When attorneys bill a client on an hourly basis, there is an inherent conflict of interest. They want the client to prevail, but they also want to maximize their revenue from hourly billing. The result: discovery is conducted, motions are filed, and documents are produced -- all without regard to economic common-sense.

Here’s an example: in a wrongful termination action, the attorney defending the employer suspects that the former employee has a history of making frivolous claims against her other employers as well. The other employers are understandably not willing to discuss the plaintiff’s past employment over the telephone for fear that they too might be sued. So what does the lawyer do? He takes a deposition of the owner (or manager) of the plaintiff’s four most-recent employers.

The result: two of the four deponents (the people being deposed) confirm the attorney’s suspicion, at a cost of $3,615 to the client.

The problem: the testimony of those previous employers was ruled inadmissible at trial on the grounds of lack of relevance to the current case at hand! It is not uncommon for attorney’s to go on “fishing expeditions” at the expense of their client.

To stop this from happening to you, require your attorney to do two things at the outset of any litigation:

1. Provide you, the client, with a discovery plan and an estimated range of the costs to implement that plan. For example, a plan could contain four depositions, eight requests for production of documents, and six specially drafted interrogatories. The cost might range, say, from $4,000 to $7,000, depending on the level of cooperation by opposing counsel. Then ask your attorney to explain to you, in plain simple English, what the consequences will be (if any) if the plan is scaled back. The result: unnecessary discovery is eliminated and the case proceeds more quickly to trial, all at a tremendous cost savings.
2. Require your attorney to obtain your pre-approval before filing any non-emergency motion with the court. Despite what lawyers say at cocktail parties, a true “emergency” rarely occurs. The same money-saving requirement can also work in reverse. Let’s say that opposing counsel wants to advance the hearing date on one of their motions, and asks your lawyer to stipulate to this. Your lawyer’s ego doesn’t want to give an inch, so he says “NO”. The result: the opposition files an Ex Parte (emergency) application with the Court to shorten the time, which requires a hearing by both parties. In most cases, the opposing counsel’s request is granted anyway! When an attorney has to justify the economics of a motion to a client, thousands of dollars are saved.

Legal research is what separates a good attorney from a romance novelist. Without the proper legal authority to support an argument, a lawyer’s writing could be entertaining yet rejected by the judge as "fluff".

Throughout their careers, attorneys handle cases in areas of the law in which they have little or no experience. For the newly-admitted attorney, this means every case. For experienced lawyers, it may be a small fraction of cases. In and of itself, the fact that an attorney “learns the ropes” on your case is not necessarily a bad thing. Out of paranoia, a lawyer will usually check, double-check and triple-check every piece of work being done for the first time. “Old pros”, on the other hand, slip into a comfort zone and often get sloppy in their proof-reading.

However, many attorneys fail to understand this critical point: any time spent researching an unfamiliar area of the law benefits the attorney, not the client. Thus, any research conducted to “learn” should be written-off as a cost of furthering that lawyer’s legal education. Like law school – it's on the job training.

That’s not to say that all research should be non-billable to the client. For example, an attorney drafting a motion may need to cite specific, current cases to support the client’s position. Since it is unreasonable to expect every lawyer to memorize every case name (including the relevant text and citations), this type of research can legitimately be billed to the client. It is also reasonable for a lawyer to research the facts of a case, such as making telephone calls to interview potential witnesses.

Although highly experienced, we never charge for "research" to learn a new matter. The moral of the story: the next time you see the word “research” on your lawyer’s billing statement, make sure you’re not subsidizing his or her continuing legal education.

Unless your particular matter is flat fee or contingency, you are paying your attorney for their time, and they have to bill for that time with reasonably detailed records. Most do. To be fair to a client, most bill in time increments of tenths of an hour (1/10 or .1), aka six minutes. However, if you look closely at some fee agreements, they contain the phrase: "Telephone calls are billed with a minimum charge of .3 hours". Why? Some attorneys say that a three minute phone call "interrupts their train of thought" and causes them to have to refocus on the other matter they were working on before the phone call came in.

Our position: baloney! Answering a client's call, and updating the client on their case status, is one of the most important things an attorney does. The real reason some bill for calls with an 18 minute minimum is to jack up their fees and to discourage calls. Our office never charges a minimum greater than 1/10 of an hour (six minutes) for any matter, including phone calls.

