Flat Fee Arrangements Promote a Winning Practice

Flat fee arrangements are amazingly liberating.

Most of my fellow litigators won’t take a case on a flat fee, either because they are concerned that they will grossly underestimate the time the case is going to take and end up with an effective hourly rate of $25, or simply because they think they’ll make more on a straight hourly basis.

I acknolwedge that some cases just do not lend themselves to a flat fee because of the unknown factors, but when you have a case with a reasonably predictable time factor, a flat fee is a fantastic way to go, not because it earns you more (although it can), but because it allows you to do more.

This may be counterintuitive to some, and probably blaphemous to attorneys that are only in it for the money, but I’m in it to win and a flat fee gives me greater freedom to do what I need to do to win.

Say you have a case that is crying out for a demurrer. On a straight hourly arrangement, your discussion with the client goes something like this:

You:  “I really think we should bring a demurrer. The third cause of action for breach of contract fails to allege performance, and here they really can’t honestly allege performance, so I think that will get rid of that cause of action.”

Client:  “So if you bring this motion the case is over?”

You:  “No, it will just get rid of that one cause of action if we prevail.”

Client:  “How much will the motion cost?”

You:  “With the motion, the reply and going to court, I can probably do it all in ten hours, so $4,500.”

Client: “So I pay you $4,500 and the motion may not work and even if it does it doesn’t end the action it just gets rid of one cause of action?”

And what the client is thinking is: “Damn attorneys, he’s just trying to run up the bill.”

With a flat fee, all those conversations are eliminated. If I think a demurrer is needed, I bring it. If I think more discovery is needed, I propound it.

And this isn’t pure altruism. Yes, I do this to win, but being free to do everything I want to do on a case may allow me to prevail on the action much more quickly, making the flat fee a winning bet for me financially.

A few tips for flat fees:

Educate the client as to the fantastic deal you are offering, because other attorneys lie. Less scrupulous attorneys snare clients with a small retainer, never disclosing what the case could ultimately cost. So, one attorney is offering to handle the case with a retainer of $5,000, and there you are quoting a flat fee of, say, $25,000, not including trial. You need to make the client understand that a small retainer is a false economy if the fees ultimately go far beyond the flat fee you are offering.

In one case I quoted an amazing flat fee for a client because he had limited funds and I really wanted the case because it presented a cutting-edge legal issue that would give me bragging rights if I won. When I didn’t hear back from him, I called to see what was going on. Turns out he had shopped my offer around, and another attorney had expressed shock and outrage that I would quote such a high number, telling the client the case would never cost near that amount. Three months later the client was back at my door, asking if I would still handle the case for the amount I had quoted. The attorney he retained had already billed him more than the flat fee I had quoted.

Always offer an hourly and flat fee arrangement. To counter the above problem, your fee agreement should always offer both a flat fee and hourly arrangement. The client may have reason to believe that the matter is going to settle quickly, and therefore thinks a flat fee would be a waste. Be sure to include language that the flat fee is not an indication or estimation of what you think the case will cost on an hourly basis.

Make sure your fee agreement leaves no doubt that there must be an irrevocable election. If the client chooses to proceed on any hourly basis, he may want to switch to the flat fee once he nears that amount. That would be unfair to you. With a flat fee, you are usually agreeing to take a reduced total fee in exchange for the certainty of getting the one lump sum payment up front and thereby avoiding any possible collection issues. You are also assuming the risk that the flat fee might not come close to covering all your time if the case becomes more contentious than anticipated. If it were possible for the client to switch, then you have simply provided a discount and assumed all the risk.

With that said, it is sometimes the case that it is not possible for the client to make an informed decision at the commencement of the action. Perhaps the parties were talking settlement when the complaint was filed, so it is possible that the matter might be resolved without much time spent on the case. In those situations, I do provide that the client can start with on an hourly basis, but within, say, 60 days must pay the remainder of the flat fee if electing to proceed in that manner.

Make clear that you get to drive the bus. The agreement must provide that under the flat fee arrangement you have discretion to decide what is necessary to prosecute or defend the action, and that any requests by the client that you deem to be unnecessary will be billed on an hourly basis. Without this provision, the client will decide that since it is not costing him anything, you should take the deposition of everyone living in Malibu, just in case they know anything.

Break the flat fee into parts. Some attorneys that offer flat fees hedge their bets by quoting a flat fee that covers all the way through trial, knowing that most cases don’t go to trial. Not only is that unfair to the client, in my opinion, but it also results in sticker shock to the client and allows them to fall prey to those aforesaid lying attorneys.

At a minimum break the flat fee into two parts — one for pre-trial and another if the case goes to trial. However, a flat fee for a trial can put you in an awkward position if, for example, defendant has a change of heart and stipulates to judgment. (I had that happen twice in back-to-back cases. I guess I’m just scary looking or something.) My fee agreement provides that the flat fee for trial is payable in advance, but will be treated as a cap, not earned upon receipt. I keep track of my hours, and if I pull off a quick victory, the client gets the flat fee back, less my regular hourly rate.

Specify what is included in the flat fee. You may elect to do more on the case, but your fee agreement should specify what will and won’t be done for the flat fee, to protect you against some unknowns.

For example, my fee agreement specifies that I will take or defend only a certain number of depositions, and that any depositions beyond that number will be billed at my normal hourly rate. Summary judgment motions are also a concern. If you can see from the outset of the action that a motion for summary judgment is likely, then build it into the flat fee. On the other hand, if it’s not likely, then set it up as another flat fee. “If defendant brings a motion for summary judgment, or if Client and Attorney elect to pursue a motion for summary judgment, there will be an additional flat fee of $x for prosecuting or defending said motion.”

If you do break the flat fee into parts for trial and pre-trial, be sure to specify what activities will fall under which fees. In one case, my fee agreement had specified that the second flat fee for the trial would be a cap, and any unused fees would be returned. When the second flat fee became due, I met with the client to discuss the trial preparation. He seemed like he was bugged by something, and with a little prodding, he confessed that he was put off by the fact that not all of the depositions had yet been taken. Not because he thought they should have been taken sooner – the timing was part of our agreed strategy – but because they would now occur during the second flat fee, instead of being something he had already paid for with the first flat fee. I pulled out the fee agreement and showed him the depositions were all a part of the first flat fee. He simply did not understand that the time the work was performed in relation to the payment of the fee was irrelevant. The depositions would still be part of the first flat fee. He went back to being a happy client. But that could have been a point of contention had the fee agreement not specified which services would be performed under which flat fee.

Liberate yourself! Go for the flat fee.