Posts Tagged ‘fees’

Why Should I Have to Pay for a Lawyer When I’m Innocent?

Wednesday, October 5th, 2011

Illustration of the Old Bailey during the Regency period.

In Patrick O’Brian’s The Reverse of the Medal, one of the novels in his brilliant Aubrey-Maturin series set during the Napoleonic wars, one of the main characters winds up being prosecuted for insider trading. Jack Aubrey, a heroic naval captain, is completely innocent — but the evidence against him looks bad, he’s up against a win-at-all-costs prosecutor, and the judge is a mean sonofabitch. His solicitors have just retained a top-notch barrister to represent him. The following exchange between Jack and his friend Stephen Maturin is something one might hear in lawyers’ offices even now:

“It appears that Mr Lawrence is a very clever lawyer indeed, and I suppose I should be glad; but upon my word I cannot see that I want a lawyer at all. […] This affair is nothing like those miserable [civil cases], with innumerable obscure points of disputed contract and liability and interpretation that have to be dealt with by specialists; no, no, this is much more like a naval matter, and what I should like is simply to have my say, like a man called before his captain, and tell the judge and jury just what happened. Everyone agrees that there is nothing fairer than English justice, and if I tell them the plain truth I am sure I shall be believed. I shall say that I never conspired with anyone, and that if I followed Palmer’s tip I did so with a perfectly innocent mind, as one might have followed a tip for the Derby. If that was wrong, I am perfectly willing to cancel all my time-bargains; but I have always understood that guilty intent was the essence of any crime. And if they confront me with any man who says that what I say is not true, why then, the court must decide which of us is to be believed — which is the more trustworthy — and I have not much fear of that. I have every confidence in the justice of my country,” said Jack, smiling at the pompous sound of his words.

“Have you ever been present at a trial?” asked Stephen.

Jack’s is a common misconception, that the criminal justice system is nigh infallible, and that innocence will out. Those who have actually had some experience with the criminal justice system, however, are more inclined to share Stephen’s skepticism. Injustice happens with alarming frequency, in real life. Evidence is falsified, words are twisted, mistakes are made. Juries are unpredictable, hamstrung and sometimes foolish. Lawyers miss issues, miss facts, and miss deadlines. Prosecutors abuse their discretion or fail to use it. Innocents are convicted by reliance on the unreliable. Innocents convict themselves by plea, rather than take the risk of greater penalty should they lose at trial. The criminal justice system is predisposed towards punishment; once caught up in the system, whether innocent or guilty, the chances of being punished are significant.

We’re not all monsters in the system, of course. For the most part, the (more…)

Billable Hours vs. Flat Fees

Monday, August 24th, 2009

parkingmeter

Today’s Wall Street Journal has an article on how companies are starting to insist on flat fees for legal services. In the economic recession, companies are starting to complain that lawyers billing by the hour (or the tenth of the hour) only creates incentives for those lawyers to work inefficiently and rack up higher fees.

And of course that’s true. But people forget that it was clients, not lawyers, who first insisted on billing by the hour.

Most lawyers perform transactional services. A lot of this work requires little original effort — the vast majority of corporate formations, contracts, wills, filings, etc. are practically boilerplate. There’s no new research to do, nobody needs to write anything from scratch. Just fill in the names and a few key variables, and the work is done.

Back in the day, lawyers charged flat fees for these services. You want a lease? That’ll be fifty bucks. And everyone paid the same amount, because fees were fixed by the bar associations.

But then clients objected, asking why they should pay fifty bucks for a document that took five minutes to prepare.

So clients started to insist on paying only for the work that their lawyers actually did. They didn’t want to pay for the value of a service, but rather for the time spent performing it.

Lawyers, for the most part, are not dummies. They readily adopted this new way of doing business. Their incentives changed, predictably. Away went the fixed-fee focus on getting the client a desired outcome, and in came the hourly-fee incentive to provide as many incremental services as one could get away with.

