How to Avoid the Most Common Fee Setting Mistake Made by Lawyers
A lawyer recently asked me whether she should accept an offer from a potential client to take on for $50,000 a lawsuit against a large entity that has a substantial and experienced in-house law department. When stated in these terms, one answer should become increasingly obvious. You don’t have enough information to answer this question intelligently.
There are dozens of things an attorney might need to know about the lawsuit and the client before deciding whether a flat fee of $50k is reasonable or appropriate. This includes everything from the procedural and substantive history of the case, the client’s potential success on the merits, the client’s ability to pay by the hour, and his prior history working with lawyers.
I know from my experience consulting about fee setting that many lawyers have a set way of setting and communicating fees. And they communicate that fee in almost all circumstances. Most commonly, this happens when the lawyer quotes a standard hourly rate.
It’s as if the governing rules forced lawyers either to refuse a representation or quote a single kind of fee. But those are not the rules. California, for example, permits lawyers in most circumstances to charge a variety of fee types including an hourly rate, a contingency fee, a flat fee, or a combination of these fee types. See California Business & Professions Code §§ 6147-48.
Too many lawyers cling to a single way of charging for their services, but this is not the most common fee setting mistake. Even more problematic and widespread is lawyers’ habit of quoting a fee before they have collected enough information from the potential client to assess the representation appropriately.
With respect to the lawyer who was asked to handle a law suit for a $50,000 flat fee, it took about 15 minutes to conclude that the lawyer should reject that offer. The lawyer shared public information that strongly suggested that this would be a high maintenance client. The lawyer was particularly concerned about the merits of the client’s position, and the potential that the lawsuit would be protracted and complex. I therefore advised the lawyer to offer to charge a flat fee to investigate the merits of the case and to give the client an assessment of his best options. This would have the added benefit of preventing the client from spending $50,000 needlessly, and would help both the lawyer and client determine if a flat fee was appropriate when they both had more information about the lawsuit and its potential risks and benefits.
Many cases present room for creativity in fee setting. Often there are a variety of ways that the fees for a single representation can be structured. But lawyers lose millions of dollars of fees and work with clients they should avoid because they don’t collect enough information from potential clients before quoting a fee. This is an expensive and avoidable mistake, which, in today’s competitive marketplace for legal services, is increasingly unforgivable.