ATTORNEY-CLIENT FEE ARRANGEMENTS

Riesterer Law believes there can be significant value in exploring creative and mutually beneficial fee arrangements with clients. This is an outline designed to help explain some of the different fee structures that clients may wish to explore with the firm and highlight some of the advantages and disadvantages that each type of fee arrangement may have for a particular client.

 

Because the amount of time spent working with each client generally varies widely depending upon the particular circumstances of the representation, as well as a range of factors beyond the control of the attorney or firm, hourly billing remains the predominant fee arrangement throughout most legal practice areas. Riesterer Law typically establishes an hourly billing arrangement with new clients. However, Riesterer Law is also practiced in establishing alternative fee structures that may prove to be more advantageous to new or existing clients than the traditional hourly billing method.

 

Regardless of the structure of the attorney-client fee arrangement, the Rules of Professional Conduct for attorneys require that all attorneys’ fees be reasonable. Factors determining the reasonableness of an attorney’s fee include the amount of time, resources and energy that must be invested by the attorney, the novelty and complexity of the question(s) / issues involved in the matter, the skill required by the attorney to handle the matter, the fees that are ordinarily charged in the local area for similar representation or services, the results obtained for the client, any time limitations or deadlines that may be imposed, the knowledge and reputation of the attorney, and the nature and length of the attorney’s professional relationship with the client.

 

Choosing the right fee arrangement is ultimately a business decision that must be made by both the firm and the client. There is no fee structure that is universally and objectively superior to any other arrangement. Some clients even wish to consider certain combinations of fee structures. The decision generally boils down to each client’s preference, the firm’s assessment of the complexity of the representation, and the fundamental fairness of the fee arrangement for both the firm and the client.

 

Monthly or Periodic Retainer.

 

A monthly or periodic retainer is a flat fee negotiated and agreed upon upfront that is inclusive of all legal fees for services and consultation with the firm during the period of the retainer. A written fee agreement outlining the precise parameters of the attorney-client relationship is required, and such agreement may limit the scope of attorney services included in the monthly or periodic retainer. The written fee agreement will also specify the costs and other expenses that may be incurred by the firm during the course of representation that are not covered by this retainer. This type of fee is due prior to the start of each month or other period for which the retainer covers, and is considered earned when it is paid, subject to a refund of any portion of the fee determined to be unreasonable should the attorney-client relationship be terminated before the conclusion of the retainer period.

 

One of the most significant advantages of a periodic or monthly retainer is predictability. Clients can budget for their annual legal expenses with greater certainty and the hourly billing “meter” is never running. Under this type of fee arrangement, clients are encouraged to communicate with the firm as often as necessary and to approach the attorney-client relationship similarly to the way they would approach a relationship with in-house counsel. This type of arrangement also encourages efficient lawyering by aligning the interests of the client with that of the firm and allows the client to receive high-quality representation at far less expense than the salary and benefits for one or more full-time in-house attorney(s).

 

Under a periodic or monthly retainer arrangement, work performed on behalf of the client is still meticulously tracked and documented for the client, and a regular review and assessment of the client’s needs, the firm’s ability to continue meeting those needs and the reasonableness of the agreed-upon fee is required.

 

Engagement Retainer.

 

An engagement retainer is a fee that is paid up front to guarantee the availability of an attorney or firm to represent a client, if and when such representation is required. This type of fee is independent of any other fee arrangement that may be made and is considered earned when it is paid and is therefore nonrefundable. When and if work is actually performed for or on behalf of the client, the firm will bill the client for such work under separate terms agreed to by the client and outlined in the firm’s engagement letter or retainer agreement.

 

An engagement retainer may be required by an attorney or a firm in circumstances where the attorney or firm is providing an immediate benefit to the client, without rendering any specific legal services to the client. For example, an engagement retainer may be required in exchange for an attorney or firm agreeing: to give priority to the client’s work over other matters; to turn away other prospective clients and/or forego other business opportunities in order to avoid conflicts or guarantee the attorney’s or firm’s availability to work on the client’s matter(s) for a specified period of time; to guarantee the attorney’s or firm’s availability for attendance at specific meetings and/or events with the client; to refrain from ever representing a rival or competitor of the client even if no work has been done for the client and/or no conflict exists; or to hire new associates or other employees in order to be able to meet the demands of the client’s workload.

 

Clients receive a real and tangible benefit from paying an engagement retainer because the attorney or firm is providing something of value to the client that is outside of the provision of legal services and is not accounted for in the attorney’s regular fee for such services. Engagement retainers also help clients identify and retain attorneys and law firms the client is comfortable working with before any foreseeable or unforeseeable issues arise that require quality legal representation.

 

Advance Payment Retainer.

 

An advance payment retainer is a fixed sum of money that an attorney or law firm requires a client to pay upfront, prior to the firm beginning its representation. The advance payment retainer is intended to compensate the attorney for legal services that will be provided to the client, and the attorney’s fees and costs are generally billed against the advance retainer as they are incurred.

