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What A Lawyer Must Do To Increase Hourly Billing Rates Or Modify A Fee Agreement

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Invariably, when a legal matter has continued for some time, there is an increase hourly billing rates over what was disclosed in the original Fee agreement. Sometimes, though, there are more substantive changes or modifications to the original Fee Agreement.

In this segment from my book, The Art Of Hiring The Right Lawyer & Negotiating A Fee Agreement That Will Save On Legal Costs, I discuss what lawyers must do to be able to increase their hourly billing rates or make any substantive change to the original Fee Agreement.

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Subsequent Modifications to the Fee Agreement

While discussing modifications to a proposed fee agreement, it is important to also discuss those modifications that are made to a fee agreement during the course of a representation.

Some modifications to an attorney fee agreement may be needed during the course of the representation because the objective (that is, the scope) of the representation has changed. Or perhaps costs have become a major concern and a less costly approach is needed. Or the modification could be for some other minor reasons related to something specifically stated in the agreement, such as the names of the attorneys involved in the matter. But whatever the reason for the modification, if it relates to an issue discussed in this book, a reference back to that issue as discussed should be made prior to agreeing to the modification.

Although some modifications to a fee agreement may be necessary, I have observed that most modifications made during the course of the representation occur for the attorney’s own benefit and usually because the attorney is trying to increase his compensation. For example, the attorney may want to convert an hourly fee agreement into a contingency fee agreement because the lawyer thinks he will be able to earn a larger fee that way. Or the change may involve increasing the percentage amount of a contingency fee. But for whatever reason, if an attorney is in any way seeking to modify the fee agreement for his benefit, the attorney needs to get the client’s permission to the modification.[1] That is, it cannot be a unilateral change. And to get the client’s permission to make a modification of a fee agreement enforceable to increase compensation, the lawyer must follow a strict process set out in RPC 1.8, which governs “business transactions” with a client.[2]  

One of the things that RPC 1.8 requires a lawyer to do is to advise the client in writing “of the desirability of seeking . . . the advice of independent legal counsel.”[3] Also, the lawyer must get the client’s “informed consent” to the proposed business transaction (that is, to the modification of the fee agreement to the lawyer’s benefit).[4] Getting “informed consent” from a client is an involved process that I will discuss in detail in Chapter 10. For now, I will simply say that getting a client’s informed consent is a big deal that attorneys do not at all like to go through.

Of course, it might be said that regular hourly fee increases that typically occur on an annual basis during the course of a representation are modifications to the original fee agreement to an attorney’s benefit. But, such increases are exempt from the application of RPC 1.8 so long as any increase is “reasonable,” and the client was notified prior to the increase taking effect.[5]

To address the issue of notification of fee rate increases, there is usually a sentence buried in the original attorney fee agreement notifying the client to the effect that “we may raise our hourly billing rates from time to time.” And some lawyers believe this language, along with the client’s signature at the bottom of the fee agreement, means that the client has given the lawyer blanket approval to increase hourly billing rates whenever the lawyer wants to do so without first notifying the client of the increase.

However, just informing the client that the lawyer may increase his hourly billing rates at some time in the future is not at all the same thing as notifying the client prior to actually raising the hourly billing rates or changing them from what was originally agreed on in the attorney fee agreement.

In my experience, though, despite whatever language there is or is not in a fee agreement about increasing hourly rates during the course of the representation, most lawyers do give clients notice and get their permission prior to implementing any rate increases. So, most of the time, this is not going to be an issue. But just to ensure that this does not become an issue, in Chapter 6 I included some recommended language to address this when discussing hourly billing rates.

[1] See ABA Annotated Model Rules of Professional Conduct (7th ed. 2011), Comments to RPC 1.5 at p. 80, Modification of Agreements (“Modification of a fee agreement to a lawyer’s benefit during a representation is generally impermissible as well as unenforceable.”).

[2] See ABA Annotated Model Rules of Professional Conduct (9th ed. 2019), Comments to RPC 1.8 at p. 170, Changing Fee Agreements (“Although Rule 1.8(a) does not apply to ordinary client–lawyer fee agreements, it has been applied to efforts to modify an agreement during the course of the representation.”) citing, inter alia, In re Curry, 16 So. 3d 1139 (La. 2009)(inserting more favorable terms into original agreement violated rule) and Restatement Third of the Law Governing Lawyers, §18(1)(a) (2000) (client may avoid modification unless lawyer shows modification fair and reasonable to client).

