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11 Ways to Avoid Getting Ripped Off by Your Attorney Aka: 11 Things to Know When Hiring an Attorney People are often shocked at how much legal fees for their case adds up to. Many do not realize what legal services cost because the payments are made to their attorney over time, a few thousand dollars at a time. There needs to be more transparency on legal fees, so I have decided to write this e-book describing 10 ways to avoid getting ripped off by your attorney. (1) Understand What a “Retainer” Is When you hire an attorney that charges an hourly rate, the attorney will likely ask for a “retainer” up front. Many people mistakenly think this is the limit of the fees that the attorney will charge. This thinking, although very common, is incorrect. Traditionally, a “retainer” was a periodic fee that is paid to a lawyer to make sure that lawyer will be available if you ever need legal services. While these types of retainers still exist, they are not used by most consumers of legal services. Instead, the evolved retainer has become the standard. Simply put, a retainer these days simply means a deposit. If an attorney asks for a $10,000.00 retainer and charges you at $350 per hour, you have paid up front for less than 29 hours of the attorney’s time. Not only are you responsible for all of the attorney’s fees your lawyer charges, but you are also probably responsible for costs of suit. If your case is complex and goes to trial, you can expect that the attorney will potentially work hundreds of hours on your case, and if you need expert witnesses, you can expect at least another $20,000.00 on expert witness fees. Even if the attorney is able to finish your case in just 50 hours of work, with no expert witnesses and only one deposition, his bill will likely be at least $20,000.00. This means that, even after paying a $10,000.00 retainer, you are on the hook for another $10,000.00. After paying a large retainer, many clients are surprised to receive a bill that is often much larger than the initial retainer. Litigation is costly. Attorney’s fees add up and costs of suit add up over time. Another lawyer I work with on occasion recently told me that his firm tells clients it costs approximately $200,000.00 per year to have a suit progressing on the docket. Although this seems a little high to me, it gives you an idea about just how costly litigation can be. Because retainers have nothing to do with the true cost of your legal issue, do not base your decision on the price of the retainer. If the retainer is high, and the work ends up being very simple, your attorney is likely obligated to refund to you any amount of the retainer that is not used. When you are hiring an attorney and making a decision as to which attorney to go with, remember that a low retainer is not indicative of low legal fees. Instead, base your comparison on other measurable data: fee caps, flat fees, ballpark estimates, or hourly rates. (2) Ask for a Flat Fee, a Fee Cap, a Contingent Fee, or a Mix of These. The traditional method of charging for attorney’s fees is on an hourly basis with a retainer up front. This creates a lot of uncertainty for consumers of legal services, as they have no idea just how much it will cost for their case to be finalized. Because the traditional method is an hourly rate, attorneys feel incentive to spend as much time as they can on a case. While this may be good for the case, it is often inefficient (i.e. if your attorney could have spent half of the time spent researching and still come to the same general conclusion then he or she has wasted your money). This traditional method of hourly billing has its benefits (in that the legal services are usually handled with care), but it comes at a cost (uncertain and inefficient legal fees). Largely because of the uncertainty and demand for transparency, the legal market has been changing over the past several years. Buyers of services in the current legal market have a lot of power. The market is flooded with attorneys and there are few jobs available for new lawyers. This is good news for you, a consumer of legal services. This increase in competition drives down prices and increases competition. Smaller firms are competing for business and have begun to give way to the market demand by offering alternate billing methods. Alternate billing methods are much fairer to most consumers because of the transparency. Some of these alternate billing methods include flat fees, fee caps, contingent fees, and mixes of these. A flat fee is a fee that you negotiate with your attorney that will represent the entire amount of the legal fees the attorney will earn, regardless of the outcome of the case. Flat fees are typically charged up front. Costs may or may not be included in the flat fee, but are typically not. Costs generally include things like court filing fees, court reporter fees, expert witness fees, copy fees, postage, personal investigators, travel-related expenses, and any fees or costs assessed against you by the court. These can add up, but if you let your attorney know of your desire to pre-approve costs that are above a certain amount (say $50), then it will help encourage the attorney to limit costs by making it a bother to call you to approve everything. You will also be aware of any cost before having to pay for it and will be able to discuss ideas to cut costs with your attorney as the situation arises. Some attorneys argue against flat fees by stating that it deprives the attorney of the desire to research as thoroughly or to do as good of a job on the case. This may be true to some extent, although even attorneys who charge flat fees will want to avoid malpractice and the associated liability for mistakes, so the argument is weak. The benefits of a flat fee far outweigh any detriment, as they allow the consumer hiring the attorney to have complete control over the costs of suit and knowledge of exactly what attorney’s fees will