Lawyering Up: A Primer on Fee Agreements

As always, before reading this post I encourage you to review my disclaimer by clicking on the link at the top of the page, or by following this link.  As always, the legal content of this post is applicable only to the Commonwealth of Virginia.

Introduction

As this blog develops, most of my posts are going to conclude with the notion that a) my blog is only providing general information that may or may not be applicable to your specific issue, b) no blog post can answer all of your questions about your legal issue, and therefore c) you should consult with an attorney before taking any action (or deciding to take no action).  It occurs to me, however, that the process of consulting with an attorney is, itself, no simple task.  Beyond the fact that finding an attorney is not always easy is that once you do find an attorney you can will likely find yourself going through an array of questions about how you will do what people with an attorney dread most:  pay your legal fees.

Most attorneys will require you to sign a fee agreement laying out your fee structure (and if the attorney you are speaking with does not insist on such a thing, you should, as fee agreements protect both the attorney and you).  A fee agreement is a contract, and like any other contract, it deserves your close scrutiny.  Most importantly, if there is something in the fee agreement you don't like, do not sign it.  Fee agreements can be changed, and just because an attorney hands you one doesn't mean you are forced to accept it as is or look elsewhere.  Fee agreements are usually somewhat negotiable, and you should not be afraid to ask for changes that you feel are necessary to make the agreement one you are comfortable with.

So, the key takeaway is that you should read your fee agreement closely.  Most attorneys, contrary to our unfortunate reputation, are honest people trying to make an honest living.  This means that most attorneys are being honest, not trying to deceive you, when verbally summarizing a fee agreement to you.  However, like any person, we can make mistakes, and your review of the fee agreement is critical to catch those mistakes.  Remember, a written contract is only enforceable as written, so if you sign it believing that it says something other than what it does, not only will the actual writing be enforced, your beliefs might not even be admissible in court if there is a dispute later.  Moreover, you can take the agreement home with you to scrutinize it.  No attorney is going to say "You must hire me today or I won't represent you."  After all, this is how we make our living.  Are we really going to turn down a paying client just because you took a couple days to retain us?

Finally, my general advice when reviewing a contract in other situations is that you should consider going over it with an attorney.  If you are going to be hiring an attorney for a long-term, high-priced matter, this may not be a bad idea with a fee agreement either.  The problem is, if you do that you will have to have a fee agreement with that attorney.  In other words, at least somewhere along the line, you will have to sign a fee agreement without the input of an independent attorney, and I am hopeful that this blog post can give you some basic idea of what to look for when you are reviewing a fee agreement.

Flat Fee vs. Hourly Rate vs. Contingency Fee

The first question to ask is, are you hiring the attorney to represent you on a flat fee basis, an hourly rate basis, or a contingency basis?  If flat fee (as in, you pay one amount to cover your entire case no matter how much time the attorney puts in) then the amount you are paying should be clearly stated.  Further nothing in the agreement should say anything about a rate "per hour," unless there is a clause specifically delineating the situation in which such an hourly rate would kick in (for example, if an uncontested case suddenly became contested).  Further, if the flat fee agreement does contain an hourly rate clause, that clause should require the attorney to tell you in advance before the hourly rate starts to be charged, and give you a reasonable opportunity to reject the attorney's services after that change.

Contingency fees are typically the most popular fee arrangement amongst clients (for obvious reasons), but also can be the most fraught with perils.  Under rules of legal ethics, contingency fees are only available when you are seeking money from another person or company, and even in that realm there are situations where they are not available (for example, if you are seeking a monthly child support award, an attorney may not represent you on a contingency basis).  If you are hiring an attorney on a contingent fee basis, the agreement should clearly delineate a) the contingencies that must occur for your attorney to collect his or her fee, b) the percentage that goes to your attorney, c) whether you must cover expenses up front or if that is part of the contingency - and how the expenses are to be paid, and d) an opportunity for you to decline the incurring of any expense as a part of your case.  Moreover, there should be no reference to any rate "per hour" unless it is to provide a baseline for the attorney above which the attorney cannot collect (for example, it's ok for a fee agreement to say something like "the attorney shall receive 33% of whatever money the attorney collects on the client's behalf unless that amount is greater than the attorney's hourly rate of $x times the number of hours the attorney worked on the client's behalf").  In other words, if the hourly rate is there to potentially reduce the attorney's fee, then it is ok.

