estate or trust distribution, funds to be distributed at a real estate closing or on settlement of a matter, advance fees, & awards for the attorney.