If you accept a case on an hourly fee basis, do you take the time to explain to your client exactly what activities will be billed, and at what rate?
And if other attorneys might take the case on a contingent fee basis, do you inform the client of that? Do you discuss the pros and cons of each option?
If not, you might be opening yourself up to a fee fight down the road – which you might well lose.
For a cautionary lesson, consider this 2018 case from New Jersey, where an appellate court struck down more than $280,000 in attorney fees and costs and declared the underlying written fee agreement – which included a $475 hourly rate – null and void.
In Balducci v. Cige, the court said that when a fee agreement “includes an hourly rate component [the lawyer must] explain both the consequences on a recovery and the availability of other competent counsel likely willing to undertake the same representation based on a fee without an hourly component.”
“Greater of Three” Fee Arrangement
Balducci involved a New Jersey discrimination claim. In September 2012, the parties executed a fee agreement that required the client to pay the greater of (a) defendant’s hourly rate of $475 (hourly provision), or (b) 37 ½ percent of the net recovery (contingent fee provision), or (c) statutory attorneys’ fees (statutory fee provision).
Over time, the relationship soured. In 2015, the client terminated the attorney’s services. There had been no financial recovery from the defendant. The attorney billed the client for $286,746.67 in fees and expenses. Defendant’s lien against any recovery impeded meaningful settlement negotiations, according to the opinion, so the client filed a declaratory judgment action.
The trial court declared the agreement unenforceable, and the attorney appealed. In affirming the lower court, the appellate panel said the agreement was “ambiguous and to some extent illusory,” and it described the fee arrangement as “problematic if not misleading.”
“Defendant did not explain the effect his ‘greater three fee agreement’ would have on any recovery, inform plaintiff of alternatives to such an agreement, or give plaintiff any indication of the tens of thousands of dollars in expenses she would have to pay as the case progressed,” the panel held.
- The attorney billed approximately $250,000 for his services, based on the hourly rate.
- The attorney didn’t tell the client that hourly billings could exceed $100,000 even before trial.
- When she got the bill, the client said she would never have signed the agreement and would have gone to another firm had she known she would be responsible for the hourly rate.
- The attorney invoiced the client $15,955.45 for expenses but failed to describe the amounts that would be charged for “routine expenses.”
- The client alleged the attorney told her he was “padding” his bills and that the defendants would have to pay the bills, not her.
“The issue that this creates for plaintiffs’ attorneys is that they are almost certainly forced to make an initial assessment of value at the outset of the litigation before any discovery, or even pleadings, are completed,” writes Seth Laver and Andrew Carroll for Professional Liability Matters. “Once the potential cost of the litigation is explained, clients will almost certainly follow up with a request for expected value and the failure to reach that amount could create significant problems in the attorney-client relationship. Plaintiffs’ attorneys seeking to use an hourly arrangement should therefore proceed with extreme caution. The temptation to overpromise may lead to the above scenario, while undervaluing will likely lead the client to opt for an attorney who will take the case on a contingency fee basis.”