[3] See RPC 1.8(a)(2).

[4] See RPC 1.8(a)(3).

[5] See ABA Standing Committee on Ethics and Professional Responsibility Opinion 11-458 (2011) Changing Fee Arrangements during Representation at p. 3 (“[T]he client’s acceptance of a modified fee arrangement may be inferred from the circumstances. For example, many lawyers who bill for their services on an hourly basis routinely increase their “normal” or “regular” hourly billing rates incrementally from time to time.” citing Severson & Werson v. Bolinger, 235 Cal. App. 3d 1569, 1570 (1991) (law firm cannot raise its “regular hourly rates” without first notifying client)).

Why Weaponized ADR Clauses In Retainer Agreements Require “Informed Consent”

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I am a big supporter of using alternative dispute resolution (ADR) to resolve fee bill disputes when direct negotiation fails. Having been a registered mediator, I have seen firsthand how ADR can work to resolve not just fee bill disputes, but all kinds of disputes.

In my book, The Art Of Hiring The Right Attorney, I discuss the importance of a clause in the retainer agreement that calls for arbitration or mediation if a dispute arises over the legal services or the fee bills. Also in my book, The Definitive Guide To Resolving A Legal Fee Bill Dispute, I recommend arbitration or mediation over filing a suit or filing a disciplinary complaint if direct negotiations fail to resolve a fee bill dispute with the lawyer. I even provide a list of free or low-cost mediation or arbitration services available through state or local bar associations.

Most attorneys include ADR language in their retainer agreements because it makes good business sense, although many states and some malpractice insurers require it. Unfortunately, in some of the retainer agreements I have come across, some attorneys seem to be using an ADR clause not as a way to peacefully and economically resolve a dispute with a client, but more as a way to intimidate and discourage the client from actually using ADR. They do this by bypassing any state or local bar free or low-cost mediation or arbitration services for fee bill disputes and mandating that the ADR be binding arbitration through the American Arbitration Association (AAA).

Now, don’t get me wrong. I am not against the AAA. They provide good arbitration services. However, AAA arbitrations are expensive and sometimes are to be held in cities that are inconvenient for the client. Moreover, retainer agreement ADR clauses may provide that the loser has to pay all the winner’s costs including all of the AAA costs plus the law firm’s costs to prepare for and participate in the AAA arbitration.

In my view, lawyers who mandate binding AAA arbitration in their retainer agreements as the exclusive way to resolve disputes are really weaponizing their arbitration clauses against their clients. However, this weaponization of an ADR clause may not always work out as intended, at least according to the recent case of Dick-Ipsen v. Humphrey, Farrington & McClain, P.C., 2024 IL App (1st) 241043 (App. Ct. of Ill., First Dist., Second Div., Aug. 30, 2024).

The case involves a client who had filed suit against the law firm for malpractice in a matter the firm had handled for the client. But the firm sought to have the malpractice suit dismissed citing the arbitration clause in their retainer agreement. The clause provided for binding AAA arbitration (to be held in Kansas City, MO), as the exclusive remedy for any claims against the firm. The client, though, stated he did not understand the effect of binding arbitration and that the firm never explained it to him. The client also objected to the AAA arbitration being in Kansas City which was over 500 miles from the client’s home in Illinois (plus the client was disabled and unable to drive).

The trial court found for the client holding that the arbitration provision was “procedurally unconscionable.” The appellate court agreed that the firm had failed “to fully inform plaintiff about the meaning and consequences of the arbitration clause.” The court went on to state that “[a]ttorneys who have drafted a retainer agreement have the burden to show that the contracts are fair, reasonable, and fully known and understood by their clients” and that “[d]efendants’ failure to inform plaintiff [the client] about any of the potential effects of the arbitration provision constitutes an infirmity during the process of contract formation, such that plaintiff lacked the requisite knowledge to make a meaningful choice.” As authority, the court cited supporting case law, applicable Model Rules of Prof. Conduct (RPC), and ABA Formal Op. 02-425, Retainer Agreement Requiring the Arbitration of Fee Disputes and Malpractice Claims.

