Beyond the Billable Hour: How Alternative & Contingency Fees Are Changing Law Firms
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Did you know that 1 in 5 Chief Legal Officer pay only flat fees to law firms for litigation work? Law firms working for businesses are finding themselves dealing with at least 7 new types of fees – from blended rates and conditional fees to damages-based agreements. Clients in family law matters are now looking for unbundled plans and income-based sliding fees. Law firms need to understand these new fee structures and their impact on a firm’s ability to represent clients. In this free, 1-hour Clio webinar, learn what you need to know to successfully add contingency fees and alternative fee billing into your law firm, including: - Lessons learned from practice areas that have shifted to alternative fees - Ethic rules surrounding contingency fees and alternative fee structures - Resources for implementing alternative fees in your firm
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Beyond the Billable Hour: How Alternative & Contingency Fees Are Changing Law Firms
- 1. #ClioWeb How Alternative& Contingency Fees Are Changing Law Firms A Clio Webinar Joshua Lenon - Clio
- 2. #ClioWeb Instructors Joshua Lenon • Lawyer in Residence at Clio • Attorney Admitted in New York • @JoshuaLenon
- 3. #ClioWeb Agenda • Lessons on AlternativeFees (20 minutes) • Ethics Surrounding AlternativeFees (15 minutes) • Resources on Contingency & Alternative Fees (20 minutes) • Questions (5 minutes)
- 4. #ClioWeb LESSONS ON ALTERNATIVE FEES
- 5. #ClioWeb Fees Over Time • 1800’s– Capped “per service” per State Law • 1908 – Contingency fees approved by American Bar Association • 1940’s– Rise of StateBar Association’s minimum fee schedules • 1975 - Goldfarbv. VirginiaState Bar, 421 US 773 (1975) Source:.“How.Billable.Hours.Changed.the.Legal. Profession,”.Bloomberg.Business,.12/4/14
- 6. #ClioWeb Laffey Matrix $150 $255 $300 $370 $460 $520 $0 $100 $200 $300 $400 $500 $600 Rates 2014K2015 20+.years 11K19.years 8K10.years 4K7.years 1K3.years Paralegals.&.Law.Clerks Source:.USAO.DC,.http://www.justice.gov/usaoK dc/civilKdivision
- 7. #ClioWeb Laffey Matrix $110 $150 $185 $255 $225 $300 $280 $370 $345 $460 $390 $520 $0 $100 $200 $300 $400 $500 $600 2004 2015 2004K2005.vs..2014K2015 20+.years 11K19.years 8K10.years 4K7.years 1K3.years Paralegals.&.Law.Clerks Source:.USAO.DC,.http://www.justice.gov/usaoK dc/civilKdivision
- 8. #ClioWeb Laffey Matrix vs. Corporate Rates $150 $384 $255 $478 $300 $503 $370 $706 $460 $793 $520 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 CEB.M&A 2015 20+.years 11K19.years 8K10.years 4K7.years 1K3.years Paralegals.&.Law.Clerks Source:.CEB.Inc.,.“The.2014.Real.Rate.Report”
- 10. #ClioWeb Complexity in predicting legal costs is driving demand for a better alternative to the business hour.
- 11. #ClioWeb Client Preferred Pricing Strategies • Transparent pricing - 37% • Guaranteed pricing - 27% • Value-based pricing - 26% • Lowest price - 10% Source:.Altman.Weil.2014.Chief.Legal.Officer. Survey
- 12. #ClioWeb Alternative Fee Arrangements (AFAs) Increase 41% Stay.the.Same 57% Decrease 2% EXPECTATIONS. OF.INCREASE.IN.AFA.USE Source:.Norton.Rose.2015.Litigation.Trend. Survey
- 13. #ClioWeb Types of AFAs • Blended Rate • Capped Fee • Conditional Fee • Contingent Fee • Fixed Fee • Performance / Rewards-based Fees • Damages-based Agreements Source:.Norton.Rose.2015.Litigation.Trend. Survey
- 14. #ClioWeb Effectiveness of AFAs 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Conditional.Fee Fixed.Fee Capped.Fee Contingent.Fee DamagesKbased.Agreements Performance./.RewardsKbased.Fee Blended.Rate Effective Very.Effective Source:.Norton.Rose.2015.Litigation.Trend. Survey
- 15. #ClioWeb Most Used AFAs 0% 10% 20% 30% 40% 50% 60% 70% Fixed.Fee Capped.Fee Blended.Rate Performance./.RewardsKbased.Fee Contingent.Fee Source:.Norton.Rose.2015.Litigation.Trend. Survey
- 16. #ClioWeb 20% of General Counsels now require fixed fees for portfolio services Source:.ACC.Chief.Legal.Office.Survey.2015
- 18. #ClioWeb MRPC 1.5 Fees (a) A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses.
- 19. #ClioWeb MRPC 1.5 Fees 8 Point Test 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;
- 20. #ClioWeb MRPC 1.5 Fees 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;
- 21. #ClioWeb MRPC 1.5 Fees 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; and 8. whether the fee is fixed or contingent.