be. Additionally, consumers of flat fees are able to effectively shop around and compare prices accurately. As you are shopping around, I encourage you to compare to other attorney’s flat fees. Fee caps are another alternate billing method that allows the consumer to help control attorney’s fees. In a fee cap situation, attorney’s fees will normally be charged on an hourly basis and will be limited to a maximum amount, for which the consumer is responsible to pay for regardless of the outcome of the case. Fee caps are similar to flat fees, although they create some room for benefit for both the attorney and the consumer by either: (1) saving attorney’s fees if the case is simple and settles early without much attorney work, or (2) rewarding the attorney with more attorney’s fees than his typical flat fee if the case is more complex than average, but at the same time still providing a maximum fee for the consumer. Fee caps will typically be set at an amount higher than the flat fee normally charged by the attorney for the same service, but will provide a benefit to the consumer if the case settles early. Deciding to ask for a fee cap instead of a flat fee will depend on the situation: if you think the case will settle quickly, consider asking for a fee cap instead of a flat fee. On the other hand, if you think the case will be drawn out and last a long time, consider asking for a flat fee instead. You may know your opponent better than your attorney will, so you may have a better inkling than your attorney of how drawn out the process will be. Like with most billing methods, the client is typically responsible for costs beyond the attorney fee cap. Like I stated above, costs can add up, but if you let your attorney know of your desire to pre-approve costs that are above a certain amount (say $50), then it will help encourage the attorney to limit costs by making it a bother to contact you for approval. If your case is civil in nature and you are the plaintiff (i.e. you are suing someone), then consider asking for a contingent fee. Many attorneys are willing to take certain types of civil cases on contingency. You are probably most familiar with these from advertisements in the personal injury context, where they are relatively standard. While contingency fees are not free, they require no money up front. This is inviting to many people who do not want to shell out a substantial amount of money up front for an attorney or to those who do not have the cash on hand to hire an attorney. A contingent fee is a fee that is based on the outcome of the case. If you do not win the case, then you will not usually be responsible for any attorney’s fees (you may still be responsible for costs). On the other hand, if you do win the case, or if the case settles, the attorney will take a percentage of the attorney’s fees. Normally this ranges from one third (33.33%) to forty-five percent (45%), and may be adjusted depending on at what stage in the lawsuit the case is settled. When you are shopping around, call other attorneys’ contingent rates so you have a base to compare from. Costs are handled a little differently in contingency fee cases. Most of the time, the client is still responsible for costs. However, many attorneys are willing to front the costs (i.e. loan the money to you as expenses arise), and some attorneys are even willing to not charge you for costs if you lose the case. When shopping for an attorney for your contingency case, find out whether you will be responsible for costs of suit if you lose the case. Contingency has its own set of benefits and costs to the consumer: attorneys have “skin in the game,” and so they will normally do their best work on the case and treat it as if it was their own case. However, because attorneys will receive money only based on the outcome of the suit, they will want to settle the case as quickly as possible. Although you may have $100,000.00 in medical bills from a car accident and the opposing party offers to settle the case for $115,000.00, an attorney likely will have incentive to get you to settle your case and quickly earn his share, the $38,333.33, rather than fight for every penny. Your share would be just $76,666.67, not enough to cover your medical bills. In the end, the decision to settle will be yours and not your attorney’s, but the attorney may still have incentive to convince you to settle even if you should not. Depending on your contract with your attorney, as the case proceeds, he or she may earn a greater share of any proceeds. To demonstrate, if the case settles prior to filing suit, the contract may provide that the attorney earns 33% of any recovery, and if the attorney files suit the number increases to 40%, and then 45% if the attorney ramps up and prepares for trial. This is appropriate because the attorney will invest more time in the case the further it goes, and you will likely keep the ultimate power to agree to a settlement or not. Because of this, there is incentive for both you and your attorney to settle the case quickly. If the judge or jury comes back in the above case with damages including pain and suffering in the amount of $130,000.00, and the attorney receives 45% of the recovery from trial, the attorney will walk away with $58,500.00, and you will keep only $71,500.00, or less than you would have recovered if you had settled at the original $115,000.00 offer. For this reason, it is not always a bad thing for the client that the attorney has incentive to convince the client to settle early. There are other benefits to the client by having a contingent fee arrangement with their attorney. Contingency arrangements put the risk of the attorney’s fees solely on the attorney, and if the case is a loss, the client is not liable for those attorney’s fees. On the other hand, when added up, the contingent fees an attorney recovers often ends up being more than the attorney would have charged at his hourly rate, but because the attorney takes the risk of