How Much Are Attorney Fees, and How Do Attorneys Set Their Rates?

• Hourly billing is the norm for the legal industry, and it has been for quite some time. Today, most attorneys continue to bill at an hourly rate for most of their services. Under this arrangement, an attorney will typically collect a retainer up front, often ranging from $1,500 – $5,000. The attorney will then draw down from that initial retainer at his or her hourly rate. Many clients and legal industry analysts are wary of the hourly billing method, because it has the potential to cost the client significantly more than they might pay under other types of billing methods. For instance, if a client facing DUI charges pays an attorney a flat fee of $2,000 to take on the case from start to finish, then that client would have the attorney’s representation for that cost whether the case settled in two weeks, or went all the way to trial and lasted six months. However, if that same hypothetical client retained the attorney on an hourly basis, at say, $200/hour, then the client’s cost could be just a few hundred dollars if he took a quick plea deal, or it could be $5,000 or more if the case went to trial. The criticism of the hourly billing method raised by clients and industry watchers does have some legitimacy. Hourly billing can cause a bill to quickly increase, and this often does lead to numbers that can startle clients. However, there is still much to be said for the hourly billing model. The fact is, in most cases, hourly billing is the fairest, most efficient method of billing available, to ensure that the client pays for exactly what was received, and that the attorney receives exactly what he is entitled to for his work. To return to the above example, assume again that the DUI client had paid a $2,000 flat fee to his attorney.  If the prosecutor in that case offered a very attractive plea deal to the client soon after the charges were filed, it is conceivable that the case could settle with the attorney only putting in a couple hours of work. That would result in the client paying nearly $1,000 per hour, which hardly seems a fair result – even though the client knowingly signed up for that possibility. On the flipside, what may have looked like a straightforward case to the attorney at the outset, may later develop into something much more complex and end up going to trial, requiring the attorney to invest, say, 40 hours total into the case on interviews, research, investigations, trial preparation, hearings, and the trial itself. This would lead to an hourly rate of $50 for the case, which is far below the average rate of even inexperienced attorneys. So you see, flat-rate billing, while it does have some advantages, is loaded with the possibility that one party to the agreement will end up with the short end of the deal. It is very difficult to know, in some situations, just what a fair flat rate would be, and that is one reason why many attorneys tend to stay away from flat-rate billing on matters that carry some potential for complexity. Flat-rate billing can be beneficial to both parties, however, for routine matters which have predictable outcomes.

Contingency fees

• Under the contingency fee billing method, an attorney will not take any money from the client up front. Rather, the attorney will only take a certain percentage of the money that a client receives from a case. Contingency billing is most often used in personal injury cases, debt collection, or other types of cases where there is a possibility for the client to receive a financial award at the closing of the case. The contingency fee system is often a beneficial arrangement for both parties. For the client, it allows them to secure the services of a good attorney at little or no cost up front, and in most cases, attorneys operating under this billing method will collect nothing from the client if there is no recovery, so the client will owe nothing if they don’t receive a financial award. This is advantageous to most clients, because the costs and complexity of such case types would likely prevent some clients from pursuing the matters themselves. Attorneys can benefit under this type of fee structure, as well. Contingency fees reward hard work, efficiency, and results. These types of cases often result in the potential for huge paydays for the attorney. For those attorneys who are willing to take some risk and put in large amounts of work for the chance of a high pay rate, this arrangement works very well. Also, many attorneys are driven by the thought of being judged (and rewarded) solely on their results. If they put in the work and get a successful result for the client, they will often be rewarded handsomely, which can be very satisfying. If there is a downside to contingency fees, it is that they can take up a significant portion of a client’s ultimate recovery. Most contingency fee agreements call for the attorney to receive anywhere between 20% – 50% of any amounts recovered, plus expenses. This would mean that if a client were successful in a personal injury suit and got an award of $100,000, their attorney would be entitled to a fee of anywhere from $20,000 – $50,000 of that money, depending on the specifics of the agreement. The attorney would also be entitled to recoup their expenses incurred from pursuing the case. There is a good chance that if the fees for this hypothetical case had been set at an hourly rate, the attorney’s fees as a percentage of the client’s recovery would have been significantly less than under a contingency arrangement. However, many clients would not be able to afford the hourly rates of an attorney undertaking a personal injury claim, because the upfront amounts due could be considerable, and there would always be the possibility of no recovery at all. For these reasons, contingency fee arrangements are often a good fit for both parties in these types of cases.

Mixed fees

• Many attorneys are beginning to use mixed fee arrangements. Under this method, a client would start out at one fee structure, but if there is a “triggering event” in the case, then the client would be switched to another fee format. A good example is as follows: a client is charged with his second DUI. He finds an attorney he likes and decides to move forward with his representation. However, the attorney, after carefully reviewing the facts and evidence in the case, is unsure, so early in the case, just how it might play out. Is the evidence strong enough to support a conviction? If so, would the attorney be able to get a good plea offer from the prosecutor? If the evidence is weak or the prosecutor is unwilling to compromise, would a trial be necessary? These are unknowns that even the most diligent and experienced attorney might not know up front. For that reason, the attorney and the client could come to a mixed-fee agreement, whereby the client agrees to pay $1,500.00 up front, which will constitute a flat fee (i.e. the only amount that will be owed) as long as the case settles within three months. However, the attorney and client might further agree that, should the case go beyond three months, or should the case end up going all the way to trial, the fee arrangement would then shift to an hourly billing structure, with the client paying $225/hour for the attorney’s continued representation. This hybrid structure of billing is often a good fit for both parties, in those cases where the length and complexity of a case may be unknown, or the outcome unpredictable.

