hawkins parnell thackston & young llp ethical and practical consideration in alternative fee...

Hawkins Parnell Thackston & Young LLP

ETHICAL AND PRACTICAL CONSIDERATION IN ALTERNATIVE FEE ARRANGEMENTS

Susan E. EgelandHawkins Parnell Thackston & Young LLP

Atlanta Dallas Charleston Los Angeles San Francisco St. Louis


History of the Billable Hour

“A lawyer’s time is his stock in trade.”-Abraham Lincoln


Leading to the Billable Hour

• 1930 - State bars issue recommended/statutory minimum fee schedules

• 1960 – Bills for “services rendered” – and estimation of perceived value

• Mid 1960s to early 1970s – Anti-trust concerns, accountants and insurance carriers require more detailed information and a better way to track it. Thus the billable hour is popularized.


Alternative Fee v. Billable Hour

Perceived negatives of hourly billing:– Discourages attorney client communication– Discourages expedient resolution of cases– Based on work performed instead of value

obtained– Creates a conflict between attorney and client– Slave to the clock – Bad for the Profession


Can Alternative Fee Agreements Improve

Attorney Client Communication?


American Bar AssociationModel Rules of Professional Conduct

Rule 1.4: Communication

(a) A lawyer shall:

(1) promptly inform the client of any decision or circumstance [requiring] the client’s informed consent…

(2) reasonably consult with the client…

(3) keep the client reasonably informed…


AFAs and Attorney-Client Communication

• Process of creating AFA facilitates communication about expectations

• AFAs can set routine communication as part of an overall fee or pay as a line item

• Eliminate clock-watching by client

• Eliminate needless over-reporting


Can AFAs be used to encourage attorneys to expedite

litigation and other legal matters?



Rule 3.2: Expediting Litigation

A lawyer shall make reasonable efforts to expedite litigation consistent with the interests of the client.


Expediting Litigation

• AFAs can discourage boilerplate excess work

• AFAs can encourage attorneys to be efficient

• AFAs can expressly reward speedy resolutions


How can AFAs be used to ensure that clients get value for

the fees they spend?


THE VALUE EQUATION

VALUE = Result - Cost

Value is realized when a client’s expectations are met (or exceeded) at what the client considers a reasonable price. It is a

subjective assessment of the overall worth of a product or service.


Work Performed and Value Obtained

Task Time

Read opinion, report, and salient reliance materials;

6 hours

Collect and review published literature with differing view;

12 hours

Collect bias materials for cross; 3 hours

Depose witness in person with documents; 12 hours

Example #1: Attorney prepares to depose hazard communication expert


Work Performed and Value Obtained

Task Time

Read opinion, report, and identify new reliance materials;

2 hours

Update opposing literature; .5 hours

Depose witness by telephone; 2 hours

Example #2: Attorney deposes same witness second time


AFAs Reward Value Obtained

• AFA might pay less than hourly rates in some instances

• AFAs should reward expertise and encourage development and use of institutional knowledge

• AFAs should encourage best staffing practices


What do the rules of Professional Responsibility

require when creating the terms of Alternative Fee Agreements?


American Bar Association

Model Rules of Professional Conduct

Rule 1.5: Fees

(a) A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. The factors to be considered in determining the reasonableness of a fee include the following:


(1) The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;

(2) The amount involved and the results obtained;

(3) The time limitations imposed by the client or the circumstances;

(4) The nature and length of the professional relationship with the client;

(5) Whether the fee is fixed or contingent.


Creating Ethical AFA’s

• Time and Labor + Skill Required

• Consider the amount of work

• Consider the use of work product

• Consider the best staffing plan

• Consider the expertise of the team



• Amount involved + results obtained

• More risk = more reward

• Consider contingent component

• Consider bonuses for performance

• Consider refund for poor performance



• Whether the fee is fixed or contingent.

• Contingent fees can be created for any case

• Complete contingent fees based on results

• Contingent bonuses

• Hybrid – Hourly and Contingent fees


Do AFAs increase or decrease potential conflicts of interest

between Attorney and Client?


Conflicts of Interest

A conflict of interest is involved if there is a substantial risk that the lawyer's representation of the client would be materially and adversely affected by the lawyer’s own interests or by the lawyer’s duties to another current client, a former client, or a third person.


Inherent Potential Conflict?

• Will Client seek lowest cost per service?

• Will Client press for more work than necessary under AFA?

• Will Attorney seek higher profit margin?

• Will Attorney seek to avoid work that would benefit client?


ETHICAL ISSUES INHERENT IN THE TRIPARTITE

RELATIONSHIP

• Insured may second guess AFA where the fees are paid by a carrier

• Motivation by attorney to trim unnecessary work may be seen by insured as a reduction in service

• AFAs more workable where insured has Self-Insured Retention


What type of AFA will work best for the situation?


Fixed or Flat Fee

• Price charged for defined services

• Shifts some of the risk of costs overrunning to the law firm

• A total fee or segments of the service

• Useful where the litigation is most predictable

PRICE = BUDGETED VALUE


Model for Determining Appropriate Flat Fee For Individual Matter

• Based on ABA codes

• Customized by inputting rates, likelihood of reaching certain phases and whether the firm has experience with similar cases

• Experience in the area and trust in the relationship is key

www.hawkinsparnell/casetools/flatfeemodel

http://www.hawkinsparnell/casetools/flatfeemodel


Time and Talent Projection

• A detailed budget for tasks to be completed

• And the talent necessary to complete them

• Premised largely on the hourly rate system

• Provides predictability

• Can be separated by tasks

• Or based on a prediction of work


“Prediction is difficult, especially about the future.” - Yogi Berra


Budget With Risk Analysis


Contingent Fee

• Depends on results achieved • Price reflects different incentives for firm

and client• Useful where there is recovery of

damages • Useful where there is a quantifiable risk

that all can agree to

PRICE = RESULT x AGREED %


Shared Risk Contingent Fee

Claimed damage: $10,000,000Client’s estimated adverse verdict: $ 1,500,000

Settlement: $ 500,000Saved $ 1,000,000Less fees charged to date $

300,000Net savings $ 700,000

Contingent bonus = 700,000 X 20% = $ 140,000


Blended Hourly Rate

• One rate applies to all hours

• Rate usually negotiated by the client but can reflect weighted average of timekeepers rates

• Risk that firm may not use the high value/experienced attorneys - can be seen as reducing profit

PRICE = TIME x AVG (all rates)


WHAT ARE THE MAJOR ETHICAL RISKS OF ALTERNATIVE FEE

AGREEMENTS?



Preamble – A Lawyer’s Duties

[2]… As advocate, a lawyer zealously asserts the client’s position under the rules of the adversary system.


Do AFAs make you less zealous?

• Should I file the motion for summary judgment?

• Should I travel to New York for the deposition?

• Should I settle the case sooner rather than later so I can stop working on it?


“The best way to predict the future is to invent it.”

- Immanuel Kant, 18th Century Philosopher

hawkins parnell thackston & young llp ethical and practical consideration in alternative fee...

Documents

informed slide

louis slide

profession slide

attorney client communication

client slave

speedy resolutions slide

abraham lincoln slide

value equation value