f/k/a archives . . . real opinions & real haiku

The site will enable courts and legal aid programs from across the country to address the challenges of pro se litigants to share their innovations and best practices

Its online library of resources has more than 400 items, links to articles and reports, and original documents, organized into 16 subject folders

The website is “designed to serve as a virtual meeting place for professionals who are involved in any capacity with self-representation

I was just about to bemoan having to spend an entire week without fresh workproduct from my double-weblogging Pasadena buddy, George Wallace, when I discovered that he’s promising to publish a few post-posted postings at A Fool in the Forest while he’s on vacation.   I’m not sure if his Declarations & Exclusions will be similarly refreshed (but, let’s face it, insurance law is not my thing).

As any visitor can tell from his two very different web ventures, George is a man of extremes, and of many talents.  His vacation will take him from dog sledding to dessert settings, which calls for some fancy accessorizing and packing.

Remembering what it’s like to prepare for a week away from the office (even before weblogs were invented), I’m certain George’s In Box looked a lot like the one pictured above when this week began.   By this afternoon’s final burst of office activity, I assume both In and Out Boxes looked

like this:   . .

George is under strict orders to bring no computer or other web-accessing device on this vacation jaunt.  Mrs. Wallace is clearly a Wise Person, and Mr. Wallace is not Fool enough to disobey.   

Dave:   David, I respectfully disagree with your analysis of “value billing” (or flat-rate billing, or whatever you want to call it). First, your analysis assumes that the billable hour should be the base for any comparison (i.e., value billing is fair only if the charge is less than the comparable billable hour). This assumes that the billable hour is a fair method in the first place.

Lawyers are not only charging for their time, they are also charging to reimburse them for undertaking a certain amount of risk and to obtain the value of their expertise. Say that I have studied LLCs exhaustively and, due to technological efficiencies, I can set up an LLC for a client in less than an hour. What should I charge for that service? In other words, what has the client obtained from me and how should I be compensated? The client not only received 45 minutes of my time–he or she also reaped the rewards of many hours of research and preparation that enabled me to prepare an LLC in such a short amount of time. If my hourly billing rate is $200, should I charge the client $150 for my service? That amount seems to undervalue what the client received–a legal entity that I have basically warranted will be upheld if challenged at a later time. How is that only worth $150?

  On another note, consider percentage billing. Many financial advisors charge their fees as a percentage of the total assets under management. Why not charge estate planning clients or transactional clients the same way? This brings a dose of reality to the situation. After all, the monetary value of an estate plan to a client with $100 million in the bank is much different than the monetary value of an estate plan to a client with $100,000 in the bank. The lawyer’s risk is greater as well. Why shouldn’t the fee reflect this difference? The same goes for a business transaction. Why shouldn’t the lawyer’s fee be a percentage of the deal?

These types of fees give certainty to clients–something which they cannot get in billable hours scenarios. The client knows in advance that it will cost, say $1500 for an LLC or 0.5 percent of the client’s total assets to obtain the value of your services.

“firecrackerG”

Editor:  Dave, Thanks for giving us your perspective. This topic is clearly going to call for a lot more thinking and writing by me. Here are some quick reactions to your points, which are also offered with respect and an open mind:

The “reality” is that technological advances and efficiencies are expected — in our economy and in basic economic theory — to bring prices down. So is an oversupply of service providers. Your approach seems to be stripping the client of both normal market benefits and fiduciary protection.

An attorney’s hourly rate is expected to take into account the attorney’s expertise and investment in human and machine capital. The attorney states his or her hourly fee, explains it if the client wonders why it is so high, and then (after some negotiation, perhaps) either enters into an agreement with the client or doesn’t.

Your estate planning example seems to me to show the perils in your approach from the clients’ perspective:

Talking about the attorney’s risk but then not trying to measure the risk when setting a fee seems a sure way to overcharge. The attorney may have more risk when dealing with a $100,000,000 estate plan than with a $100,000 estate plan, but it is surely not one thousand times more risk.

Also, the attorney would certainly spend far more hours working on the $100 million dollar estate than the $100,000 bank account, when setting up an estate plan. Those extra hours — multiplied by an hourly fee that represents the attorney’s expertise and efficiency — compensate for the “extra” value added by the attorney.

