By: Roger J. Buffington, Esq.
One of the subjects that often comes up in attorney-client discussions is the question as to how the client will pay his or her attorney’s fees. In this brief Blog article we will discuss the considerations between the two most common billing practices: hourly fee versus contingent fee. Hourly billing is simple: the number of hours the attorney worked multiplied by the attorney’s hourly fee rate. Contingent fee arrangements are flexible, but generally involve the attorney deferring most or all compensation until the conclusion of the case, at which time the attorney is entitled to collect a percentage of the recovery, if any. There is also a so-called “hybrid” arrangement where the attorney takes a lower hourly fee and also takes a percentage (usually smaller than the percentage in a straight contingency case) at the conclusion of the case.
Most clients most of the time pay their attorneys on an hourly basis. It goes without saying that essentially all defense cases are billed this way. There is a mythos in the mind of the public that most lawyers bill most plaintiff’s cases on a contingent fee basis. This is, in fact, generally not true. It is true that certain types of cases are often billed on a contingent fee basis. Auto collision cases and personal injury cases tend to fall into this category. Since these are two of the most common types of cases with which the general public has experience, this is undoubtedly why many members of the public believe that contingent fee cases are more common than they actually are. Attorneys most commonly bill most kinds of business and contract disputes, inheritance disputes, and disputes over real estate matters on an hourly basis.
1. Hourly Billing Considerations.
Most plaintiff’s cases (and essentially all defense cases) are billed hourly because it is conceptually the most straightforward way for an attorney to bill. There is a strong notion that a simple matter that requires a relatively modest amount of work by the attorney should entail only a modest bill. Contrary to what some think, many legal matters and even many lawsuits fall into this category. Even high-dollar cases often resolve without a huge expenditure of attorney hours. Clients often do not want to pay a large percentage of an outcome recovery to attorneys if the attorneys did not work a proportionate amount of hours on the case. This is understandable. There is an argument to be made that an hourly billing engagement is fairest to both the client and the attorney since the attorney is compensated commensurate with the amount of work he or she put into the case. As discussed above, this is how many or most cases are billed by attorneys and paid by clients.
In addition to the above argument, another argument in favor of hourly billing is that the case is, ultimately, the client’s case. It is ultimately the client’s decision whether to bring a case, maintain it, take it to trial, or settle it. It is the attorney’s duty to understand the client’s goals and try to achieve them. By this argument it is appropriate that the client takes the risks of the case and enjoys the reward of a favorable outcome without an attorney taking a contingent fee.
2. Contingent Fee Billing.
There are several solid rationales for a contingent fee arrangement in a case. In our opinion one of the most compelling arguments is that a contingent fee agreement aligns the interests of the attorney more precisely with that of the client. Clients often worry that attorneys on an hourly-billing case have an incentive to “keep a case going” so that they can continue to earn money from the case. An ethical attorney will of course not do this, but it is understandable nonetheless that clients sometimes worry about this. This is obviously not a factor in a contingent fee arrangement. In contingent fee scenarios the attorney and the client both have an incentive for the case to conclude with the best possible outcome. In a contingent fee case, in sharp contrast with an hourly billing arrangement, the attorney and the client share the risk as to whether the case will conclude satisfactorily. Indeed, the attorney is absorbing a great deal of risk, since if the case fails the attorney will collect little or nothing — sometimes despite a great deal of very competent effort. This is why contingent fees are frequently at least one-third (33.33%) of the gross proceeds recovered in a case, and sometimes more. In California all contingent fee percentages are freely negotiable between attorney and client, subject to certain ethical considerations. Because of the risk that the attorney will not recover a significant fee in a given contingent fee case, overall attorney fees in a contingent fee case from a financial perspective can be expected to be higher than in an hourly case where the attorney takes no risk and is simply paid linearly for the amount of time and work he or she expends.
One big advantage to a contingent fee arrangement is that it often allows a litigant who has a good case to pursue the case in situations where the client simply cannot afford to pay the attorney hourly. In such situations a worthy case can see its day in court despite a plaintiff who lacks the wherewithal to pay hourly fees.
For a solid plaintiff’s case there is often no right answer as to how the case should be paid for. If you have a trust litigation case, a real estate dispute, or a business dispute that you need to bring, Buffington Law Firm offers a Free Legal Consultation. All consultations are completely confidential and are with an experienced trial attorney. And there is never any cost or financial obligation.