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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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