getting no fees, it is his reward for taking the risk. Keep this in mind when hiring an attorney on a contingency basis. Again, do your own cost-benefit analysis, and consider just how much risk you are willing to take regarding the case. Finally, many attorneys are willing to do a mixed fee structure. Mixed fee structures can take almost any form, but typically have some mixture of the above methods of billing. For example, an attorney may be willing to work partially on contingency and partially on a flat fee (i.e. a flat fee reduced by half and a contingent fee reduced by half). Or, a mixed hourly rate and contingent fee (i.e. hourly rate reduced by half and contingent fee reduced by half). Or even a mixed hourly rate and flat fee (i.e. hourly rate reduced by half and flat fee reduced by half). Be creative! If you find a system that both you and your attorney can agree on you will both likely be happier with the arrangement. (3) If You Pay Hourly, Find out the Billing Increment Just as the hourly rates of attorneys vary on an individual basis, so do their billing increments. It can be more expensive to hire an attorney that charges $250 per hour and bills in quarter-hour increments (fifteen minutes), than to hire a $350 per hour attorney who bills in tenth of an hour increments (six minutes). For example, if an attorney drafts a response to an email from the opposing party and it takes five minutes, then the attorney who bills in the quarter-hour increment at $250 per hour will bill you $62.50 for that email. On the other hand, an attorney who charges $350 per hour in tenth-hour increments will only bill you $35.00 for that email. Certainly, when hours of time are being spent by an attorney on one task, the less expensive hourly rate will end up being less expensive, but when it comes to communication, the attorney with the smallest billing increment will usually be less expensive. Because of this, if you hire an attorney on an hourly basis, make sure to find out the billing increment before signing anything. If their billing increment is large (i.e. half-hour increments), then make sure you will not be charged for any time unless the attorney devotes the entire half-hour to your case. You will be better able to control your legal fees just by knowing what the billing increment is. If you know that your attorney charges for phone calls, rather than calling two times during a week to get a status update and to bring attention to a thought you had during the week, see if you can save up a few questions and then ask them all in one phone call. This way you will avoid paying for two separate minimum-billing-increment charges. (4) If You Pay Hourly, Ask if the Attorney bills for Phone Calls or E-mails with You Many attorneys who are hired on an hourly basis do bill for phone calls and E-mails with you. If you consider it from the attorney’s perspective, you will see why many do. An attorney has only one commodity to sell in his business: his time. Like everyone, an attorney has a limited amount of time to sell. There are 2,000 working hours in a year for people who are not workaholics (50 weeks times 40 hours per week). If attorneys spend time on one case it means that they cannot devote it to another. Because of this, attorneys have to divide their time in a way that maximizes their efficiency and income. It is usually inefficient to work on more than one case at a time. If you call to ask the attorney a question, it will likely interrupt work on another case and take time away from billing that other client. This is bothersome to many attorneys, and so many attorneys decide to bill their clients for phone calls with the clients, and even a one-minute phone call can result in a charge for the minimum billing increment. Of course, from your perspective, as the consumer of legal services, you want to know what is going on in the case. You are also curious to ask a question about a thought you had regarding the case. The attorney should be willing to take a one-minute phone call without charging you for it, you would think. If billing for phone calls was never discussed, you have a right to be upset when you are billed for an entire hour when you made four one-minute calls to your attorney on separate days. It does not hurt to ask if the attorney will charge if you call and talk to a secretary. Most attorneys are much more forgiving of their secretary’s time than they are of their own time, so usually attorneys will not charge you to talk to their secretary. Because of this, if the discussion is not urgent, it is often better to talk to a secretary than it is to talk to the attorney directly. (5) Be Wary if the Attorney Is Unwilling to Give you a Ballpark Estimate When attorneys are unwilling to give you a ballpark estimate or even a range of possible prices, it is usually because they have no idea what a case like yours typically costs. Certainly attorneys are afraid of quoting the price for a simple case and later finding out that your particular case is extremely complex and will take much more time. However, this should not stop an attorney from giving you a general idea of a range of what legal fees typically are. And, in true lawyer’s fashion, most lawyers will couch language sufficiently to make a non-binding statement (i.e. “generally, a typical divorce will cost anywhere from $4,000 to $12,000, but it could be more or less, depending on the facts, so you should come in and talk with me about your case.”). A lawyer who is unwilling to discuss a price range in general terms may not be giving you an estimate because he or she does not have enough experience handling your type of case to know what the fees will likely be. Finally, a lawyer who is unwilling to discuss likely fees may have a fee that will be much higher than you expect, especially if the lawyer is charging on an hourly basis. Lawyers are used to their clients having sticker shock on the price of legal services, but if an unethical lawyer can get you signed