San Diego Business Lawyer Blog
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.
One potential solution is to set flat fees for the different phases
of litigation. Attorneys might comfortably agree to flat fees for
pre-filing negotiations. If an attorney’s efforts are successful, then
the client foregoes actual litigation expense. If not, a pre-set flat
fee can be agreed on for pre-trial litigation based on the attorney’s
best estimate of hours less some discount to compensate for potential
early resolution and a guaranteed fee. For trial, the attorney and
client can agree in advance either to switch to an hourly rate or again
negotiate a flat fee. It’s important to recognize of course that the
flat fee scheme results in countervailing incentives for attorneys. On
one hand, they will be motivated to resolve matters quickly and
efficiently. On the other, there is an incentive to cut corners in
order to reduce work load. Theoretically, ethical obligations and
malpractice fears should temper this.
In the end, clients may be willing to risk over payment comfortable
in the knowledge that attorney fees will be fixed. In exchange for the
clients’ risk, attorneys would discount flat fees. For example, an
attorney may estimate 80 hours for pre-trial litigation. If his or her
fee is $200 per hour, the estimated attorney fees would be $16,000.
Clients, all too familiar with attorney fees well in excess of
estimates, might be happy to agree to a flat fee of $10,000 to guarantee the attorney’s services to the start of trial.
The prospect of a flat fee friendly litigation environment remains
elusive. The larger corporate law firms are unlikely to step away from
the “billable hour” framework, and their entrenched corporate clients unlikely to seek counsel elsewhere. The larger corporations prefer national
reputations, and remain willing to pay a premium for legal services.
However, skyrocketing fees, often well over seven figures per case,
can’t be ignored forever. For new and growing litigation practices and
their more modest clients, flat fee litigation may offer a new paradigm
which may in turn force larger firms to reconsider their billing
practices.
Part Two of this article explores these issues further.