It is clear from the appellate court’s opinion as well as all other authorities on point that a lawyer needs to provide such information as is needed in order for a client to make a “meaningful choice” to agree to a mandatory and binding arbitration clause in a retainer agreement. But, and here’s the kicker for lawyers, the appellate court held that a client’s agreement must be based upon “informed consent” citing Castillo v. Arrieta, 2016-NMCA-040, 368 P.3d 1249 (N.M. Ct. of App., Feb. 2, 2016)(“we hold that the plain text of this unusually broad arbitration provision reasonably applies to Plaintiff’s malpractice claim, but that it is unenforceable if it was signed without Plaintiff’s informed consent.” emphasis supplied).

“Informed consent” is a discrete term that is set out in RPC 1.0(e) that inter alia requires a lawyer to provide “adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of action.” Requiring “informed consent” from a client is a big deal. So much so that if you ever mention to a lawyer that he needs to get informed consent from a client, he will usually sigh and roll his eyes. As it relates to binding arbitration, it would require an explanation of “reasonably available alternatives” such as free or low-cost bar or other types of arbitration or mediation services. To be on the safe side as I used to tell lawyers in my CLE ethics seminars, never leave anything out. Always give complete information on the pros and cons of anything that requires informed consent. If you leave anything out, you do so at your own peril.

Although it can be done orally, I believe it important that all the information conveyed about something that requires informed consent be in writing. I say this because guess who wins a swearing match between a lawyer who swears that he told the client everything there was to say about the effects of binding arbitration and a client who swears that the lawyer never told him about all the effects of binding arbitration (which is exactly what the client swore in the Illinois case).

Also, instead of trying to cram all there is to say about the pros and cons and the effects of binding arbitration into the retainer agreement, the information being conveyed to obtain the client’s informed consent should be in a separately signed writing (as is required by some RPC). It should also be reviewed by another attorney of the client’s choice.

Of course, one easy way to completely avoid the problems involved in obtaining a client’s informed consent for a clause mandating binding AAA arbitration as the exclusive remedy for claims against the attorney would be to not include it in the retainer agreement. Instead, include a more reasonable and fair ADR clause (to the client) that just calls for mediation or non-binding arbitration to be utilized before filing suit to try to resolve any dispute with the firm as to its services or its fees or with the client for non-payment of fees.

Unfortunately, for attorneys who seek to press for every advantage they can wring out of an individual client, other weaponized terms in the retainer agreement may also require “informed consent” such as requiring a client to pay for electronic research services such as Westlaw or LEXIS. See ABA Annotated Model RPC (9th ed. 2019) Comments to RPC 1.5 at p. 86, Expenses Chargeable To Client (“Access charges for electronic legal research are normally treated as overhead, but may be passed along to the client if the client has given informed consent.”). But that is all grist for another post.

Happy New Year and Beware of Surprises in 4th Quarter Bills

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It’s been said with good justification that “a lawyer’s pen gets heavier during the fourth quarter.”

Invariably, as the year nears an end, lawyers (and paralegals) scramble to find things to do in their files in order to make their firm’s hourly billing “targets” (i.e., goals) for the year. 

You see a lot depends upon meeting law firm billing targets including firm bonuses and partners’ shares of the profits.  It sometimes may also mean whether or not you will have a job for the next year.  Thus, it is no wonder that I have found that more make work projects and task padding also occur during the final two months of a year that at any other time in the year.

But apart from concerns about the task padding that goes on in the fourth quarter, there is another concern: time padding.  Time padding can also occur when lawyers and paralegals add time to legitimate tasks to try to make yearly billing goals.

Apart from the deliberate instances of time padding, time padding can also occur in other ways.  Inadvertent time padding can occur when lawyers go back through all their files toward the end of the year looking to see if they recorded their time (or enough time) for tasks that might have been completed months ago.  When lawyers and paralegals do this, it is called “reconstructing” their time. And as many courts and experienced legal bill auditors alike know, when lawyers and paralegals do try to reconstruct their time, they invariably rely upon a faulty memory.  This, in turn, invariably causes them to record more time rather than less time.

The other thing you may note in 4th quarter legal bills is the presence of some billers who have not previously billed in the file who are also scrambling to get in as many billable hours as they can before year’s end.  They have literally gone around the office begging others for work to do as they too need to meet the firm’s minimum billing requirements or to qualify for a bonus (or to keep their jobs).

