Posted on
May 28, 2010 in
For some reason, it happens in May: criminal-defense lawyers' fancies turn to . . . getting paid.
This time 'round, Norm Pattis started it with Flat Fees, Black Holes, and the Value of Chaos:
There are cross-cutting incentives in a flat-fee case. The client has paid for a lawyer and wants her expectations, no matter how unreasonable or unnecessary from the perspective of the experienced lawyer's judgment, met. The lawyer, on the other hand, has an incentive in effectively presenting the case in as efficient and cost-effective manner as possible. Both client and lawyer can err given these conflicting imperatives. A client can demand too much; a lawyer can do too little. Discontent lurks at the periphery of every flat fee case once a black hole opens up, sucking time out of the world as if there were an infinite amount of it to be had.
A far better course is to charge an hourly rate. Negotiate a rate that reflects the complexity of the case, your experience and what the market bears in your area. In that case, a client is forced to consider the benefit of each additional increment of cost. A demand to interview folks not actually present at the scene of the crime becomes a demand the client must reckon as necessary. A lawyer, paid hourly, can counsel against a fool's errand. But if the client insists, the lawyer can then choose either to accept the hourly fee or ask the court to be relieved from a case if the client's demands become repugnant or irrational.
DC criminal-defense lawyer Jamison Koehler weighed in, as did New York's Scott Greenfield and South Carolina's Johnny Gardner. Of these practicing criminal-defense lawyers, only Norm seemed to think that hourly billing is better than flat-fee billing in criminal cases. Charging flat fees, he writes, "leads to an almost inevitable conflict between lawyer and client." (Norm's fellow Fenwickian, Gideon, asked more than two years ago whether hourly billing might be better.)
There is a potential for conflict in any hired lawyer-client relationship. The lawyer provides her time, her effort, her reputation, and her talent in the pursuit of the client's goals, and the client pays the lawyer. Assuming (as we should be able to assume) that the lawyer and the client both want to get the best possible result for the client, the lawyer still wants to maximize her fee and minimize the time spent on the client's case and the client wants to minimize his fee and maximize the time his lawyer spends on his case.
When the lawyer has received a flat fee, as Norm notes, the lawyer wants to achieve the client's goals as efficiently as possible. The client, however, wants the lawyer to spend more time than is necessary on the case—to make assurance doubly sure, to feel like he's getting a bargain, or just because he craves attention.
When the lawyer is being paid by the hour, on the other hand, the client wants the lawyer to get the job done efficiently, and the lawyer wants to make as much money as possible. As Scott notes:
Hourly billing is one of the most notorious scams going, where a lawyer puts down a tenth of an hour (6 minutes) because the client's name passed his lips, or charges for 12.7 hours for preparing motions when most of the time was spent playing spider solitaire as he pondered the issues. . . .
There's nothing to stop a lawyer from billing in 10 second increments, but nobody does. It's invariably billed in 6 minute increments, even if the time involved is 10 second to read an email that says "thanks". What about the 3 hours spent on a motion, when there were 7 short duration phone calls in the middle, a few emails and the copy machine broke down? Nothing forces the lawyer to be imprecise, yet it ends up billing out at 4.3 hours.
So if there's a potential conflict however the lawyer charges for her services, what is she to do? Is she damned whatever she does?
No. A potential conflict only becomes a real conflict when the lawyer loses track of her priorities. If the lawyer picks the method for converting representation to money that works best for her and, bearing in mind the potential for conflict, puts the client's interests ahead of the lawyer's interest in making as much money as possible in as little time as possible, the potential conflict will never become actual. (How a lawyer can do this while billing six minutes for a 10-second email is a separate issue.)
I am terrible at keeping track of my time. When I've had hourly cases (for example, CJA appointments), I've left thousands of dollars on the table. Besides, I do my best work when I'm thinking about something else; I solve my clients' toughest problems by putting them in the back of my mind and letting the answers come to me while I'm thinking about something non-law-related. I don't imagine that many clients would be thrilled to be billed 12 hours for motorcycle maintenance and dog walks, even though it was the act of using a different part of my brain that allowed me to find the keys to their problems. (I wrote more in May 2007 about problems with hourly billing.)
So it's flat fees for me. Once the fee is paid in full, I don't think about how much I've been paid on the case. Whether I've been paid six figures or I've taken the case pro bono, my commitment to trying to solve the client's problem is the same. I don't resent having the unexpected time-suck legal or factual issues arise. I don't, however, get pulled into the client's or his family's emotional black hole. The goal is a successful end to the criminal case, and anything that doesn't contribute to that goal is entirely optional.