A final type of fee should be noted: the no-cost or low-cost fee. Many attorneys take advantage of opportunities to provide free or greatly-reduced services to clients in need. Attorneys may do this by participating in a local pro bono organization, or by simply offering pro bono services on their own to a certain segment or percentage of their clients. Attorneys may also take on cases for clients or causes that they strongly believe in, even though the probable rate of return might be very low. In any case, there is a good chance that numerous attorneys or organizations are offering high-quality, low-cost legal services in a client’s area, and it might be worth their time to seek out those opportunities.

How Fees/Rates Are Set

Attorneys may use any of several methods to set their rates. The most common, for those who use hourly billing, is to simply set a concrete hourly rate, and apply that to any case that the attorney takes on. Potential clients are informed of the rate during a consultation. Existing clients are also notified any time there is a change in the attorney’s billing rate, which may happen every 2-3 years. This is probably the most prevalent method for setting rates in the legal industry.

Another method is the use of menus, which attorneys build based on the type of service required. For instance, an attorney, based on his or her experience, may build a menu which articulates flat fees of $1,000.00 for guardianships, $2,500.00 for adoptions, $750.00 for custody modifications, etc. These fees may still be amended slightly to fit the specifics of any particular case, but such a menu at least offers the attorney a template from which to build, and a certain level of assurance that billing across cases is fairly equal and balanced.

Finally, some attorneys simply set fees based on the case in front of them. While this may seem haphazard or even unfair, in truth, it can often be the best way to offer the most adequate rate to the client. This is because each case is truly its own world, with its own complexities, challenges, and expectations. No two cases are alike. Therefore, it may be in the client’s best interest for a prospective attorney to look closely at the facts of their particular case, and make a reasoned judgment about fees, rather than to rely on a “one-size-fits-all” fee structure. The downsides to this approach, however, are its vulnerability to abuse, and the fact that it prohibits or limits upfront fee information to the client.

Finally, be mindful that attorneys must comply with the rules of professional conduct for their jurisdiction when setting their fees. While each jurisdiction is different, most of the relevant rules require that an attorney’s fees be “reasonable,” based on a set of parameters. The Indiana Rules of Professional Conduct (“IRPC”), for instance, hold that attorneys “shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses.” IRPC § 1.5(a). Some of the factors offered by the rule to help determine whether a fee is reasonable include the following:

• The time and labor required to undertake the case
• The fee customarily charged in the local area for similar services
• The experience and reputation of the attorney(s) involved
• Etc.

The legal consumer would do well to familiarize themselves with the relevant rules on fees for their particular jurisdiction, to ensure that any attorneys they are considering working with are in compliance.

How to Determine General Rates for a Geographical Area

If a prospective client were to seek out the fees of a large sampling of attorneys in their region, they would probably find it difficult to simply call up each attorney’s office and ask for rates, as can often be done with other services such as car repair or catering. Typically, law firms aren’t so generous in providing such information. That’s not necessarily due to manipulation or “hiding the ball,” but rather is a result of the fact that assessing a reasonable cost for most cases is very difficult to do without knowing many details about a particular matter. There are essentially two ways that a prospective client can get a good sense of the range of rates being charged in their area. The first – and more tedious – is to set up consultations with various local attorneys, and sit down with each of them personally to learn what they would charge for a matter. The downside to this is that it can be time-consuming and rather inefficient. The upside is that, if the client has spoken with four or more attorneys, chances are they are getting a very detailed and likely accurate range of the prices they would be working with in their area.

The second possible method to get insight on legal fee ranges is to use published tables. Several organizations, such as local bar associations, publish information on the rates charged by attorneys practicing in their jurisdictions. There is also a major index, known as the Laffey Matrix, which is used by many federal courts when determining what “reasonable” attorney’s fees are. The Laffey Matrix assesses legal fees specifically in the Washington, D.C. – Baltimore region. However, it is referenced by many analysts as a general guide to attorney fees in major cities across the nation. The Laffey Matrix can be accessed at www.laffeymatrix.com. The upside to using tools like the Laffey Matrix is that a client can get objective, unvarnished information on legal rates from a large sample size, and therefore get a good sense of overall rates in particular geographical areas. There are several downsides to using these types of charts, however. First, not all regions have such data or make it available, so a client – particularly one who lives in a rural area or small city – may not find such information available for their area. Second, tools such as the Laffey Matrix often focus only on large metropolitan areas. In the legal industry, there can be a sizeable difference in the rates charged by “big-city” lawyers vs. those of attorneys practicing in smaller or less-populous towns. Therefore, tools like the Laffey Matrix may not provide the best barometer for the range of rates in smaller areas. Finally, these types of tools often rely on samples or general surveys. This means that, while they may reflect the data for a large number of attorneys in a given area, these resources may not capture the full range of rates.

Summary

Seeking legal assistance from an attorney can be a mysterious and even daunting process for the inexperienced legal consumer. However, with a little research, patience, and some common sense, prospective clients can determine reasonable rates in their geographical area for their particular matter, and utilize that information to find the best attorney for their situation.

NOTE
All legal references are made with respect to Indiana law. Please check the laws of your local jurisdiction if you live in another state.
The articles in this blog are for informational purposes only. No attorney-client relationship is established through the publication of these articles.