up before you are aware of what the cost will likely be, then he or she may take advantage and end up charging you much more than you would have ever been willing to pay. (6) Shop Around, Compare Prices As with every major financial decision in your life, you should shop around. Hiring an attorney can cost as much or more than buying a new car. Wise buyers always shop around and compare the various options prior to committing to any particular option. Unfortunately, not enough consumers do this when hiring attorneys. Likely this is because it is draining and time consuming to discuss the facts and legal issues with potential attorneys. Your attorney is a significant investment. Shop around as you would shop around for a new car. Compare prices and fee structures. Figure out what you are willing to pay to have the legal services completed. Get a feel for how the attorney deals with people — if you are impressed with his person, others will be too. It is better to have a personable attorney on your side than one that is disliked. That list should give you a good idea of what to expect from reasonably priced attorneys in the current legal market. Go to Google and look up compare attorneys fees or call the local association in your area (7) Don’t Sign the Contract During the First Visit Many attorneys do not quote prices until they hear the facts of the case. The purpose of this is two-fold: first, attorneys are afraid of giving a price or ballpark estimate over the phone and then realizing their estimate is way off when the facts of the case become clear. Second, when an attorney meets with a client the first time, the client will do most of the talking. The attorney will have an opportunity to explain qualifications and experience and otherwise put the client at ease that he/she is the attorney for them. Because going over the facts so in-depth with another person is draining, and trusting someone with facts that are not favorable to you is hard (i.e. facts that may make you look bad), many clients just want to sign up right then and there. Clients do not often want to go through the initial interview process again with another attorney, especially when the attorney encourages the client to sign right then. Unfortunately, this can lead to making a bad decision. Hiring an attorney is a big decision. It can be more costly than buying a new car. When you are shopping for a new car you probably don’t buy the first one you test drive. Instead, you shop around and when you have determined which one is the best fit for you, you go with it, even if it was the first. Like car buying, shopping for an attorney is tiring but it takes time to make a good choice. Invest a little time into finding the right attorney. Even if this means simply sleeping on the contract that the first attorney presents you, at least you will have a good opportunity to read through and make sure you understand exactly what it is you are signing and who you are hiring. (8) Be Wary of Paying an Initial Consultation Fee You should not need to pay an attorney in order to determine whether to hire one. Attorneys are expensive, and it should not cost you anything to find out whether you like or want to hire a particular attorney or not. Additionally, most attorneys will not provide you with much legal advice, if any, during an initial consultation. For the most part, the initial consultation will be the attorney asking you questions and finding out the facts regarding your case. If you use a lawyer referral service, a small charge may be justified, but the lawyer referral service will often require that the lawyer give you 30 minutes of time in exchange for the small fee. Attorneys often charge initial consultation fees to clients to make sure that the client is serious about hiring an attorney. Many potential clients come in and are shocked at what it costs to hire an attorney after the initial consultation, wasting a half-hour of their own time and the attorney’s time. Unfortunately, this sticker-shock is largely caused by the unwillingness many attorneys have to give ballpark estimates or flat fee options to clients prior to the client coming in for an initial interview. Attorneys are afraid to do this because they have no way of knowing the facts of the case and whether they will be spending 100 hours or just 10 hours on the case until after meeting with the client in-depth. Attorneys should not benefit from their own unwillingness to give ballpark estimates. (9) Be Wary of Taking Any Advice Given in an Initial Consultation Everyone likes cheap or free advice, but that does not mean it should be taken. When you go in for an initial consultation do not expect to get any good advice. This is because when an attorney gives out legal advice he creates an attorney-client relationship. If the attorney’s advice is bad the attorney could potentially be liable to you for the mistake. Imagine the following: you are a surgeon who spent hundreds of thousands of dollars on your education, and many years educating yourself instead of working. Someone comes to you and asks how to remove an appendix. Will you tell them how to do it? Definitely not! Years of training, learning, and expertise went into knowing exactly how to remove an appendix, and even more went into dealing with complications that frequently arise from surgery. This information cannot be adequately transferred in just a few minutes. On the other hand, if you asked a surgeon how to remove your own appendix and the surgeon was to tell you “oh, you just cut about two inches in this general area, and then pull it out, and sew it back up,” would you believe him? Would you do it? Finally, when it goes wrong, would you be mad at him? The procedure is certainly not that simple. Also, you shouldn’t attempt to do it yourself. Finally, you have a right to be mad at the surgeon if he or she told you the above and it went wrong, especially if you paid a one-time flat fee to ask that question. Now, to liken this to the initial