By the 1970s, the billable hour had pretty much supplanted the a la carte fees of yore. Now, that fifty-dollar contract had blossomed into several hours of research delegated to a junior lawyer, more hours of legal memoranda summarizing that research for partners who probably already knew it, more hours of drafting and revising, plus phone calls and travel time and meetings and so on.

-=-=-=-=-

Billing by the hour is not necessarily a bad thing. The client gets to see exactly what work is being done for him (if the bill is reasonably itemized). And although there is a real incentive to maximize billable hours, most attorneys we know are professional enough not to pad their bills with unnecessary or duplicative work. (Not saying it doesn’t happen, only that we haven’t had the pleasure of associating with such lawyers.)

Billing by the hour can actually be a bad thing if one happens to be the kind of lawyer who gets results. The lawyer who gets the job done, not just well, but soon. That lawyer has a happy client, but if he’s getting paid by the hour he’s not making a lot of money.

So there are plenty of lawyers who already charge flat fees, or minimum fees. These are very often criminal defense attorneys. The client doesn’t care so much about how many hours you spent researching the law of search and seizure, he just wants the evidence suppressed. He doesn’t care how hard you worked to negotiate a better deal, he just wants the deal.

When the client is concerned with the results, not how they were achieved, the billable hour makes little sense. The client should pay for the value of the service rendered.

That does not mean paying more for better results — that’s not ethical. What it means is, the lawyer can charge five grand to knock out a misdemeanor, even though it didn’t take five thousand dollars’ worth of time, because that’s what that outcome happens to be worth where he practices.

-=-=-=-=-

The big problem we have with this whole discussion is that the participants keep talking about the law as if it is a business. Firms are all about maximizing revenues and profits, we hear. Flat fees are going to cost the same, or more, because the firms will calculate what they would have billed anyway, and add in a fudge factor. And clients will suffer when firms focus their energies on the hourly work, perceiving time spent on flat-fee work as an opportunity cost. And without the billable hour, there is little justification for all the junior associates who generate so much hourly revenue (or their salaries).

But the law is NOT a business. The practice of law is NOT about making money. The practice of law is a profession.

There are only three professions: medicine, the clergy and the law. What sets the professions apart from businesses is that the point is not to make money. Profits are not the point. The only thing that matters is caring for the patient, tending the flock, and representing the client. The client’s interests are paramount. The lawyer owes his loyalty not to his firm, not to any shareholders, but to the client he represents.

The second a lawyer or law firm starts focusing on maximizing revenue, they stop being professionals. There is no reason why lawyers should not be compensated for their representation. And there is no reason why that compensation should not be handsome, when the representation is valuable. (We charge far more than the average lawyer, for example, but we like to think we’re worth it.) Nevertheless, making money must never be the point of doing the work.

So to those who bitch and moan about how switching to flat fees would hurt their bottom line, we can only say that they should stop thinking like shopkeepers and start acting like professionals.

Should We Stop Billing by the Hour?

Friday, May 29th, 2009

chinese-physician.png

An old Chinese story goes like this:

The emperor called on his advisors to summon the greatest doctor in China. His advisors all agreed that the most famous physician in the land was Dzang-gung. So Master Dzang came before the emperor, who asked him whether he was in fact the greatest doctor in China.

“No,” replied Master Dzang. “I am merely the most famous. I see people when they are about to die, when sickness has taken over their bodies. And sometimes I can heal them. So my fame is known throughout the world, and I have grown very wealthy.

“But my older brother is greater. He sees illness before it takes hold, and cures people before they are at death’s door. So although he saves many more lives than I do, his fame does not go beyond our village.

“Our father, however, is greater still. He sees illness before it happens. He prevents it from happening before people even become ill. He has saved thousands more than his sons, but his fame does not spread beyond our house.”

Or there’s this (embedded with permission):

Dilbert.com

We find ourselves in a similar dilemma to the old Chinese physician and the efficient lawyer in the funny pages. Our hourly rate is pretty darn high. But we tend to resolve things too fast for that hourly rate to add up to much.

So we’re considering a switch from the hourly rate to a flat fee, charging basically the value of the service to be performed. We know that lots of defense attorneys bill this way, but it would be a big shift for us.

