Vail Daily column: How lawyers charge
How do lawyers charge?
Let’s get this off the table right away. The answer is not “willy-nilly” nor “however he damn well pleases!”
In fact, pursuant to Rule 1.5 of the Rules of Professional Conduct, by which all Colorado attorneys are bound, “a lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses.” When, then, is “reasonable”?
According to the Rules of Professional Conduct, the factors to be considered in determining the reasonableness of a fee include:
• The time and labor required;
• The novelty and difficulty of the questions involved
• The skill requisite to perform the legal service properly.
What else may go into consideration of the reasonableness of an attorney’s fee is:
• The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
• The fee customarily charged in the locality for similar legal services;
• The amount involved in the controversy and the results obtained;
• The time limitations imposed by the client or the circumstances;
• The nature and length of the professional relationship with the client;
• The experience, reputation and ability of the lawyer performing the services;
• Whether the fee is fixed or contingent.
Also required under the Rules of Professional Conduct is the stricture that when a lawyer has not regularly represented the client, the basis or rate of the fee and expenses shall be communicated to the client, in writing, before or within a reasonable time after commencing the representation. Although most representation agreements are signed by the attorney and request the client’s acknowledgement and signature, there is nothing in the rules requiring that the client sign; it is sufficient if the basis for the fee is “communicated in writing.”
There are three basic ways attorneys charge for their services: hourly, on a project basis, or based upon a contingent. In certain areas of the law – divorce, for example – an attorney may not charge on a contingent fee basis. Most attorneys also charge for some or all of their “costs” associated with such representation.
Most commonly, lawyers charge for their services on an hourly basis. “Hourly” is precisely what it sounds like. The lawyer charges a stated hourly fee which he charges for every hour or fraction of an hour spent in your representation. The hourly fee is generally charged on either a tenth-of-an-hour or quarter-hour basis. Lawyers fees generally include all time spent in representing your matter including telephone calls, meetings, drafting letters, pleadings and other documents, reviewing files, travel and court-appearances.
Increasingly, at least some lawyers charge fees based on a fixed price or project basis. This may come in two general “flavors.” “Fixed fee” arrangements are ones where a lawyer agrees to take on a certain matter for a flat rate. The flat rate does not generally include the attorney’s associated reimbursables or costs. Most commonly, fixed rate arrangements are found in “predictable” matters. For example, a number of attorneys charge a fixed rate for entity formation (LLCs, S-corps, and the like), will production, and common criminal defense matters.
Contingent fees are ones where the lawyer “gambles” with the client on the outcome of the client’s matter. Most commonly, contingent fee arrangements arise in personal injury, medical malpractice and similar types of cases.
In a contingent fee arrangement, the attorney agrees to represent the client in exchange for payment to the attorney of a stated percentage of the ultimate settlement or award. Commonly, the attorney charges 33 percent of the amount received in settlement before trial. If the matter goes to trial, the percentage often slides up, often to the range of 40 percent. If the matter is appealed, the percentage basis may slide up further, at times to 45 or even 50 percent of the ultimate award. Obviously, for a contingent fee arrangement to make sense to the attorney, he must be confident that the client’s claim will likely prevail and the claim must be sufficiently large to adequately compensate the attorney for his time invested in the client’s representation. From the client’s perspective, contingent fees often make sense because, absent such arrangement, the client might not otherwise be able to afford to support the litigation. Most often, only the lawyer’s fee is “deferred” pending the outcome of the dispute and the client will still be bound to pay expenses as they arise.
Generally, attorneys ask for, and are entitled to receive, retainers. A “retainer” is a “reserve” held by the attorney. Under the Rules of Professional Conduct, fees are not earned until the lawyer “confers a benefit on the client” or “performs a legal service for the client.” Advances of unearned fees remain the property of the client and are to be deposited in the lawyer’s trust account until earned.
Non-refundable fees and non-refundable retainers are prohibited under Colorado law. A retainer may be “applied” or “greening.” An applied retainer is one where the retainer is applied, until exhausted, to fees as they arise. A “greening retainer” is one which must be maintained by the client in the original amount until the representation is concluded. Any unearned sums remaining in the retainer account must be refunded to the client at the conclusion of the representation or applied to the attorney’s final billing.
An attorney’s engagement agreement should be clear and frankly spell out what the client will be charged and for what things related to his representation the client will be responsible. It is the client’s duty, and is in his own self interest, to ask for the attorney to clarify anything the client may not understand. The engagement letter should be the beginning of candid and forthright communication between the lawyer and the client and should form the first foundation of a mutually open and rewarding professional relationship.
Rohn K. Robbins is an attorney licensed before the Bars of Colorado and California who practices in the Vail Valley. Mr. Robbins may be reached at 970-926-4461 or at his e-mail address: email@example.com.