Not only flat fees, but beginning-to-end flat fees. Many lawyers favor incremental, split, or hybrid flat fees, in which the client pays one fee for (for example) plea or dismissal, and an additional fee if the case is set for trial. I wrote more about split fees in May 2009 in Paladin Didn't Charge Split Fees and Because The Customer Is, At That Point, Often Wrong. Briefly, I have two practical objections and one philosophical objection to split fees.
The first practical objection is that in order to get the best possible resolution of a case before it is set for trial I have to prepare for trial. Preparing for trial is the bulk of the work of a trial. If a lawyer is going to do the bulk of the work of the trial before setting the case for trial, the fee might as well reflect that.
The second practical objection is that the client who commits to paying a trial fee doesn't necessarily have the money when the time rolls around to set the case for trial. Either the lawyer gets stuck trying the case for less than agreed, or the client gets pressured to plead guilty. For the ugly side of that particular conflict, see Bad Lawyer. No Cookie.
The philosophical objection is that the decision to plead guilty or proceed to trial is fraught enough without trial fees being part of the equation. An accused should never be in a position of saying, "the best thing to do would be to go to trial, but I can't afford to pay for a trial" (unless he needs to rationalize a guilty plea that really is the best thing for him).
Because I base the size of the fee on the probability I assess of the case going to trial, my clients pay more than they would if I knew the case was going to plead but less than they would if I knew the case was going to trial. They are, in effect, buying trial insurance.
This is not to say that my beginning-to-end flat fees would work for all lawyers. These, and my policy of not financing my fees, have certainly run off some potential clients who were focused on the short-term expense of hiring a lawyer rather than the long-term cost. I might change the way I set my fees if I wanted a higher-volume practice.
All criminal-defense lawyers worth their salt think that their way of charging is the best way. And most of them are probably right.
I think you might have gotten it wrong re: flat fees, at least when it comes to the Pattis piece. Seems to me that piece said flat-fees, practically speaking, were the lesser of two evils. Language further on in the piece belies the idealistic strivings of the language you have taken somewhat out of context. Practically speaking, clients would go belly-up within ten hours for most cases at a reasonable hourly rate of $250 an hour given both travel and “hurry-up & wait” time charged eating for the judge to come out, at least here in CT.
Each lawyer has to decide which potential risks/problems he prefers. The question was never whether there was a right or wrong answer, but understanding the various risks, whether of non-payment, dissatisfaction or over/under charging, etc. Given our clientele, we decide what works best.
The issue raised by Norm elevated one concern over others, and likely would have been ruinous for many lawyers who might be persuaded that it was the way to go. The virtue of honest hourly billing, assuming such a thing exists, is trumped in criminal defense by the unfortunate likelihood of non-payment, whether intentional or a matter of circumstance. No lawyer can survive for long if clients don’t pay the fee, and few CDLs have a clientele inclined and capable of paying monthly bills, or willing to retain a lawyer without some idea of how much the entire legal feel will eventually be.
These are the ordinary issues that a CDL faces in private practice. That they are discussed from time to time is merely to help those new to the discussion (and the practice) like Jamison understand the issues at play and make a reasoned decision.
Sure, but why May?
In preparation for June, when young lawyer’s attention turns to love. Love ain’t cheap.
I love the Paladin reference. Mark- I knew we had more in common. You may have mentioned this, but another thing that stands out about him is that his clients did not own him even though some tried.
I haven’t practiced for long, but I think you’re right to compare the flat fee to a form of trial insurance. It basically shifts the risk of an apparently simple case becoming enormously complex–and conversely, the upside of an apparently complex case turning out to be simple–from the client onto the lawyer.
I don’t know enough about the practice of law to be able to be able to comment on whether flat fees are better than hourly billing, but the comparison did lead me to think of another point: if the flat fee arrangement is a form of insurance, then it means that lawyers who charge a flat fee needs to add a “risk premium” in order to justify taking a case on a flat fee. This may not always be to the client’s benefit. In particular, wealthy clients who are able to “self-insure” may be better off paying an hourly fee to avoid the risk premium, and in effect bear the cost of risk themselves.
Because the cost of risk is inversely proportional to wealth (i.e., the risk premium needed to justify taking on a risk of given magnitude), then it suggests that there may be a simple answer to the question of when a lawyer should charge a flat fee: if the client is wealthier than the firm, charge hourly, otherwise, charge a flat fee. All of this is assuming, of course, that the flat fee is solely a risk management device.
Generally, I think you’re right. “If the client is wealthier than the firm, charge hourly, otherwise, charge a flat fee” is probably a bit of an oversimplification, though.
Trial insurance is an even-money bet or worse for the client (because for the lawyer, who sets the terms and who has more information than the client, it’s got to be an even-money bet or better).
There may be rational reasons to take the insurance, but if you can afford to self-insure, self-insurance is a better bet than insurance.
Even if the client is less wealthy than the firm, he might be able to pay hourly for a trial, and if he can, he probably should.