The More Fee Agreements Change, the More they Stay the Same

In 1944, the Hennepin County Bar Association published its “Minimum Fee Schedule,” setting forth the permissible rates for various types of legal services. Although office consultations could be charged at the very reasonable rate of $10.00 per hour, minimum fees attached to lawyers’ charges, such as a minimum of $250 for appearing before the Minnesota Supreme Court, $100 minimum for preparing a bankruptcy petition and schedules, and 15% of the first $500 in a collection action. Estate planning, family law, and criminal matters are conspicuously absent from the schedule.

No “competent and conscientious lawyer” could go below the minimum fees without “incurring the temptation to slight his [sic] work . . . thus injuring his [sic] reputation” and “being unfair to his brother [sic] lawyers who are endeavoring to maintain proper standards of professional competency and diligence.”

Much about lawyers’ billing practices have changed in the last 75 years. Mostly gone are the days when a lawyer would send out an invoice listing fifteen or twenty tasks that had been accomplished in the past month, single-spaced with no paragraph breaks, followed by an apparently arbitrary dollar figure at the end. “Block billing,” as it is sometimes called, has been banned by insurers and corporate clients, even when all the tasks in question were completed on a single day. More common is that lawyers are expected to break out tasks and time separately or at least indicate within a paragraph of billing how much time has been devoted to each task.

And yet, despite the declaration in 1975 that fee schedules violated anti-trust laws,[1] few lawyers advertise their fees or attempt to compete with each other on price. Anecdotal evidence suggests that clients seeking to file a Chapter 7 bankruptcy or defend a DUI may price-shop by calling multiple lawyers, but one is hard-pressed to find an attorney’s website that states the lawyers’ hourly rates.

Flat fees. A 1994 Hennepin Lawyer article, titled “Is Hourly Billing Proper?” quoted a recent New York Times piece that declared “The billable hour as we know it is dead in the practice of law.”[2] Flat fees, contingent fees, and other alternatives would soon displace the odious hourly fee. Apparently, the future is not here quite yet. The Clio Legal Trends report for 2017,[3] which aggregated data on the tens of thousands of attorneys using Clio’s on-line practice-management software, showed that roughly 18% of lawyers used flat fees to bill clients, an amount that had not changed materially over the past five years. Flat fees tend to be used in the same areas of practice that have relied on flat fees for several decades: criminal law, estate planning, immigration, and bankruptcy work.

The problem here, if there is one, cannot be laid solely at the feet of lawyers. When pundits talk about how great flat fees are, they tend to overlook several factors. Hourly rates are a standard way of charging for time across our economy, from non-exempt hourly workers, to trades, to professional services. A large body of federal and state case law interpreting statutory attorney-fee provisions measures a lawyer’s work by the hour, with perhaps a lodestar applied to the hourly rate. Insurance companies have rigid rules for paying attorneys to defend cases, all based on hourly rates. The value of discharged attorney’s work in a quantum meruit claim on an attorney lien may be measured on an hourly basis.

At the same time, some lawyers are becoming more creative in designing fee structures to meet their client’s needs. These include blended hourly rates, fee collars, success fees, minimum fees, and fee caps. Contrary to popular belief, it is medium and large-sized firms, rather than solos and smalls, that have shown some of the greatest creativity in fee arrangements.

Costs. Photocopy and phone charges seem to have mostly disappeared from lawyers’ invoices. Charges for photocopies may be subject to sales and use taxes; few firms seem to want to go through the administrative burden of charging and reporting sales taxes for a few photocopies. The days of charging $1.00 / page for faxes printed on special thermal paper are, thankfully, long behind us.

Instead, one concerning trend is that some lawyers impose an “administrative fee,” typically between $100 and $250, to cover some of the photocopy, legal research, and other expenses they may incur but cannot otherwise recapture from clients. These administrative fees are fraught with ethical pitfalls. First, if the fee is intended as a flat fee that will not be placed in trust, then it probably must comply with Rule 1.5(b), MRPC, which means there must be a specific set of disclosures in the representation agreement. The Office of Lawyers Professional Responsibility strictly construes Rule 1.5(b), causing angst to many well-meaning lawyers. Second, if the representation ends prematurely, the unused balance will have to be refunded. It is not clear whether lawyers charging these administrative fees have contemplated how such a refund would be determined. Even if not clearly a violation of an ethics rule, I have seen questions about administrative fees prolong ethics investigations. The better practice is clearly to just incorporate any administrative costs into the lawyer’s hourly rate or flat fee for the representation, just like you do for the lights, the rent, Keurig cups, etc.