  As with contingency fees, percentage billing is only fair to clients if the client is fully informed about just what the lawyer is bringing to the table to “earn” the percentage. It’s bad enough that personal injury lawyers basically demand to be made a partner in every client’s injury claim. To force this upon ever-more types of clients, without fully informing the client, seems to me to be putting the lawyer’s financial interests far above the clients’ interests.

The LLC example is also worrisome to me. If $150 seems too small a return for your time, perhaps you need to adjust your hourly rate to reflect your perceived self-evaluation. That allows the client to determine your value in a manner that the client can grasp and deal with. As a fiduciary, you need to let the client know just how much time you’ll be spending — explain to the client why less than an hour of work is “worth” $1500.  

Justifying a percentage fee or a flat fee by saying “the client has certainty” can often be simply a rationalization — so does a life-without-parole sentence, rather than 25-to-life. It begs the question as to whether the amount is reasonable in the circumstances. What would the likely range in fees be, if billed by the hour, for your hypothetical LLC client? One hour (likely) to maybe three hours (if there are unseen complications)? Even at $300 per hour, the fee would certainly be far below the $1500 “certain” fee. Trying to make certainty sound like a wonderful value or bargain for the client seems like lawyer-speak to me — and probably would to most clients.

  A good rule of thumb for a fiduciary (or any service-provider): if you’re embarrassed to tell your client/customer how little you have to do to accomplish the task, when compared to the fee, your fee is too high.  That’s why many informed consumers have rebelled against the customary real estate agent percentage when selling a home.  It’s also why a lot of probate courts have questioned or put a dollar limit on probate fees based on the overall value of the estate. 

Two final points: As discussed in this post, the special privileges that come with our professional license presume:

1)That since clients cannot adequately evaluate the quality of the service, they must trust those they consult; and 2) That the client’s trust presupposes that the practitioner’s self-interest is overbalanced by devotion to serving both the client’s interest and the public good.

As agent of reality, and consumer advocate, I must often tell my colleagues two things they don’t want to hear:

• (1) in general, attorney services are worth a whole lot less (add a lot less value) now that consumers can read and write and technology makes it possible to provide legal services far more quickly and efficiently (or through self-help); and
  
• (2) there are over one million attorneys in the USA and they are all looking to make a buck.

These factors can’t be avoided by coming up with new ways to “sell” and “price” the product or to push back market forces and the tide of history.

Techno Glitch Note re Comments:  For some reason, Comments to this post are not registering on the Comment meter below, although they are appearing on, and can be reached through, our Discussion Page listings.   For example, Dave has left an interesting reply that can be reached through this thread.

 

“In coming years, expect to see more and more companies outsourcing their legal work to offshore countries — most likely former colonies of England with English-speaking workers, lawyers versed in common law, and highly educated populations.  “

 

In particular, companies with big contingents of in-house lawyers, like West and its staff of legal editors, will be moving more legal jobs offshore.”

01/29/2004    

• Top Firms Report Soaring Revenues, Profits     
  
• Dewey Ballantine Will Promote Zero Associates to Partner     
  
• NY Firm Shuts Doors, Refugees Launch Satellite Offices     
  
• Milbank Tweed Weighs Outsourcing to India, Possible Staff Cuts     
  
• Faegre & Benson Axes Associates at London Satellite     
  
• Orrick Herrington Announces Smaller Partner Class     
  
• Heller Ehrman Practice Group Defects  

Do you still regret passing up BIGLAW, Sherry?

. . .

Evan Schaeffer at Notes from the (Legal) Underground “met” me online last week, when we engaged in a lengthy dialogue over both weblog etiquette and contingency fee ethics.   It wasn’t always pleasant, and we’re apparently still far apart on the latter topic.   Nonetheless, Evan graciously thanked me today.for participating at his site, and even linked back again to my argument against his position.   To me, that makes Evan a class act.  In addition, his weblog is filled with good humor and goods insights.  [Sorry ladies (or lads), but I cannot vouch for his hunkiness.]  If you haven’t checked it out, just what are you waiting for? 

