Varied fee structures from the legal world

In the last column, we began discussing lawyer fees. For those of you who don’t have the foggiest idea where we left off, and for those unfortunate folks who a couple of weeks ago missed the only bargain in Teton county in several years — a 50-cent Jackson Hole Guide — I will recap the basic details.

Your next door neighbors have signed a contract to sell their house to a buyer who intends to use it for employee housing. You are a true Republican and all that stuff, but really this is more than anyone should have to bear.

You and your lawyer have spent some time exploring your legal options, and now it’s time to talk turkey: what is this project going to cost? The answer to that question is largely determined by the method of billing to which you and your lawyer agree. What are the possibilities?

The primary choices are: contingent fee, modified contingent fee, hourly billing, blended hourly rates, fixed or flat fees, and unit or task-based pricing.

We have already determined that a contingent fee arrangement will not work because it is based on the winnings from a case, and in this case you are seeking to protect the integrity of your neighborhood rather than money. What about a modified contingent fee? The answer is no, and for the same reason.

A modified contingent fee agreement has two components: a substantially reduced hourly rate, coupled with a contingent payment if the matter has a happy ending. The contingent payment is generally based upon a percentage of the amount recovered.

This arrangement may be more attractive to your lawyer because it is not an all-or-nothing proposition, as it is with a contingent fee. Your lawyer will be partially compensated for her substantial investment of time working on your case, even if the matter is not successfully resolved. The advantage to you is that the overall fee will be less if there is a happy ending than it would be if based on the usual contingent fee arrangement.

In our case with the next door neighbor, since the goal is not the pursuit of money, but rather the preservation of your peace of mind (and your property value), a modified contingent fee agreement is not a suitable billing choice.

What about a fixed fee or flat fee? This method involves you and your lawyer agreeing on a firm price, and the terms of payment, at the beginning of the process. The advantage to the client is that he or she can budget for the expense. It is frequently used for drafting a real estate contract or a warranty deed, incorporating a business or forming a limited liability company, which is all the rage among accountants and lawyers.

The fixed fee is also a common billing method for drafting wills and trusts. Now, this is an area of the law that attracts the best and the brightest, and for good reason. I have never done a living trust, and I am not an expert on the subject, but it seems to me that the only serious deadline involved in drafting living trusts is to make sure you get the job done before the client dies.

I would be in a continual state of bliss under that kind of pressure. Not only do the lawyers who do estate and trust work get paid handsomely, but their clients actually like them too, because they save them millions of dollars in taxes and only charge them thousands for doing it. And it seems to me that the best part when you do this kind of work is that, heaven forbid, if you make a mistake in a will or a trust, by the time anyone finds out, everyone is long dead and the lawyer’s kids have retired to Costa Rica and spent all the inheritance anyway. Trust me folks, my children will never have to worry about carrying that burden.

Will a fixed fee work in our case with the next door neighbor?

Probably not. A fixed fee is generally based upon your lawyer’s estimate of the time involved in the project, or based upon the preparation of documents that the lawyer frequently uses and generates with predictable efficiency.

In our case it will be difficult, if not impossible, to estimate the amount of time your lawyer is likely to spend in attempting to resolve the matter to your satisfaction. The lawyer will be dealing with many circumstances beyond her control which she may, or may not, be able to influence. A fixed fee is simply not practical or realistic in your case.

A variation on the fixed-fee concept is unit or task-based pricing.

The lawyer and client may agree that the lawyer will undertake certain tasks with respect to a project, and compensation shall be paid for each task performed. For example, the lawyer and client may agree that the attorney will be paid a certain amount for investigation of the case, then a certain amount for the initial work on the lawsuit, then a certain amount for settlement negotiations, and so on. The key ingredient in this process is the ability to accurately project the amounts of time involved in each step, and so in our case with the neighbor, it may be equally as impractical a billing method as the fixed-fee arrangement.

In the next column I will discuss hourly billing and the ethical considerations involved. That, by the way, is not a mistake; I meant to write the word ethical in the same sentence as hourly billing. I will also discuss retainers, reimbursement of costs, fee disputes, and whatever other related subjects and irresistible comments I can cram into the column before the editors cut me off.

Share this on...Share on FacebookTweet about this on TwitterShare on LinkedInShare on Google+Email this to someone