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Posted by: Barry Kolar on May 22, 2014

Although you are a professional utilizing your training and special skills to help your clients in ways that they cannot help themselves, at the end of the day, you run a business.  Your business cannot survive without collecting legal fees.

There are various methods that can be used to determine your fees, with hourly billing, flat fees, and contingency fees being the most frequently used mechanisms.  While certain fee arrangements lend themselves better to certain areas of the law, and some cannot be used with regard to certain matters, there is one overriding concept set forth in Rule 1.5 of the Rules of Professional Conduct that is applicable regardless of the mechanism you use to set your fees:  A lawyer shall not make an agreement for, charge, or collect an unreasonable fee.  The Rule provides the following non-exclusive ten factors to consider in determining the reasonableness of a fee:

(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 likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;

(3) the fee customarily charged in the locality for similar legal services;

(4) the amount involved and the results obtained;

(5) the time limitations imposed by the client or by the circumstances;

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

(7) the experience, reputation, and ability of the lawyer or lawyers performing the services;

(8) whether the fee is fixed or contingent;

(9) prior advertisements or statements by the lawyer with respect to the fees the lawyer charges; and

(10) whether the fee agreement is in writing.

You should always be prepared to justify the reasonableness of your fee in each case, period.

Regardless of the fee structure, there are three fee-related issues that should always be addressed in your retainer agreement:

1. The scope of your representation. If it is a criminal matter, does the fee cover General Sessions and Circuit Court, or is the representation limited to General Sessions Court? Will there be an additional fee if there is a jury trial? Does your representation include a retrial or appeal? What about probation violations? If it is an uncontested divorce that becomes contested, is there an additional fee, or does it convert to hourly? If it is a collections matter in General Sessions, are you agreeing to make only one appearance? Addressing these matters on the front end will help ensure that you and your clients both understand the fee structure.

2. Whether or not the fee is refundable or nonrefundable. Nonrefundable fees are paid in advance and earned by the attorney when paid. Such fees are permissible; however, nonrefundable fees are subject to the reasonableness standard referenced above and must be agreed to in a writing, signed by the client, that explains the intent of the parties as to the nature and the amount of the nonrefundable fee.

A sample of this written intent is as follows:

This retainer is considered fully earned upon receipt and is to compensate this firm for being available to represent you, for committing time for this representation which has precluded the acceptance of other employment, and/or from being precluded from taking an adversary interest or position in this matter.

Remember that if any fee is refundable or partially refundable, any unearned portion (which still belongs to the client) must be kept in a separate account from the earned portion (which belongs to you) in order to avoid comingling your funds with client funds in violation of RPC 1.15.

3. Expenses. Be sure to specify that expenses are not included in your fees, and that the client agrees to separately pay for expenses.

A sample of this is as follows:

You also agree to separately pay for any necessary expenses, such as travel expenses, filing fees, court costs, copy expense, fees for private investigators, expert witnesses, court reporter charges, transcripts, or other expenses which the Attorney considers necessary for proper preparation and administration of this case, which will be passed through to you and billed at cost. Mailing and shipping charges are billed to you at cost. We do not charge for messenger service within walking distance of our offices, but other local deliveries are charged at $.50 per mile.

Examples of Fee Arrangements

• Initial Retainer/Hourly Billing

Hourly billing is appropriate for many matters, especially when it is difficult or impossible to determine the amount of time that will be required. Generally, the client will pay an agreed initial retainer at the initiation of representation. This initial retainer may be either refundable or nonrefundable; however, remember that if the initial retainer is not designated as nonrefundable, any unearned portion must be kept in a separate account from your funds. You are strongly encouraged to obtain a retainer at the commencement of representation which is designed to cover your expected fees for the matter being undertaken as it is far more difficult to obtain prompt payment from a client at the conclusion of a case. You are almost universally better off not to take on a case when a client cannot pay your retainer (unless you are handling a matter pro bono, of course). You should also be very careful about deciding whether to allow a client to make payments toward their retainer after you commence work rather than requiring it all up front.

Most attorneys bill against the initial retainer at the attorney’s hourly rate or, if the retainer is nonrefundable and considered earned, will give the client a credit for the amount of the initial retainer against the attorney’s hourly billing. In either event, the retainer agreement should explain the procedure once the attorney’s billing exceeds the initial retainer. Will an additional retainer be required, or will the client be billed monthly after the fees have been earned?

Also be sure to address billing increments, such as one tenth (.10) of an hour. If you have certain minimum hourly charges, such as .2 for a telephone call or a two (2) hour minimum charge for a court appearance due to scheduling priority, be sure to include this in your retainer agreement.

