Thursday, April 06, 2006

Attorney's Fees

We talked about fees and billing yesterday in Legal Profession class. And comparison of two particular situations bothered me. In both of them the billing is based on time spent.

1. Attorney is on a plane for two hours for the sake of Client X (who has a really cool name--I like that letter). While on the plane, he does work for Client Y.
2. Attorney talks with Client Z for 5 minutes. He then does work for Client W for 10 minutes. That's all the work he does for either client the whole day. He bills in 15-minute increments.

In situation 1, Client X is getting his plane flight. It's perfectly acceptable to bill him for the flight. Client Y is getting 2 hours worth of work out of Attorney. So, in effect, Attorney is doing 4 hours of work in a 2 hour span. But he can't bill them both for 2 hours. He can only bill for a total of 2 hours. This is insane, because it encourages attorneys to be inefficient with their time. Just because he's doing work for Y doesn't mean that X should get free travel, or vise versa.

In situation 2, however, although Attorney only works for 15 minutes, he can charge each of his clients for 15 minutes of time. So he gets paid for 30 minutes of work when he's only doing 15!

This doesn't make any sense to me.

Take another situation. Attorney does a will for R. It takes five hours, so he bills R for five hours of work. Attorney then agrees to do a will for S and to charge hourly. It turns out that S's will is exactly like R's, so it only takes 15 minutes to do the work. Attorney is only allowed to bill S for 15 minutes here. Does this make any sense? Assuming Attorney's rate is $100/hour (pretty darn low for a lawyer) then R paid $500 and S paid $25 for the exact same thing. Is this fair?

Maybe I'm biased because I plan to go into law. I'm not sure. That's why I'd like to know what you think.


  1. OK, 'fess up, you're doing this deliberately, aren't you? Trying to be confusing, I mean. : )

    Sitch 1. I don't get your point about encouraging inefficiency. What Attorney does during the flight time should be the deciding factor in how the clients are billed.

    Base case: Attorney has had a busy week and decides to catch a quick nap or read (something non-work-related) or chat up/with the passenger next to during the flight. Billing: Attorney is not working and Client X should only pay for the cost of the ticket. (Client Y uninvolved.)

    Case X: Attorney does (essential) work during the flight related to Client X's matter of business. Billing: Client X should pay for both the flight and the two hours of work (would have been billed for anyway regardless of where done).

    Case X+Y (Your #1): Client X should be billed for the flight (expense incurred in pursuit of X's business) but not for two hours; Client Y should be charged for two hours of work; where it was performed is irrelevant.

    OK, IANAL (I [am] anal?!) and am just going on what I consider common sense, but I'm sorry, just sitting on a plane is not working. How is it different from commute time for other workers?

    Sitch 2. If Attorney has made his/her billing policies clear to both Clients Z and W, what's the problem? If it doesn't make sense to you, then when you become a lawyer, bill on a per-minute basis.

    Sitch 3. I don't understand why Attorney is only allowed to bill S for 15 minutes here if Attorney [has] agree[d] to do a will for S and to charge hourly...huh? If the agreement was for hourly billing, then 15 min = 1 hr billed, no? So it should be $500 vs. $100. (Or am I ignorant of some unspoken logic or rules specific to the legal profession?)

    As to the issue of fairness, again, I don't see the problem. Look at in terms of an actual (material) commercial iPods or large-screen TVs. Initial customers pay more because they are bearing more of the costs of development and early manufacture; later customers reap the benefits of the development and increased efficiency of production. Way of the world?

    Here's one that maybe you can help me understand. When three members of my family died in an auto accident, the fatalities were ruled "wrongful deaths", basically meaning "non-natural"; because of this and the fact that there was about $150,000 in insurance money involved, of which three parties eligible to receive shares, the matter had to be examined in court and we all had to hire lawyers. I don't know if this is just Ohio practice (or if it is determined by state law, I never checked) but I was told that the lawyers were eligible to claim one third of the amount awarded to the clients. I found it extremely offensive that the old shyster who represented me collected over $8000 for making a few phone calls and filing some forms at the court office. I don't know what his hourly rate was, but I find it hard to believe that he had to do enough to justify such a fee.

  2. With the plane example, you are trying to balance two incomprable concepts. One involves an ethical requirement, the other efficiency. There is no balance to be struck there, because ethical conduct is an absolute while efficiency is not.

    Professionals must adhere to ethical standards, which dictate that attorneys' fees, first and foremost, must be reasonable. If you ask 10 people on the street whether it's okay to double-bill while working for client B on an airplane, 9 of them will tell you it's not reasonable. Hence, no double-billing is allowed.