In the parlance of bill reviewing, these drop-in billers are called “transient billers.” They are attorneys and paralegals who mysteriously drop into a case, do a little work, and then mysteriously drop out of the case.  If you do see evidence of transient billers in a bill during the 4th quarter (or at any time for that matter), you should determine the exact reason.  If the presence of additional staff cannot be justified or is done for the convenience of the firm, the billing partner should be asked to write down any additional charges applicable to using the new biller.  You should also insist that they discontinue assigning new billers to your files absent some true emergency situation or by your request.

Hopefully, you will not have any surprises in your attorney’s 4th quarter legal bills. But if you do and you do not timely address them with your attorney, then you can expect even more legal bill surprises during the course of the year.

On Using “Outsourced” Legal Staff

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The following is an excerpt from my book, Red Flags In Legal Bills: What Signals Are Attorneys Sending?

Related to the issue of “transient billers” who are likely employees of the firm, there is the issue of the use of temporary or contract workers from outside the firm. If it is suspected that an outside temporary or contract attorney or paralegal is billing in a matter, an immediate red flag should go up.

One of the reasons for the red flag is that when it comes to using temporary employees, such as those that might be obtained through an employment agency, the ethics of the legal profession allow the lawyer a choice. That choice is that the lawyer can bill the payment to the agency to the client either as a “cost” or as “fees.”

The difference between billing a contract worker to the client as a cost or as a fee can be significant. For example, if the lawyer bills the payment as a “cost,” then the lawyer can charge the client no more than the direct cost of the third-party services.” [1] Thus, if the lawyer is charged $25 an hour for a temp paralegal, then the lawyer can bill the client $25 an hour if the third-party services of the paralegal are billed as a cost.

 But the lawyer has the option of billing the temp paralegal as “fees,” just as he would for any other paralegal who is an employee of the law firm. Thus, the lawyer can bill the client for the temporary employees at the same hourly rates he bills for similar full-time firm employees.[2] That means that a temporary paralegal that might cost the law firm $25 an hour can be charged to the client at the firm rate of $100 an hour (or more). Similarly, temporary lawyers may cost the law firm as little as $50 an hour but be billed to the client at $200 an hour (or more).

And the ethics of the legal profession provide that it is the lawyer’s choice whether to bill temporary employees to the client as a cost or fees. As such, guess which one the lawyer will choose EVERY SINGLE TIME?!

Because of the generous way the ethics of the legal profession allow lawyers to bill for temp employees, anytime new billers are observed in a legal bill, the lawyer should be asked if the billers are temporary or contract workers. If they are temporary or contract workers, the lawyer should be asked to bill them as an expense and at the cost the law firm is actually paying the temporary workers.[3]

[1] See ABA Formal Opn. 93-379 (19930 Billing for Professional Fees, Disbursements, & Other Expenses at  p. 1 (“A lawyer may not charge a client more than her disbursements for services provided by third parties . . . except to the extent that the lawyer incurs costs additional to the direct cost of the third-party services.).

[2] See ABA Formal Op. 00-420 allows attorneys the option of choosing if they want to bill the services of temp or contract attorneys as either “fees” or “expenses.”

[3] I discuss this issue further in my book, How to Negotiate an Attorney Fee Agreement  and Save on Legal Costs.

The “Does Anyone Have a Form I Could Use” Practice Section

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I used to belong to a particular practice section of my state bar association.  I won’t give the real name of this practice section. I will only say that many of its members are attorneys in smaller communities who basically take on anything that walks in the door.

This practice section has a very active listerv that was a real hoot to follow as lawyers sometimes send out desperate pleas for help with a matter they know virtually nothing about.   Those listserv postings invariably ended with the plea  “does someone have a form that I could use?”  Thus, my pet name for the practice section.

These listserv postings point out two facts of life in the legal profession.  One is that lawyers often take on matters they probably have no business trying to handle.  Two is that an awful lot of legal work is done using forms (or with recycled work product as I mentioned in my last post).

Forms are routinely used for appearances, initial and closing letters to clients, withdrawals, orders, etc.  Even more substantive documents such as discovery documents can also be form documents.

Several years ago, I was reviewing an elaborate set of discovery documents that the lawyer had billed several hours to prepare.  What made me suspect the documents were mostly recycled work product or form documents were the questions inquiring about the injured party’s occupation and military service.   You see the discovery was being directed to determine the injuries of a small child who obviously did not have an occupation or had served in the military.

