Abraham Lincoln said: “A lawyer’s time and advice are his stock in trade.” But how much does that stock in trade cost? To many people, legal fees can be a mystery. Doing some research in advance of your visit to a lawyer and asking specific questions about fees should lessen the confusion.
Most legal services are billed on an hourly basis. The hourly rate differs depending on locality. For example, lawyers in bigger cities on average charge more than lawyers in small towns simply because the costs of living and of doing business are higher. Also, expect more able and experienced attorneys to charge a higher hourly rate. Another variable affecting the hourly rate is the complexity of the client’s legal problem or the novelty or difficulty of the questions involved. There are certain areas of the law wherein only a few attorneys specialize, and because of their unique knowledge and experience in that particular field, those lawyers merit a higher hourly fee. A brain surgeon is going to charge more than a general practice doctor and likewise a lawyer handling a complex merger between two corporations is going to charge more per hour than a lawyer drafting a simple will. A fee arrangement for an hourly rate is not required to be in writing, but is preferred.
Another method of lawyer compensation is the contingent fee. This type of fee is contingent on the outcome of the matter for which the attorney’s service is rendered wherein the attorney is paid an agreed in advance fixed percentage of the recovery from a successful lawsuit or negotiation. The percentage figure can vary but is typically one third. A lawyer may ethically not charge or accept payment of a clearly excessive fee and a contingent fee agreement must be in writing. A lawyer may not charge a contingent fee in a criminal case or in a domestic relations matter.
Because a lawyer runs a business office, he/she incurs expenses that are considered either office overhead or case specific to the client. The written agreement required in a contingent fee relationship must also state which expenses will be deducted from the recovery and whether they will be deducted before or after the contingent fee is calculated.
Many clients want to know if the losing side in a lawsuit has to pay for the winning side’s legal fees. The so-called “American Rule” followed in most jurisdictions provides that each party is responsible for paying his or her own legal fees. However, some Federal or State statutes provide for an exception to the American Rule and allow the winner to recover reasonable attorney fees, as determined by the court. Examples include many consumer protection claims and insurance bad faith claims. Courts may also award legal fees as punishment to a losing side if that party engaged in fraudulent or frivolous behavior or intentionally behaved in bad faith.
Lawyers may also charge a flat fee, also known as a transactional fee. This type of fee is primarily used for relatively simple and routine lawyer services such as the drafting of a simple will, or obtaining an uncontested divorce or expungement of a criminal conviction. A lawyer may collect the flat fee in advance of the services, but may not pay him or herself the fee until the transaction is completed. A retainer is different than a flat fee in that a retainer is maintained by a lawyer in a separate bank account as security for nonpayment of fees or expenses. A retainer is returned to the client at the end of a lawyer’s services provided the client is otherwise current in all other outstanding payments owed the lawyer.
Disputes between clients and attorneys over fees are handled by a special committee of the local or State Bar Association. The best practice for both attorneys and clients is to talk openly about fees and expenses prior to performance of the lawyer’s services. Ask for a written engagement agreement that spells out in detail the services and expenses being charged and when payment is due. Also ask for periodic statements from the attorney summarizing the service performed and the fees charged.
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