    That's like charging double mileage when traveling to court and arguing two seperate motions for two separate clients. The appropriate thing to do is to split it in half and charge each accordingly.

    With regard to increments of hours, I feel it is more ethical to bill in .1 hour intervals to minimize double-billing. If I don't spend even half of 15 minutes working, then it is hard to justify billing for 15 minutes. Just because people do it doesn't mean it's ethical, and I would argue that if their clients found out they worked 8 hours and billed 12, their clients would want some of their money back.

    On the will example, the clients may have paid for the same product, but each product was a result of a different amount of work. The first client paid for a will that hadn't been drafted yet, and the second paid for a will that had been mostly drawn up. Nothing unfair about it.

    I would respectfully suggest that honesty dictates accuracy in billing. If a minute is worked, a minute should be charged. If an hour is worked, an hour should be charged. If an hour is worked that benefits two clients equally, then the hour shoud be split between the clients so that they equally benefit. If an attorney wants to make more money, then the attorney should increase his hourly rate, not double-bill or artificially inflate his hours, justifying the act with an argument about how efficient he is.

  3. Just because people do it doesn't mean it's ethical....

    Trusty Getto, I do believe that reading more of you might just improve my rather jaundiced view of your profession!

    Any idea about how common it is for lawyers to bill time as well as transportation, even if no work is done for the client during transit (my "base case")?

    Also, what's the situation in Michigan re the "one third of the spoils" example I mentioned?

    (Kelly, I hope it's not going too far beyond the pale to ask questions like this here; if so, just say so.)

  4. Sorry, I don't intend to be confusing.

    TG, you'll be easier to respond to, so I'll respond to you first: I think the question is whose perspective you take. If you look at it from the attorney's perspective, then I suppose the ABA's (and your) position is right. He's billing for the work he did. If instead you look at it from the client's position, then he's paying for what he's getting if you take my view, and if you take the ABA's view then he's getting a windfall.
    Incidentally, my professor polled the class and about 3/4 of the people share my viewpoint.

    Ibadairon: one thing to clear up right away is that the attorney can charge for his travel time whether he's doing anything or not. And most attorneys do. And another thing is that although they charge "hourly" rates, they usually bill in smaller increments (like 15 minutes or 10 minutes as what I believe most firms use).

    And in Situation 1 the ABA apparently takes no opinion on which client to bill and how much you should bill them. You could bill Client X for the whole thing and Y would get 2 hours of free work, or you could split it up however you want.

    The technology analogy is quite useful. But that's usually a cost spread among many buyers rather than put entirely on the first purchaser. If not, then they would have had a hard time selling that first iPod . . . .

    And your situation: you probably each needed a separate lawyer because of conflict-of-interest concerns. It's possible that they were working on a contingency basis, and most of the time that's something you can negotiate with your attorney. But your feelings are one of the major problems people have with attorneys: you don't know how much work they actually did. It's quite possible that he had to sit in court for hours without having anyone else to share the bill, and that he had to spend several hours researching your problem. But if he was charging $200/hour, then that's about a 40-hour case, and that's assuming that he had no added expenses--which I'm sure he did.

  5. TG is clearly a good guy, and he will definitely improve your view of lawyers. But maybe that's because he's a musician as well. And you're not going too far out on the subject of the post.

  6. ibadairon: Most attorneys bill time traveling, and it is considered appropriate because it takes time away from other tasks and is necessary to accomplish other tasks. I usually take work on planes, but I can't often work when I'm driving unless I'm making phone calls, which I bill to the appropriate files and reduce the bill of the client I'm traveling for.

    On the 1/3 of the spoils case, an attorney is always permitted to work on a contingent fee basis, and in MI 1/3 is considered presumptively ethical. The basis for contingent fee cases is sharing of risk, alignment of interests, and fronting of costs and fees that clients otherwise would not likely be able to afford. At the time the fee arrangement is arrived at, the attorney is accepting the obligation to front costs, front fees, and try the case to a conclusion, which can require the expenditure of six figures in costs (that they can't get back if the case is lost) and huge amounts of time. By taking on this risk at the get-go, it is presumed that it is appropriate to charge a premium, hence the contingency. However, sometimes the case will resolve early. Just as an attorney who stays in for the long haul can't increase his contingent fee because he worked more than he expected, it isn't appropriate to ask him to reduce it because he didn't work as much as the client expected. The contingent fee is specifically based on the outcome, not the amount of work, and it only works in cases where an attorney is hired to get money for somebody.