Class action lawyers will surely be heading their shopping carts away from the 7th Circuit’s check-out aisle, after today’s decision in Mirfasihi v. Fleet Mort. Corp.  And district court judges might be slipping out the backdoor, too. (7th Cir, No. 03-1069, Jan. 29, 2004)  In a tour de force of Posnerian logic and rhetoric, the class action settlement involving Fleet’s distribution of customer information was unanimously set aside today. (Thanks to Howard for the pointer)

. . .

“Would it be too cynical to speculate that what may be going on here is that class counsel wanted a settlement that would give them a generous fee and Fleet wanted a settlement that would extinguish 1.4 million claims against it at no cost to itself?”

“A colorable claim may have considerable settlement value (and not merely nuisance settlement value) because the defendant may no more want to assume a nontrivial risk of losing than the plaintiff does.

“The part of the $2.4 million that is not claimed will revert to Fleet, and it is likely to be a large part because many people won’t bother to do the paperwork necessary to obtain $10, or even a somewhat larger amount.

“The district judge has approved a handsome fee for the class lawyers, $750,000, despite the meagerness of the relief agreed to in the settlement.

“Because class actions are rife with potential conflicts of interest between class counsel and class members [cites omitted], district judges presiding over such actions are expected to give careful scrutiny to the terms of proposed settlements in order to make sure that class counsel are behaving as honest fiduciaries for the class as a whole.”

“Unfortunately the district judge’s decision approving the settlement does not discuss the settlement’s questionable features—not only the one we’ve stressed, namely the denial of any relief to an entire class, the kind of thing that led to rejection of the settlements in Crawford v. Equifax Payment Services, Inc., 201, but also the reversion of unclaimed refunds to the putative wrongdoer and the fact that the class that was denied relief did not have separate counsel from the counsel for the favored class.”

“In Reynolds v. Beneficial National Bank, supra, 288 F.3d at 284-85, we emphasized the district judge’s duty in a class action settlement situation to estimate the litigation value of the claims of the class and determine whether the settlement is a reasonable approximation of that value.  [cites omitted] The district judge in this case made no estimate of the value of the legal claims of the information-sharing class.”

Summing up, “So the settlement cannot stand.”

Class action lawyers will surely be heading their shopping carts away from the 7th Circuit’s check-out aisle, after today’s decision in Mirfasihi v. Fleet Mort. Corp.  And district court judges might be slipping out the backdoor, too. (7th Cir, No. 03-1069, Jan. 29, 2004)  In a tour de force of Posnerian logic and rhetoric, the class action settlement involving Fleet’s distribution of customer information was unanimously set aside today. (Thanks to Howard for the pointer)

. . .

“Would it be too cynical to speculate that what may be going on here is that class counsel wanted a settlement that would give them a generous fee and Fleet wanted a settlement that would extinguish 1.4 million claims against it at no cost to itself?”

“A colorable claim may have considerable settlement value (and not merely nuisance settlement value) because the defendant may no more want to assume a nontrivial risk of losing than the plaintiff does.

“The part of the $2.4 million that is not claimed will revert to Fleet, and it is likely to be a large part because many people won’t bother to do the paperwork necessary to obtain $10, or even a somewhat larger amount.

“The district judge has approved a handsome fee for the class lawyers, $750,000, despite the meagerness of the relief agreed to in the settlement.

“Because class actions are rife with potential conflicts of interest between class counsel and class members [cites omitted], district judges presiding over such actions are expected to give careful scrutiny to the terms of proposed settlements in order to make sure that class counsel are behaving as honest fiduciaries for the class as a whole.”

“Unfortunately the district judge’s decision approving the settlement does not discuss the settlement’s questionable features—not only the one we’ve stressed, namely the denial of any relief to an entire class, the kind of thing that led to rejection of the settlements in Crawford v. Equifax Payment Services, Inc., 201, but also the reversion of unclaimed refunds to the putative wrongdoer and the fact that the class that was denied relief did not have separate counsel from the counsel for the favored class.”

“In Reynolds v. Beneficial National Bank, supra, 288 F.3d at 284-85, we emphasized the district judge’s duty in a class action settlement situation to estimate the litigation value of the claims of the class and determine whether the settlement is a reasonable approximation of that value.  [cites omitted] The district judge in this case made no estimate of the value of the legal claims of the information-sharing class.”