 

The advance retainer is held in the firm’s trust account, separate from any funds of the firm, and is not considered earned unless and until services are actually performed for and on behalf of the client. Any unearned portion of an advance retainer is refundable if the attorney-client relationship is terminated for any reason. An advance payment retainer is independent of any other fee arrangement that may be established by the attorney and the client, and the advance retainer may be required to be replenished by the client in order to keep the balance at or above a certain level in the firm’s discretion.

 

Fee Deposit or Security Retainer.

 

A fee deposit or security retainer is similar to an advance payment retainer in that it is a fixed sum of money that an attorney or law firm requires a client to pay upfront, prior to the firm beginning its representation. The security retainer is intended to protect the attorney or law firm against the risk of expending valuable time and resources on behalf of a client with no knowledge of the client’s ability to pay for such services or representation.

 

A security retainer is held in the firm’s trust account, separate from any funds of the firm, and is fully refundable to the client if the attorney-client relationship is terminated for any reason and there is no balance due on the client’s account. A security retainer is not used as an advance payment of the attorney’s fees or costs associated with the representation. The client is billed separately and required to pay any fees and/or costs earned or incurred by the attorney or the firm during the course of the representation. A security retainer is independent of any other fee arrangement that may be established by the attorney and the client, and the security retainer may be debited from the firm’s trust account in the event that there is an unpaid balance on the client’s account.

 

Hourly Billing.

 

Although some clients and commentators on the legal profession express concerns over the law firm hourly billing structure, hourly billing continues to be the most common type of attorney-client fee arrangement. There are a number of reasons for this. First, hourly billing is fundamentally fair to both the attorney and the client, because the client is only billed for the time the attorney is actually working on behalf of the client, and the client can only be billed for a reasonable amount of attorney time spent on each matter. Additionally, every court and bar association in the United States has approved of hourly billing as a fair and reasonable method for determining the value of an attorney’s services to his or her client.

 

While the specific tasks that each attorney will bill clients for are usually outlined in the firm’s engagement letter or retainer agreement, it is common for attorneys to bill for all time spent communicating with a client and/or working on a matter for a client. Attorneys generally bill for their time in minimum six (6) minute increments, or 1/10th of one hour, and each attorney’s hourly rate for services should be outlined in an engagement letter or retainer agreement that is signed by the client.

 

Hourly billing is advantageous to clients because clients receive the benefit of the attorney’s time, attention, intellect and experience in handling situations relevant to the client’s particular circumstances. Hourly billing avoids the commoditization of the practice of law. While there are countless contracts and other legal documents readily available to consumers on the internet for a fixed flat fee, those consumers are buying a product that may or may not be suitable for their particular needs or objectives. When a client retains an attorney on an hourly fee basis that client is not just purchasing pieces of paper; the client is investing in the full breadth of the attorney’s knowledge and skill in handling the client’s matter(s), answering any questions the client may have and providing the client with general advice and counsel.

 

Flat Fees.

 

A flat fee may occasionally be charged for certain legal services and/or limited portions of a firm’s comprehensive representation package. Flat fees are negotiated and agreed upon up front, prior the beginning of any representation, and at the firm’s discretion flat fees may be due and payable either prior to commencement of work by the firm or upon substantial completion of the work that is being done for the client. In all cases, flat fees for legal services are fixed and will not vary no matter the time spent on the matter by the attorney or the end result achieved.

 

Flat fee arrangements generally work best when the scope of services or representation provided by the firm is limited, predictable and reasonably short in duration. There are also some variations on flat fee arrangements, such as establishing a cost floor and/or a cost ceiling, whereby the client is billed hourly for work performed, but the total fees are guaranteed to fall within a defined range.

 

Flat fees are often appealing to clients with a strong need or desire to fix legal fees and costs with some certainty and predictability. However, flat fee arrangements can occasionally result in a higher fee being charged for an attorney’s work that may have cost the client less under an hourly billing or other fee arrangement.

 

Additional Costs Typically Billed to the Client.

 

Under any fee structure, it is common for an attorney or law firm to pass-on to the client certain additional out-of-pocket expenses incurred by the firm during the course of the representation. Most firms will require reimbursement for filing fees, court costs or other administrative fees; travel expenses, including mileage; postage, courier or other deliver charges; computer-based legal research costs; third-party experts or consultants; and other expenses. In-office printing, scanning and photocopying, and long-distance telephone calls may or may not be charged to the client depending upon the attorney’s or the firm’s particular policies. It is good practice for any attorney or firm to disclose to the client whether and when such additional fees and costs are likely to be charged, particularly when those costs will be substantial. Under some circumstances, an attorney or firm may seek upfront payment from the client for substantial additional costs, or may make arrangements for the client to pay such costs directly to the third-party incurring the expenses if that party is not the attorney or the firm.

 

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