San Diego Business Lawyer Blog

Part One of this article discussed the general concept of flat fee litigation, and the associated relative risk shared by attorneys and their clients. Part Two explores potential flat fee litigation schemes further. The greatest challenge in devising a flat fee litigation scheme is making reasonable estimates of the attorney time necessary to effectively litigate any given case. Experienced litigators can distill the facts and the law in advance and make reasonable estimates of the time necessary, and they routinely offer estimates to prospective clients in the billable hour context. Unfortunately, lawyers' estimates are often understated and clients end up paying significantly higher fees than originally expected. This is likely because attorneys are loath to give worse case scenarios and risk turning clients away.

So long as clients are willing to absorb a share of the risk (see Part One) in exchange for certainty in billing, attorneys can and should offer their clients a flat fee option for most litigation matters. In order to reduce the risk to clients of over paying for matters that may resolve in the early stages of litigation, attorneys can offer flat rates for the different stages of litigation. A flat fee litigation scheme may look something like the following: a flat fee for pre-filing negotiation; a flat fee for post-filing/pre-trial litigation; and a flat fee for trial preparation and trial. The pre-trial litigation phase could be broken up further into a flat fee for post-filing/pre-discovery work and a flat fee for all remaining pre-trial litigation including discovery.

The difficulty of course arises in deciding how to calculate the flat fee. Litigation is a complex process mired in factual, legal and procedural uncertainty, and it's the attorney's job to navigate the maze for the client. Nonetheless, experienced litigators have the skills required to make reasonable estimates. They can estimate the number of witnesses to be deposed, the volume of documents to review, the potential discovery burden, the extent of expert discovery and an average time for expected motion work. In some cases, they'll be able to include the skill and determination of opposing counsel in the equation. They will not get it right in every case. In fact, the estimates may be off more often than not. Whatever accuracy is achieved, they can at least assign risk value to the estimates. The goal is to present a marketable alternative to the inefficient and client unfriendly "billable hour" practice.

It's important to note that setting a flat rate for attorney fees doesn't eliminate all uncertainty for clients. Litigation costs can vary considerably and attorneys should provide their best estimates of those costs while explaining the inherent unpredictability.

Compared to the entrenched "billable hour" practice, the flat fee approach is an attractive prospect to the San Diego law firm looking at creative billing practices to lure new clients and keep existing clients who are increasingly more frustrated with the status quo.

Attorneys and law firms have visited the issue of flat fee litigation in the past, and there are San Diego litigation attorneys today that offer some of their business clients the option under limited circumstances. However, there can be little doubt that the overwhelming consensus amongst legal professionals is that flat fee litigation simply isn't practical. In part, this view stems from the difficulties in predicting actual attorney hours necessary to litigate any given case. Even if a law firm could adequately estimate the number of hours necessary to complete a case, it is virtually impossible to know whether the matter might resolve informally long before significant attorney hours are expended. In fact, a good attorney will strive for this beneficial result for his or her client. Avoiding long drawn out litigation is always a healthy result. Apart from the monetary costs, the emotional and time consuming roller coaster ride takes a toll on business owners.

Business owners would like some certainty as to the final cost of litigation. Attorneys are concerned with compensation for the actual work performed. Under standard billing practices, attorneys do their best to provide estimates, explain the process and most often stress the inherent uncertainty that comes with any litigation. Unfortunately no matter how well explained, clients rarely anticipate the actual costs ahead. Moreover, although attorneys are bound by ethical considerations, the reality is that there is little incentive for efficiency. Nor is there a desire to scare off clients with worse case scenarios. Yet, worse case scenarios are common in litigation, and the result is an ever increasing dissatisfaction with litigation and the legal profession in general.

The question then turns to one of sharing risk. From the litigation attorney perspective, agreeing to take on a litigation case for a flat fee comes with great risk. They know the potential for a long drawn out process consuming unanticipated attorney hours. At best, underestimating attorney time results in reduced average hourly rates. At worst, the attorney finds himself or herself overwhelmed by a single case at the expense of others. For clients, knowing what attorney fees will be in advance makes it possible to evaluate whether anticipated litigation is an economically feasible alternative to informal resolution. However, in exchange for certainty in billing, they risk overpaying for their attorneys' time, and the overpayment can be significant if the case resolves in the early stages. Paying an attorney for an anticipated 80 hours that resolves after 5 hours of work can be just as dissatisfying as expensive ongoing litigation. It's clear, nonetheless, that consumers are looking for alternatives.

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