Lawyers can bill clients in many different ways. Some matters (usually transactional) are handled on a “flat fee” basis (i.e., $___ to form a corporation). Most non-contingency matters are billed on an hourly basis.

When an attorney asks the client for a “retainer”, it is rarely such a thing. A true retainer (also known as a “classic” retainer) is a flat-fee paid by a client just for keeping an attorney available if needed. While common decades ago, retainers are rarely used today.

When most clients give their attorney money up-front, it’s simply a deposit to bill future legal services and costs against. By law, an attorney must put this deposit into a separate bank account called a Client Trust Account. This account can only contain client funds, plus a few dollars to cover anticipated bank service charges. Commingling of funds between the attorney’s “operating” account and the Client Trust Account is strictly prohibited. In fact, the number one cause for attorney discipline by the State Bar is improper use of funds in the Client Trust Account.

To get around this commingling prohibition (and to improve their cash flow) many lawyers simple declare in their fee agreements that a certain amount of the client’s deposit is non-refundable. For example, say a high-priced family-law attorney gets a minimum $15,000 to start a client’s case. Since business is slow (and the mortgage payment on the mansion is due), the attorney changes his fee agreement to read: “Client shall pay an initial deposit of $15,000, $5,000 of which shall be non-refundable and placed into the attorney’s operating account.” Sadly, this is perfectly legal!

You can imagine how this client feels when the above case settles just two days after this fee agreement is signed. Ouch! Further, any hourly billing arrangement is just that – hourly. There’s no reason for an attorney to declare part of a deposit “non-refundable”. If cash-flow is a concern, the client might be better off finding a different attorney.

(Please forgive us for abandoning the politically correct gender-neutral phraseology, but “tough gal” doesn’t have the same ring to it. The above applies to both sexes.)

Lawyers who pride themselves on being “litigators” often have a little ego problem. OK, a BIG ego problem. After being extremely confrontational during most of their waking hours, they have forgotten about everything except making sure they win and the other side looses.

The costs of protracted litigation to the client are extremely high – both financially as well as emotionally. This is why 97% of all civil litigation settles before trial. In reality, most cases should settle much sooner than they actually do.

Some lawyers consider it a sign of weakness to initiate a settlement offer. Many go so far as to talk their client out of making a settlement offer, even when the client thinks of it first! Nothing could be further from the truth.

In a small percentage of cases, the parties simply can’t ascertain their injuries or losses until some discovery has been exchanged (and even some experts consulted). However, in the majority of cases, the client knows at the time of the complaint exactly what they need to recover to become “whole”. Accordingly, the attorney should suggest their client make a settlement offer early on in the process. Even if the offer is not immediately accepted, it provides a foundation for discussion that often leads to a mutually agreeable settlement soon thereafter.

One underutilized settlement tool is California Code of Civil Procedure section 998. It basically says that if one side offers a settlement, and the other side rejects it, the rejecting side needs to prevail at trial with a better position than the rejected offer, or the rejecting side must pay the other side’s costs from the time of the offer. For example, let’s say that in personal injury action, the insurance company offers the injured party $10,000 to settle the case. The injured party rejects the offer, but is awarded only $5,000 at trial. Every dollar the insurance company spent on costs from the time of the offer to the time of trial will be deducted from that award. The injured party might even end up owing the insurer!

Another useful settlement tool is binding arbitration. If the facts and the law are truly on your side, this can be an efficient and cost-effective way to resolve your dispute. In a typical arbitration, both sides state their case to a neutral arbitrator (often a retired judge), limited discovery is exchanged, and the arbitrator makes a ruling. The decision is not subject to appeal, save a clear showing of pre-existing bias on the part of the arbitrator.

Most attorneys don’t like the arbitration process because it takes them out of their “environment” and reduces their influence. Yet arbitration, whether binding or non-binding, often yields the best results for both parties when the savings in attorney fees are factored in. Bottom line: don’t select a lawyer just because he or she claims to be “tough”. This could be the most expensive attorney you ever hire.

It did – and we won’t go further. If you found the information in this report helpful, we welcome the opportunity to further discuss your legal needs. All initial consultations, whether in person or by telephone, are provided at no cost or obligation to the client. Thanks again for reading our report.

SWilliams@SmallBusinessLaw.Org