My prediction for 2044: attorneys will charge for their time pretty much the way they do right now.

(This article was originally published in the May 2019 issue of Hennepin Lawyer).

[1] See Goldfarb v. Virginia State Bar, 95 S.Ct. 2004 (1975).

[2] R. Curtin, “Is Hourly Billing Proper?” The Hennepin Lawyer 28 (May/June 1994).

[3] Available at (last visited Apr. 1, 2019).

A Family and Friends Plan for Your Law Firm

family dinner11 A Family and Friends Plan for Your Law FirmA family member or close friend calls you one day with a “quick” question. Seems she has a dispute with a neighbor or she just got denied a promotion or she needs to tell the renter of her duplex to stop smoking in his unit. She knows you are really busy but was wondering if you would mind looking into it or just writing a letter or making a phone call for her. She hates to bother you but she does not know any other attorneys and really needs some help with this problem.

So, do you agree to help? The answer differs for each attorney. Some swear against representing friends and family on the theory that no good deed goes unpunished. If the case turns sour, you lose the friendship or become a persona non grata at family get-togethers. Plead ignorance as to that area of the law, refer the matter out, and keep your nose clean.

Some lawyers, on the other hand, feel it is their obligation to help out a family member or friend. Remember when Joe helped you re-roof the garage? How about when Stacey brought your family meals for a week when your spouse was hospitalized? And you are unwilling to write a simple letter? Loser.

Basics. Let us say you decide to help this person. Keep in mind that regardless of whether she is going to pay you, she is your client. In fact, she probably became your client during the first phone call or the conversation in the family room during Thanksgiving dinner. She asked for legal advice and provided you with confidential information, you listened, nodded your head, made some noncommittal remarks, and did not give her any sign she should stop talking. She’s a client. Make sure you treat her like one.

Representation agreements. In most jurisdictions, ethics rules require representation agreements only for contingent fee matters or advance payment of availability or flat fees that will not be placed in a trust account. Nevertheless, a representation agreement is a good idea for all client engagements, including those you may do for free. Legal Aid and other pro bono lawyers always have their clients sign representation agreements. Even where no money is being paid, the client should understand the scope of the representation, what obligations the client has to cooperate with the lawyer, and how the client or lawyer may end the representation. This is no less applicable to friends and family (F/F) than it is to other clients. Signing a representation agreement also shows that you are taking the matter seriously and you expect the same from your clients.

Fees. If you do not charge the F/F a fee, you risk that if the matter becomes more complicated than you anticipated, you may become resentful that you are working for free, do a poor job, or let the case “mature” under a pile of files that do generate fees. Charging a fee, however, may give the impression that you are greedy and deserve to be the butt of lawyer jokes. See paragraph three, above.

One compromise is to agree with the F/F that you will provide them with several hours of legal services for free. After that first two or four or whatever hours, you will expect them to pay your bills. If your rate is $250 an hour, that is like giving them $500 or $1,000 right off the bat. Difficult for them to later say you did not treat them fairly when you gave them that much in free services.

You could be more elaborate and say that after the first four hours free, you will bill at one-half your rate for the next X hours, and then the full rate after that. However it is done, the idea is to convey to the F/F that your time is valuable, that they have to participate as well, and that you do not intend to make their very irritating case your life’s work unless they are willing to pay for it. Even if you would have felt guilty about charging your best friend for legal work, you are likely to feel less guilty after you have put in a number of hours free. The invoices also provide a permanent record of what work you did for them, which may help avoid recriminations later.

Getting out. Having an exit strategy is a particularly good idea when representing friends and family. Your personal relationship may lead you to get in deeper than you anticipated, with no good way to extract yourself once you are up to your hips in your client’s stuff. The time to think about getting out is at the beginning, when you are drafting the representation agreement. Think carefully about what the scope of your services will be and how to define when you will be done.

Confidentiality. Remember, no matter what happens, all of the information you receive during the representation of friends or family is confidential. No matter how badly it blows up, or how you are maligned in your circle of friends, or who whispers about you in grandma’s pantry, keep your mouth shut. No name-clearing, no setting the record straight.