Time-keeping tips

• If you write down your time on a time sheet form, keep the time sheet form or slip on your desk as a reminder to record your time.

• Record all time for all services – telephone calls, file review, client meetings, research, drafting of correspondence, etc. You can decide later if you want to bill for that time. Remember, your time and your advice are what you have to offer, so do not unintentionally give it away because of poor recordkeeping.

• Record time contemporaneously as you complete a task. You will not remember all the work performed at the end of the month, week or day!

• Before starting a task, mark your starting time and the name of the client and matter on your time sheet. When you stop, mark the stopping time and the description of the work performed. An automated system will likely allow you to start and stop a time clock on several client screens and then remind you to make the appropriate time entries before closing out each client’s account screen. This is particularly helpful in practices where the attorney works with a number of client files during the day.

• Record non-billable time for firm administration, CLE, marketing, recruiting, pro-bono, bar service and other non-client, but practice-related activities. Recording this time provides you the information needed to better manage all of your time, in addition to make it more likely that you will remember to record the billable time.

• Review time records at the end of the day and add up all billable and non-billable time to be sure you have not failed to record all of your time for the day.

• Enter all time records into the client billing system daily. Whether your “system” is a word-processing document or a time and billing software system, entering it daily and backing up those files will ensure that you will not lose that time.

• Keep all time records in case they are needed for evidence to support your fee or to assist with malpractice claims or disciplinary complaints.

• Automate your time-keeping and client billing function using legal-specific time and billing software. An automated time and billing system reduces the administrative time required to record, process and bill attorney time. It also provides management information to help in the management of work-in-process, accounts receivable, practice profitability and attorney and paralegal productivity.

• SSend each hourly billed client an invoice monthly, even if the client has a positive balance from their initial retainer. This will allow the client to see exactly what fees have been expended for and how much retainer credit remains.

• Contingency Fees

A fee that is contingent on the outcome of the matter for which the service is rendered is permissible (provided it is reasonable) EXCEPT for the following matters, in which a contingency fee is PROHIBITED:

1. 1. Domestic relations matters where the payment or amount is contingent upon securing a divorce or the award of custodial rights, or upon the amount of alimony or support, value of property division or settlement, unless the matter relates solely to the collection of arrearages in alimony or support, or the enforcement of an order diving the marital estate, and the fee arrangement is disclosed to the court;

2. Representing a defendant in a criminal case

Any contingent fee agreement must be in a writing signed by the client and shall state the method by which the fee is to be determined, including the percentage (or percentages) that shall accrue to the lawyer in the event of a settlement, trial, or appeal; the litigation and other expenses to be deducted from the recovery, and whether such expenses are to be deducted before or after the contingent fee is calculated. The agreement must clearly notify the client of any expenses for which the client will be notified whether or not the client is the prevailing party. Upon the conclusion of a continent fee matter, the attorney shall provide the client with a written statement stating the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination.

There are statutory percentage caps on attorneys fees in medical malpractice actions (limited to 33 1/3 % by T.C.A. § 29-26-120) and workers’ compensation cases (limited to 20% by T.C.A. § 50-6-226). Likewise, federal law imposes fee caps in Social Security Cases (42 U.S.C. §§ 406(a)(2)(A)).

Also note that when representing a minor, a contingency fee agreement between an attorney and minor’s next friend is not binding, and a court must make findings concerning the ten factors set forth in RPC 1.5 in determining a “reasonable fee” for the attorney’s services representing the minor client. Wright ex rel. Wright v. Wright, 337 S.W.3d 166 (Tenn. 2011).

• Flat Fee

Some matters, such as criminal defense cases, uncontested divorces, appearances in general sessions court for collections cases, etc., are often handled based upon a flat fee agreement. Determining the appropriate fee can be a challenge, as you need to be able to accurately estimate the amount of your time the representation will likely require; however, some clients prefer flat fees because they do not receive mounting bills each month for your services. Also note that if a flat fee is not expressly agreed to be nonrefundable, it may be difficult to determine the portion of the fee earned (if any) should representation be terminated prior to the matter’s conclusion.

• Fees for Consultations

You should carefully consider whether to charge a fee for an initial consultation with potential clients. As a general rule, there is no consultation fee charged when meeting with a potential client who has a criminal law issue or a personal injury matter. On the other hand, be very careful about providing free consultations as it relates to domestic relations and juvenile court matters. Many times, people may have no means of hiring you and are simply looking for free legal advice. Additionally, be weary of phone consultations for the same reason. It is far better for your staff to conduct some initial screening of potential clients, if at all possible. If you are the one who is conducting the initial screening, be quick to advise what your expected fee might be, and the required arrangements before bringing the client into your office.