Summing up, “So the settlement cannot stand.”

. . .

“I can’t help but wonder this: if the clients had been given the option up front of paying, say, $10,000 out of pocket to retain Barton to pursue their claim or alternatively, to pay nothing and allow him to recover 40 percent, which would they have taken? Of course, that didn’t happen, so we’ll never know. However, I often wonder how willing clients would be to risk a decent sum of their own money for a purportedly “sure thing.” If a client isn’t willing to take this risk, shouldn’t the attorney then be compensated at a higher-than-typical average rate for assuming risk in the form of fronting case costs and working on contingency?”

DAG Comment:

The client should not have to choose between a large upfront payment to a p/i lawyer and an unreasonably large contingency percentage fee. The ethical lawyer gives the fully informed client the choice between (a) paying an hourly fee, after being given a good faith estimate of the likely number of hours the firm will put into the case (and perhaps the chance to pay on credit, if a recovery is highly likely), AND (b) a contingency fee level that is related to the perceived risk for the lawyer, and not simply a “standard” rate. See, e.g.,Fiduciary Duties and Contingency Fees [harvard.edu].

. . .

“I can’t help but wonder this: if the clients had been given the option up front of paying, say, $10,000 out of pocket to retain Barton to pursue their claim or alternatively, to pay nothing and allow him to recover 40 percent, which would they have taken? Of course, that didn’t happen, so we’ll never know. However, I often wonder how willing clients would be to risk a decent sum of their own money for a purportedly “sure thing.” If a client isn’t willing to take this risk, shouldn’t the attorney then be compensated at a higher-than-typical average rate for assuming risk in the form of fronting case costs and working on contingency?”

DAG Comment:

The client should not have to choose between a large upfront payment to a p/i lawyer and an unreasonably large contingency percentage fee. The ethical lawyer gives the fully informed client the choice between (a) paying an hourly fee, after being given a good faith estimate of the likely number of hours the firm will put into the case (and perhaps the chance to pay on credit, if a recovery is highly likely), AND (b) a contingency fee level that is related to the perceived risk for the lawyer, and not simply a “standard” rate. See, e.g.,Fiduciary Duties and Contingency Fees [harvard.edu].

“They also drafted a disclaimer — which viewers must acknowledge for access to the live show — making it clear that that no attorney-client relationship is being created and that no legal advice is being provided: ‘only general educational information.’ The disclaimer also notes that the information may be specific to the featured speaker’s jurisdiction and that the law is subject to change.”

“fiduciary what?”

Beginning with a detailed examination of both the origins of fiduciary obligations and previous efforts at establishing a lawyer’s duties in presenting alternative fee structures, Brickman lays the foundation of the modern contingency fee structure and a lawyer’s corresponding fiduciary obligations. Brickman then turns to the role of the Ethics 2000 Commission in clarifying a lawyer’s obligations, examining the Commission’s changes to the Comment to Model Rule 1.5 addressing contingency fees. He finds that, rather than stem the tide of what he identifies as widespread contingency fee abuse and disregard for fiduciary obligations, the Ethics 2000 Commission not only removed well-established protections for clients, but facilitated abuse in the contingency fee system.

Despite early efforts indicating that the Commission would place a renewed emphasis on the reasonableness of contingency fees, Brickman finds the Commission ultimately found that increased scrutiny of contingency fees posed too great a threat to the status quo. He concludes that the changes fly in the face of an attorney’s historical fiduciary obligation and materially diminishes the protections afforded to contingency fee clients.

The battle over the new model rule governing contingency fees is being fought right now across the country, on the state level.  As reported in our posting 6/30/03, Arizona recently adopted a version of Rule 1.5 that considerably improves upon the Ethics 2000 proposal, while North Carolina became the first state to adopt the new rule without changes.   Your Editor gave his version of the problems with New Model Rule 1.5 in an Open Letter to the FTC (April 11, 2002), on the ABA and the standard contingency fee.

As we reported last month, the Florida Bar’s Board of Governors is expected to finalize a report that rejects the New Model Rule1.5 this week.

• Update: See our post “contingency fees and the clueless fiduciary” (Sept. 4, 2007)

Today, the FTC offers information on how to avoid being a spammer or a spammee.