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How to employ viable alternative fees

By: Jane Pribek//July 25, 2013//

How to employ viable alternative fees

By: Jane Pribek//July 25, 2013//

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New arrangements can give attorneys billing flexibility

E_mail_Milwaukee lawyer Eido Walny has developed such close relationships with his clients that he regularly attends their weddings, bar mitzvahs and Fourth of July barbecues.

It’s a natural progression, he said, from creating an atmosphere in which those clients feel free to talk to him without the fear of paying for every moment of communication. That, Walny said, is one of the benefits of establishing flat fees for billing.

“I need to have an open dialogue with my clients,” he said. “If they know that every time they send an email or ask a question they’ll be charged more, by the nature of that they will call less, ask fewer questions and we’ll interact less.

“To me, that means the final product isn’t as good as it should be.”

Hourly billing has been, and remains, the most common billing method for lawyers in Wisconsin and nationwide. But alternative fee arrangements are gaining ground and receiving renewed interest.

Walny’s concentration on estate planning is especially appropriate for AFAs because there is more predictability compared to trial work, he said. But AFAs can work in litigation too.

Brookfield attorney Brent Nistler made AFAs a key portion of his business plan when he left a large firm to start Nistler Law Office.

“One of my motivations for branching out on my own was I saw a niche,” he said. “Clients would come in with good cases, and sometimes large firms are less flexible to be able to take an alternative billing arrangement. With the low overhead I’d have, I saw it as an opportunity to fill that niche.”

AFA pros and cons

Appleton lawyer Mike Brown concentrates on plaintiffs’ employment and contractors’ rights. He has a billing menu that includes a straight hourly rate; a contingency-only rate at 33 1/3 percent; and a hybrid of a reduced hourly rate that caps at a predetermined amount and then converts to a contingency ranging from 15 to 20 percent.

Brown said the hybrid works well in most of his cases. When clients make a financial investment, they are more motivated to provide all the documents and information he needs.

The hybrid, he said, also means the attorney shares the risk.

“If someone is conscientious, they will be fair with an hourly rate,” Brown said. “But I also agree with the criticism that’s out there that hourly rates can wind up incentivizing, whether it’s conscious or not, dragging things out.

“I sometimes see lawyers make arguments that I would never make when I’m working on a contingency because it would be a waste of time and wouldn’t resolve the problem successfully.”

Nistler offers a similar mix of fee options with the addition of flat fees.

He said hourly billing is lawyer-centric, so when attorneys work, they’re making money. In contrast, AFAs are client-centric, Nistler said, so when attorneys win, they’re making money.

Prospective clients recognize that distinction, he said, and it gives him a competitive edge. Plus, the predictability of AFAs is a selling point, especially with small-business clients.

But AFAs are not trouble free.

Flat fees do not mean lawyers are released from tracking the time spent working on a case. Walny, for example, still loosely monitors time to see if his fees are reasonable and fair to both sides. He said he has never taken a big loss in a case.

Straight contingencies, Brown said, do not come without problems. Despite his best efforts upfront to instill realistic expectations, he said, clients still occasionally push for unreasonably high settlements when they realize that one-third of a favorable, fair settlement that is on the table will go to him.

Nistler acknowledged that AFAs are riskier. He said he had not won every case he has tried during his 14-year career, but he has become astute at screening them.

Tips for offering AFAs

Strong case evaluation skills are critical with AFAs.

For example, Brown said, a contingency is best for a class action with a high chance for success, while traditional hourly or perhaps the hybrid are better for plaintiffs when counterclaims are probable.

Along these lines, Nistler said, the hybrid works well when he represents the client from a case’s start to finish. But if he’s brought in as successor counsel solely to try a case, a flat fee is best.

Deciding when AFAs are appropriate, and which type to offer, involves making thorough, case-by-case determinations. Nistler said that is why AFAs might not be appropriate for new litigators who don’t have the experience to make those calls.

It also is important to clearly communicate the AFA’s terms when signing the attorney-client engagement letter.

Under SCR 20:1.5, all contingency fees must be in writing and signed by the client. Any type of fee arrangement must be in writing when it is reasonably foreseeable the total cost of the representation will be greater than $1,000. Further, the rule prohibits contingency fees in family law or criminal defense.

Nistler said the central ethical concern for AFAs under Wisconsin rules is whether the arrangements are reasonable. For example, a contingency fee of 80 percent could be considered a violation of the rules.

“The more upfront you can be with clients and realistic,” Nistler said, “the better.”

Attorneys should be clear about the scope of the legal services to be provided. Walny said that, infrequently, a representation has morphed into something far beyond the initial engagement letter. Depending on the magnitude of the extra work, sometimes he simply does it and chalks it up as marketing. Other times, he reminds the client about the scope of work in the agreement.

Finally, attorneys should be flexible and willing to restart the conversation about fees when it becomes apparent, midway through a case, that the existing arrangement isn’t fair to one side or the other, Brown said.

And if attorneys can find the right balance and the right cases, AFAs can help everyone involved focus on their priorities.

“In general,” Nistler said, “alternative fee arrangements make for better attorney-client relationships because of their transparency and the real clarity of expectations.”

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