Hopefully, if you take some of the steps outlined above, you will maintain long and happy relationships with your family and friends. At least that’s the plan.

(photo: toastforbrekkie)

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Watch out for ethics bumps in flat fees

stack of money11 Watch out for ethics bumps in flat feesAs alternative billing approaches go, flat fees have many fans. Clients like to know exactly what a particular legal service will cost and lawyers like to leverage experience they have gained in providing the same service to others. Sometimes a flat fee even lets a lawyer spend more time on a matter because there’s no concern that the client will feel the lawyer was trying to run up the bill by spending more time on legal research or clever drafting. Flat fees are also important for clients who are at a high risk of future nonpayment. 

The place where lawyers tend to get in trouble ethically with flat fees is when they want the fee to be both flat and nonrefundable. From a definition standpoint, calling a fee “flat� merely says what the amount will be and says nothing about when the client is expected to pay, when the fee will be considered earned, and what portion (if any) the client will get back if the client is unhappy or just decides the lawyer is ugly.

One way to handle the flat fee is to have the client pay the amount up front, put it in the lawyer’s trust account, and state in the representation agreement when the fee will be considered earned, so that the lawyer can take it out of trust and put it in the business account.  This works well for document-intensive projects, such as an estate plan or an incorporation. But even in a criminal matter the agreement could be that 25% of the fee is earned after the arraignment, another 25% after the omnibus, and the rest after trial, with all of the fee earned at any time a plea bargain is reached.

Most lawyers who use flat fees, however, see them also as a way of avoiding having to place funds in a trust account.  Of course, one could avoid trust account issues by having the client pay after the work is done, but getting the money up front is a key part of keeping a law practice afloat.

This is where the ethics problems start.  Traditionally, lawyers in many jurisdictions have only been able to accept a flat fee, payable in advance, and earned upon receipt (i.e. “nonrefundable�) if the fee was considered an availability retainer.  In other words, “I’m willing to take on your manslaughter case, but it could be such a big case that I will have to a) hire additional staff and/or b) turn down other business, so the only way I can agree to do this is if you agree that once you pay me my $50,000 fee, I won’t have to return it if you change your mind a month from now.�  In some jurisdictions, the Rules of Professional Conduct require that the lawyer make special written disclosures to the client about the non-refundable aspect of the fee and that the fee will not be placed in the trust account (if any portion was refundable up front, then it wouldn’t be earned, and it would have to go in the trust account). 

Inevitably, a client comes back a short time after paying the lawyer the fee, after very little work has been done on the case, and says that the client has changed his or her mind so they’d like a refund. The lawyer says, sorry that wasn’t our deal, and the frustrated client complains to the ethics authorities. 

Smart lawyers both follow the technical rules and give the client back some money.  Not-so-smart lawyers . . . well, they spend a lot of time trying to convince the ethics authorities that it was reasonable for the lawyer to charge a 5-figure fee for very little work.  At the end of the day, all fees must be reasonable.

In criminal, bankruptcy, and federal court matters, to name a few, it really can be difficult for a lawyer to withdraw once he or she gets started, and it can be challenging to figure out ahead of time how much work a case will require.  Availability retainers make sense if a lawyer focusses on one of these areas — some cases will be resolved quickly, some will go to trial, and hopefully it will all work out in the end. 

But for practice areas in which lawyers are typically paid hourly, the trend toward lawyers insisting on non-refundable retainers has been troubling to some ethics authorities. Lawyers sometimes take what would just be an ordinary retainer headed for the trust account, call it “nonrefundable� and both deposit it in the business account and refuse to return any money to the client who quits before the work is done. 

This isn’t something that keeps me awake at night.  Lawyers are very heavily regulated — when I remodeled my house, I wrote huge checks to a contractor, and there was no “trust account� in sight.  I think there’s very little risk that a family law attorney who takes a $3,000 retainer up front to start a divorce isn’t going to earn all of that money. But it’s also not fair to the client to set up the retainer in such a way that the lawyer can get paid for not working, especially if there’s no particular cost to the lawyer. Lawyers have to ask themselves if there’s a good reason for making the fee non-refundable, other than to avoid the hassle of using a trust account. 

So keep quoting those flat fees to clients. Just watch out for the ethics bumps.

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