In our practice, we’ve been selling our time and labor, no different from a plumber or an electrician. Someone has a problem to be fixed, and needs someone with specialized skills to take care of it. There’s no inventory to mark up for a profit, the only thing being traded is time and effort.

But that’s not really true, is it. There’s another thing being provided — the result.

Now lawyers used to charge flat fees for everything. You wanted a contract? Fifty bucks. You wanted a will? Twenty-five bucks. Whatever you wanted, there was a fixed price, and you paid it. You were buying the completed job. Fees were often fixed by bar associations, and lawyers could get in trouble for charging less. (Ah, the law has ever been a cartel. That ain’t changing any time soon.)

But back during the Eisenhower years, the billing standard did change. And it wasn’t lawyers who did it — it was the clients. Clients said “wait a second, how come you’re charging me two hundred bucks for a document you spend ten minutes on? You just used something you’ve already written before, and just changed the names. I’m not paying two hundred bucks for ten minutes of work.”

Lawyers tend not to be stupid. It was easy enough to switch to the billable hour, as demanded by their clients. And it was just as easy to use that billable hour to the fullest. The financial incentive switched from getting the client the result they wanted (which usually meant as soon as practicable), to providing an interminable series of sorta-kinda necessary services, all billed in 6-minute increments. By the 1970s, this was the norm.

The law stopped being a profession, to some extent, and became instead just another business. A “profession,” for those who misuse the phrase routinely, is not a job, but a calling — one in which the professional has a unique relationship with the buyer, a relationship of trust. The professional is trusted to act only in the client’s interest, never his own. The professional has an ethical duty to put that client’s interests ahead of his own. Traditionally, there have only ever been three professions: the law, medicine, and the clergy.

The professional’s job is not — absolutely, categorically, one hundred percent NOT — to maximize profits. It is to take care of the client, patient or parishioner. To see that their needs are met. Of course, one should be compensated for the service, but that’s not the point of doing it.

But that doesn’t mean billing by the hour is wrong. It isn’t. It gives the client some level of assurance that he’s paying for work, that something has been done in exchange for that dollar he just paid. And most attorneys bill honorably and honestly.

Still, it overcompensates the lawyer who enhances his bill with perhaps unnecessary tasks and expenses. And it woefully undercompensates the lawyer who gets the client a satisfactory result swiftly and efficiently.

So we are seriously considering switching to a flat fee for our services. It’s fairly common in the criminal defense bar, and at least one major law firm is famous for charging a single fee for its services. We’d be in good company.

There are of course issues to be hammered out, such as how much of a discount should be given if the representation ends before the case does — probably depending on what stage the case is at. Or how to best calculate the appropriate fee for a given case (thank goodness finance and economics are among our strong suits).

But those are minor details, which can easily be thought through. Overall, yes, the idea does sound more and more attractive. It reminds us of one last story:

There was an engineer who worked at the company for many years, earning an excellent reputation. He eventually retired. But several years later, the company had a problem with one of their super-expensive, super-complex machines. They had thrown all of their best engineers at the problem, to no avail. They had brought in consultants and specialists, but the problem could not be fixed.

In desperation, they called the engineer back out of retirement. He didn’t want to, but they begged and pleaded, and he eventually gave in.

The next day he showed up, and just stood there looking at the machine. Didn’t say anything, didn’t do anything. Just looked at it. A long time passed. Then he walked around the machine a couple times, took a piece of chalk out of his pocket, and marked a small “X” on one of the gizmos, a ten-cent piece of hardware. “There’s the problem,” he said, and went home.

The company replaced the ten-cent part, and suddenly the machine worked like a dream.

A week later, the company received a bill for $50,000 from the engineer. They were incensed! The engineer received an angry letter demanding that he present an itemized invoice, accounting for his time, labor, expenses and other charges justifying this outrageous bill.

The engineer replied with the following itemized bill:

One (1) chalk mark: $1

Knowing where to put it: $49,999

The company paid it in full.