    If you don't like that arrangement, many attorneys will permit you to pay as you go.

    On a personal note, if a client comes to me and the defendant has already made an offer, I agree to charge a contingent fee on only that above and beyond what's already on the table. Anything else, in my view, is unethical.

    Kelly: As to the perspective, my above response alludes to it. In contingent fee cases, the fee is based on the outcome, or the expectation of the client without regard to the labor involved. In hourly billing, the bill is based on what was done, regardless of the client's expectations or satisfaction with the work product.

    And thank you both for the compliment. If I had my druthers, I'd be sitting around making music all day instead of practicing law, intellectual stimulation notwithstanding ;)

  7. Thanks for the feedback, to both of you.

    On-topic: I thought of the example of Attorney driving him/her-self and I do understand the lost time argument. It still strikes me a bit as double-billing, so maybe a reduced hourly rate for time spent in transport would be more ethical? (As TG pointed out, common practice [most lawyers do it] doesn't make it right.) I'm somewhat reassured in learning about the pro-rating of billing time. (The rehabilitation of lawyers, in my mind at least, continues!)

    At the time the fee arrangement is arrived at...

    Ah, there's the rub, then. Can I assume from this that some negotiation was in order? The one-third share issue was presented to me as a matter of fact, after things were already in motion; "contingency" was never mentioned. So it looks like I have to accept part of the blame, as the legally ignorant consumer. (Not to belabor it, but when all was said and done, the court determined the money should be divided exactly as the insurance company had originally proposed doing. The involvement of the lawyers & court turned out to have been purely a formal necessity, based on the letter of the law.)

    My personal rancor towards the man who had for many years served well as our family lawyer (he practically forced my mother to draw up a will, which turned out to be a very good thing for me later on, and drew up the power of attorney that allowed her to take care of several things for me after I came to Japan) stems from events after the above, which admittedly changed my perceptions significantly. I finally decided to seek other counsel when it became painfully apparent on several occasions that he hadn't even bothered to review his notes from our last meetings and I had to keep correcting him on details. (It also seemed like everything he suggested I do was geared towards increasing his own fee.)

    These final experiences have made it very easy for me to buy into the general consensus on your profession.

  8. TG: when you put the perspective argument into the context of an hourly fee vs. a contingent fee, then the ABA's position makes a lot more sense. Thanks.

    Ibadairon: one of the first things we noted in class on the issue is that there is an inherent conflict of interest in charging fees, but it's an unavoidable one. I don't think the lawyer is required to explain to you that there are other options or that negotiations are possible. It's often to his advantage not to tell you your options here, especially in a case like the one you mentioned where there would be very little work involved and very low risk for the attorney working on a contingent basis. In any other context, a lawyer is required ethically to explain all of your options to you, but in billing agreements it can be a pain. Almost makes you want to hire a lawyer to negotiate your fee with the other lawyer. :)

  9. ibadairon: Yes, a negotiation, in my view is always in order. I admit, though, that in my medical malpractice cases, I will only work for a 1/3 contingent fee after costs. There are too many uncertainties and unknowns at the time the fee arrangement is arrived at for me to accept the risk for less.

    That said, there are always attorneys who will work for alternative arrangements, all you have to do is find them. But, buyer beware, you generally (not always) get what you pay for.

    I have at times reduced my fees for one unique reason or another, either at the request of the client or sometimes unilaterally. It's a judgment call that is based on the attorney's own sense of responsibility and ethics.

    As to the general views of the profession, I must admit that I've come across many less than competent and many over-charging attorneys. Like in any business or profession, some are much better than others. If you seek representation at the top, you will get the top attorneys. I suggest that's frequently the way to go, though there are many, many sole practitioners who are outstanding attorneys and advocates as well. If you check 'em out beforehand, you'll know whether they can be counted on.

  10. Oh, and while we are discussing fees, I would be remiss to omit a mention of pro bono work. All attorneys in my view have a duty to help those who can't afford them from time to time. I like to have at least one case on hand at all times that I've accepted on a pro bono basis. I think all attorneys should build that ability into their own practices to ensure that our profession over time comes to be held in at least slightly higher regard.

  11. I think the most fair thing in that 2-hour flight situation would be to charge the client you're flying to for travel costs (client pays for plane & cab fees from airport, etc), and then charge the other client the hourly fee for doing their actual work.

    Would that work?

    Sidenote/Shameless blog-plug: New MySpace Awards (Band Edition) posted, along with a few tinkerings with my template.