Finally, if you are hiring an attorney at an hourly rate (this is the majority of fee agreements), the agreement should clearly delineate a) the amount of the retainer or fee deposit, b) the hourly rate of all attorneys, legal assistants, etc. who might work on your case, and c) a basic schedule of when you receive bills and how much you need to pay on your bill when you receive it (some require you to only pay the outstanding balance, some require you to replenish your fee deposit, etc.).

Fee Deposit vs. Retainer

If, like most people who hire attorneys, you are hiring an attorney on an hourly basis, you will likely be asked to pay either a "retainer" or a "fee deposit".  Most people and lawyers use the two terms interchangeably (I will confess I am guilty of this sometimes), primarily because most people are simply used to the term "retainer."  The two terms are actually not interchangeable, however.

A "retainer" is a one-time payment made to your attorney that buys access to your attorney.  It's like a cover charge at a bar - you pay it up front to get you in the door, but then you still have to pay for each actual drink.  It's non-refundable, even if you never use the attorney's services, and it does not pre-pay for any of the attorney's services (in other words, if your attorney has an hourly rate of $450, a retainer of $1,000, and he does two hours of work for you, you'll end up paying $1,900).  Despite the commonality of the term, most attorneys I know do not charge retainers, but enough do that it is worth keeping an eye out - and depending on the quality of the attorney and the services offered, an attorney should not necessarily be rejected just because he or she charges a retainer.

A "fee deposit" is exactly what it sounds like.  It is a pre-payment of a certain amount of an attorney's time, and usually all, or at least some, of the deposit is refundable if you do not use that much of the attorney's time.  Most attorneys I know charge a fee deposit, frequently for anywhere between 5-20 hours of our hourly rate.  So, using the same example as the last paragraph, if you hire an attorney whose hourly rate is $450, charges a fee deposit of $1,000, and does two hours of work for you, you'll come away in the end having paid a total of $900, and you will get $100 of your fee deposit refunded to you.

Unfortunately, because of the perceived interchangeability of the terms, you cannot always tell if you are dealing with a fee deposit or a retainer just by the term used in the agreement.  You must read how it operates.  Does the contract say the retainer or deposit goes into a trust account?  If so, it's probably a fee deposit, if not, it's probably a retainer.  Does the contract say that the hours are, at first, billed against the trust account?  Again, if so, it's probably a fee deposit, if not, it's probably a retainer.  If it is unclear to you what the agreement calls for, don't be afraid to let the attorney know that you would like the fee agreement to be clearer on this matter.  Some fee deposits and retainers are pretty large (I use a fee deposit with my clients, and in rare instances I have asked for deposits as high as $5,000 before), so this is very important to get right.

Escape Clause

Your legal issue belongs to you, not to the attorney you hire.  As a result, every fee agreement absolutely must have a clause allowing you to fire your attorney, terminate the contract, and end the attorney-client relationship at any time you want to, without cause.  If you do this, you should only be responsible for costs accrued up to the date of this decision, and some very limited costs possibly accrued in getting your file returned to you or sent to your new attorney.  Further, if you are on a flat fee or contingent fee basis, the clause allowing you to terminate the contract should make clear what portion, if any, of the flat fee you get back depending on what stage you are in, or how much of any collection the contingent fee lawyer might still be entitled to depending on what stage you are in.

This clause is not optional, and you absolutely should not sign a fee agreement that lacks one.

Interest and Collections

The sad reality is that in our profession, as in most professions, some clients simply decide not to pay.  Then we find ourselves having to sue them to collect on their past due bills.  Many attorneys will write a clause into their fee agreement that protects them from some of the damage this causes.   This clause will usually charge interest and also allow for a penalty to be imposed for having to file suit (usually by adding a certain percentage to the outstanding bill).  Even if you absolutely intend to pay your bill in full, read these clauses carefully as you could end up paying some interest if you find the case gets more expensive than you expected and you cannot pay off the account all at once.  Like any provision of fee agreements, these provisions usually are negotiable, and you can ask the attorney to change them if you want to.  Another approach could be to ask that the agreement state that you will not be charged interest in any month in which you pay at least a minimum amount (say, $1,000).  The worst that will happen is the attorney says no.

Conclusion

Like all contracts, the fee agreement establishing your relationship with your attorney is a critically important contract, and deserves close scrutiny.  It is easy to fall into traps of language you might not understand, and while I hope I have provided some basic knowledge here, it is, as always, not possible to cover every situation in a single blog post.  If you are considering hiring an attorney and would like an independent attorney to review your fee agreement, please feel free to set up an appointment with me by calling (703)281-0134 or e-mailing SLeven@thebaldwinlawfirm.com.  Your initial consultation is free for up to half an hour, and I do actual reviews of potential contracts for a flat fee.