- 22. #ClioWeb Disclosure Required When a representation is based upon an hourly rate, the minimum unit of time for which a client will be billed should be apparent. See, Georgia Bar Formal Advisory Op. 01-1
- 23. #ClioWeb Get It in Writing NYCRR §1215 Written Letter of Engagement The letter of engagement shall address the following matters: 1. Explanation of the scope of the legal services to be provided; 2. Explanation of attorney's fees to be charged, expenses and billing practices; and, where applicable, shall provide that the client may have a right to arbitrate fee disputes under Part 137 of the Rules of the Chief Administrator.
- 24. #ClioWeb Bookkeeping Necessary MRPC 1.15 (c) A lawyer shall deposit into a client trust account legal fees and expenses that have been paid in advance, to be withdrawnby the lawyer only as fees are earned or expenses incurred.
- 25. #ClioWeb Plan for Refunds MRPC 1.16 (d) Upon terminationof representation, a lawyer shall takesteps to the extent reasonably practicable to protect a client's interests, such as …refunding any advance payment of fee or expense that has not been earned or incurred.
- 26. #ClioWeb Limitations Exist MRPC 1.5 (d) A lawyer shallnot enter intoan arrangement for, charge,or collect: (1) any fee in a domestic relations matter, the payment or amount of which is contingent upon the securing of a divorce or upon the amount of alimony or support, or property settlement in lieu thereof; or (2) a contingent fee for representing a defendant in a criminal case.
- 27. #ClioWeb More Limitations Fees capped by statute: • Wisconsin 814.045(2)(a) – In any action in which compensatory damages are awarded, the court shall presume that reasonable attorney fees do not exceed 3 times the amount of the compensatory damages awarded
- 28. #ClioWeb Even More Limitations Regulatory Capped Fees • Social Security ClaimantRepresentatives’ reasonable fee is up to 25 percent past-due benefits to themaximum of $6,000.
- 29. #ClioWeb Even with limitations imposed by ethical rules, statutes, and regulations – there exists room for creativity when it comes to legal fees.
- 30. #ClioWeb Lawyer Deal of the Day • South CarolinaBar EthicsAdvisoryOpinion 11- 05 (2011) • NewYork State Bar AssociationCommitteeOn ProfionallEthicsOpinion No. 897 (Dec. 13, 2011) 1. Mind conflicts, 2. Offer refundson termination,and 3. (NY: Keep fee as a retainerif time period expires)
- 31. #ClioWeb RESOURCES ON CONTINGENCY & ALTERNATIVE FEES
- 33. #ClioWeb Contingency Fees “I provided the intelligence required to build the case, the expertise to find precedents, and the oratory to convince the jury. Any a--hole could fall down a manhole.” Source:.jeff Rovin,.500.Great.lawyer jokes40. (1992)
- 35. #ClioWeb
- 36. #ClioWeb Blended Rate Instead of using each lawyer’sstandard, book, or rack rate, a common or “blended” number is used. For example, if the standard hourly rates for lawyers on a matterare $800, $600, and $400 per hour, the negotiatedblended rate may be $550 per hour. Source:.“What.Is,.and.Is.Not,.an.Alternative.Fee. Arrangement?”.Law.Technology.Today.12/10/14
- 39. #ClioWeb Fixed Fee A single sum for an engagement. 1. Portfolio of Cases 2. Single Case 3. Phase of Case 4. Single Case by Time 5. Multiple Cases by Time Source:.“What.Is,.and.Is.Not,.an.Alternative.Fee. Arrangement?”.Law.Technology.Today.12/10/14
- 41. #ClioWeb Conditional Fee Both parties (client and law firm) agree on the fee, then set an agreed-upon amount or percentage of the totalfee that will be withhelduntil a milestoneor result is achieved. Firms haveincentive to perform. Often called HoldBack Fees
- 42. #ClioWeb Capped Fee As one of thebudget-based options, Capped creates an upper limit on the amount theclient will pay.
- 43. #ClioWeb Performance / Rewards-based Fees Once a firm hassubmittedits final invoice— often based on Fixed or Hourly—the client decides if thefirm has met and/or exceeded certain criteria, which would justify a bonus. Source:.Patrick.Johansen,.CLM,.CPP,.“Patrick.on.Pricing,”.http://www.patrickonpricing.com/continuum
- 44. #ClioWeb Damages-based Agreements Calculatedas a percentage of theamount saved for the client who is a defendant in a lawsuit. • ABA Comm. on Ethics & Prof’l Responsibilities, Formal Op. 93-373at 2-3 (1993),“Contingent Fees in Civil Cases Based on the Amount of Money Saved for the Client”
- 46. #ClioWeb Conclusions Whilealternativefee arrangements havebeen common in many practice areas, their use is expanding into every practice area. Firms need to implement flexible billing practices to allow clients to pick thebilling method that works for them.