interview: an attorney has comparable training to what the surgeon went through in order to become a lawyer (a little less, because most states do not require the equivalent of a residency, but similar enough). Similar to how complicated removing an appendix is, there are many nuances that affect every legal situation imaginable. One fact can change the outcome of an entire case. In a quick sit-down with an attorney, there is likely no way for the attorney to anticipate that one fact. Typically these facts arise from what opponents argue, which arguments will not be seen by the attorney unless he or she is completely involved in the case. Additionally, for any good lawyer to be able to give you an accurate answer, the lawyer will have to do research (even if it is to simply “update” the law the lawyer knows). Research involves a substantial time commitment from an attorney, typically much more than most medical doctors perform. An attorney would need time to sit down and do the research prior to giving you an answer. It is true that an attorney may know the general principles and the general law as it applies to your situation, but general understandings of the facts will not likely be sufficient to justify a substantial amount of reliance on the attorney’s words. Finally, if you get quick advice from an attorney and then when you try to do it yourself and mess up, you have a right to be angry. You might be angry enough to sue the attorney for malpractice in giving you the “wrong answer.” So, the attorney would be getting sued for giving the wrong answer for “just one question” that he or she gave an answer to for free or for cheap in an initial consultation. The situation above is what is going through an attorney’s mind during an initial consultation or a brief discussion, and this is why the attorney is reluctant to give advice during that initial consultation. Most attorneys grimace when they hear someone asking a law student, a legal secretary, or a paralegal for legal advice. Not only are these people not legally or ethically allowed to give legal advice, they also do not likely know the law as it is in the state where you live (paralegal school and law school typically teach generalized principles and not the specific laws of any particular state). Think of it as asking a nurse or medical student how to remove your appendix. It is not worth the risk. Before you take the advice from an attorney who is willing to give you advice during a brief meeting (or a legal secretary, paralegal, or law student), remember that you would not ask even a doctor how to remove your own appendix. The same goes for legal advice. (10) Avoid “Big Law” Unless You Are Very Wealthy and Do not Want Personalized Service. The largest law firms have names that are well respected in the legal community. This certainly means something. Judges may give a little more leeway to the attorneys from big law firms, as the firm likely contributed to the various judges’ election campaigns, and opponents may feel a little more fear facing a well-funded, big name firm on the opposing side. (11) Make sure your lawyers friends with the Judge or Court Attorney These benefits come at a great price, however: attorneys at big law firms are overworked and, if they are handling too many cases at once, they may not have enough time to properly research your case. This means that you may not be on equal footing at a trial if the opposing party researched properly. Of course, this can happen to any attorney, but it is more likely to happen at a big law firm that has hundreds of clients than at a small one. If business is slow, and when lawyers at big law firms have the time, they have one goal: to bill hours. The lawyers at many big law firms work around 3,000 hours per year in an attempt to bill at a minimum 2,000 hours (and that is just to keep their jobs – if lawyers have ambitions to become partners, those numbers could increase significantly). If you go with big law, expect to get billed a full billing increment for the tiniest of things: for listening to a voicemail, for a one-minute phone call, for writing a letter to you to give you an update, for making copies for you, and the list goes on. Another aspect of big law that scares many people away from hiring a big law firm are the rates charged by big law firms. Usually the rates of big law partners (the ones that actually have the reputation) are $600 or even $1,000 per hour. If you are willing to settle for not having a big law partner handling your case at a big law firm, the rates will still likely be higher than if you were to go with a smaller law firm or a sole practitioner, and you will not have as much of the power behind the name as it will just be an associate (so you would be going halfway, in essence). Finally, because lawyers at big law firms are so overworked, they will not have as much ability to give personal service on your case. You may end up dealing with a secretary at the firm more often than dealing with your attorney. Because it is often a good idea for most people who are not made of money to avoid big law, it is helpful to know how to spot a big law firm. Look for signs as to the size of the law office. Some signs include things like: the office takes the whole 50th floor of a building downtown; the firm buys the front or back cover of the telephone book; the firm lists multiple offices and multiple states of operation; the firm has ads on multiple television channels every few minutes throughout the day; you can think of the lawyer’s jingle without help because you have heard it so often; and any other common-sense signs. You can often find lists of attorneys on the webpages of law firms. The bigger the law firm, the more the above problems will exist. I certainly do not mean to decry big law too much — it has its place and its own set of benefits — but for most people big law will be a big pain in the neck and the pocketbook. |
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