Eric Parkinson: Legal Services Agreements
Anyone seeking representation by an attorney should have at least a rudimentary understanding of fee agreements, often referred to as legal services agreements (LSAs), between lawyers and their clients. In this post, I’ll provide a brief overview of what you should know.
General Rules Regarding Fee Agreements
Regardless of the type of agreement – which I’ll address in a moment – the State Bar of California and the California Business and Professions Code set forth some minimum standards that must be satisfied with regard to all LSAs, including:
• The fee that is charged may not be “unconscionable.” Generally, the attorney and client are free to negotiate the amount of the attorney’s fee; one usually finds the State Bar or a court finding an unconscionable fee when a contingent fee percentage exceeds 50%.
• An attorney may not have a conflicting pecuniary interest with a client. Examples would include: a loan made to an attorney in lieu of fee payment or an LSA that gives an attorney an ownership interest in a client’s business.
• If an attorney does not have professional liability insurance (which is not required), then this fact must be disclosed to the client, in writing, at the time of engagement.
Types of LSAs
There are essentially three different types of LSAs: the hourly fee agreement, the contingent fee agreement and what I refer to as the hybrid agreement.
The hourly agreement is straightforward enough: any time spent by the attorney on a client’s matter is billed to the client, usually monthly, at an agreed on hourly rate.
The contingent fee agreement is a bit trickier. The attorney’s fee is paid from any settlement or judgment at an agreed upon percentage after out-of-pocket costs (usually advanced by the attorney) are deducted. For example, if the agreement is for 30%, the attorney has advanced $10,000 in costs and $100,000 is recovered, the math would be as follows:
|Less advanced costs||-||
|Less 30% for attorney’s fee||x||
|Total attorney’s fee||
|Less attorney’s fee||-||
|Total to client||
A hybrid agreement is a combination of an hourly fee agreement and a contingent fee agreement. The attorney agrees to accept a lower hourly fee in exchange for a percentage of any recovery. For example, if the attorney usually bills $250/hour, s/he may agree to drop that rate to $100/hour (usually billed monthly along with out-of-pocket costs) in exchange for 10% of any recovery. Hybrid agreements are good to use when a client can’t afford the full rate, yet the attorney doesn’t want to assume the risk of a straight contingent agreement.
Above all, remember this: attorney’s fees are negotiable so don’t hesitate to do so!
Eric J. Parkinson
Attorney & Counselor at Law