As was explained in a previous post on recycled work product, lawyers may only ethically bill for that time needed to amend the work product to make it suitable to use in another matter. Similarly, when filling out a form document, a lawyer can only ethically bill for the time it takes to fill out the blanks in the form document.

In a perfect world, if all attorneys would simply honor the ethics of their profession when it comes to billing a client for services, there would be no need for folks like me.  But fortunately for folks like me, we do not live in a perfect world.

Continue reading →

On Using and Billing for “Re-cycled Work Product”

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“A lawyer who is able to reuse old work product has not re-earned the hours previously billed.”  ABA Standing Comm. on Ethics & Professional Responsibility Formal Op. 93-379 (1993)

In reviewing legal bills and speaking at CLE seminars to attorneys, I have found that too many attorneys lack a sufficient understanding of what is ethically permitted when it comes to billing for services.  And one of the things most commonly misunderstood is how to ethically bill for “re-cycled work product.”

Whether attorneys want to admit it or not, an awful lot of what any attorney does in any type of practice situation is especially suited to using forms or recycled work product.  Attorneys routinely use forms for appearances, initial and closing letters to clients, medical records requests, withdrawals, motions, orders, and even settlement documents.  Even more substantive documents such as briefs and appeals are often drafted in large part using recycled work product.

When it comes to billing for re-cycled work product, though, I often find attorneys engaging in what is called “value billing.”  That is, rather than billing for the actual time it took to modify the re-cycled document, they bill for what they believe to be the “value” of the re-cycled document.  The value is often determined as that time they think it would have taken had the document been drafted from scratch.

However, attorneys are not permitted ethically to bill re-cycled work product as if it was an original.  Rather, attorneys may only ethically bill for that amount of time it takes them to make changes in the original work product to make it fit the new matter.  For example, if an attorney took 4.0 hours to draft a brief in one case and only 0.5 hour to revise it to use in a subsequent case, the attorney can only ethically charge 0.5 hour in the subsequent case.

A related billing issue is the issue of attorneys using original work product when re-cycled work product could have been used.  Billing guidelines that I prepare for corporate clients always include a provision that obligates the attorney to use previously prepared work product wherever possible. For if you stop to think about it, requiring an attorney to use previously prepared work product where possible ties in with one of the main reasons you hired a particular attorney.  You hired that attorney because the attorney is experienced in handling the type of case you want handled. So it is more than reasonable for you to expect (and require) that the attorney use previously prepared work product successfully used in similar cases.

A statement by an attorney that all the work product billed for was originally prepared is a strong indication that the attorney is not attempting to use any previously prepared work product.  Even more troubling, it may also be a strong indication that the attorney is not much interested in helping control case costs.

Super Lawyers: Are They Really “Super” Lawyers?”

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In shopping around for a new lawyer, you may have noticed how many lawyers proudly proclaim that they have been awarded the “Super Lawyer” designation.  As a matter of fact, with each new Super Lawyers directory I receive each year, I note that more and more lawyers are being named Super Lawyers.  So many in fact that I sometimes wonder if it might not be too many more years before just about every lawyer in the U.S. may be able to proudly claim the Super Lawyer designation.

But what does being a Super Lawyer really mean?  Are Super Lawyers really super lawyers?   Can an individual shopping for a lawyer rely upon a lawyer’s assertion that lawyer is a Super Lawyer as meaning that the lawyer is actually better than non-super lawyers?

When I was chair of my state bar association’s Legal Ethics Committee, I had an opportunity to examine this issue as a question was asked by several lawyers who believe that it violates the Rules of Professional Responsibility (the lawyer’s ethics code) for an attorney to make “self laudatory” statements such as proclaiming to be a “super” lawyer.  Here is what I found.  

First off, there are some worthy recognized “professional designations” that must be earned by merit in the practice of law, such as a Martindale-Hubbell AV rating. But, there are many other so-called “professional designations” in the legal profession that can be obtained by paying a fee or by taking a popular vote. These types of “professional designations” I believe may be more akin to a “social” or a “vanity” designation like being named a “Kentucky Colonel” or an “Admiral in the Nebraska Navy.”

In between the true professional designations and the social designations, there are some professional designations that recognize lawyer achievement of some sort other than skill in a particular field of law. But, it seems that many professional designations for lawyers fall into the “social” or “vanity” designation category which can be obtained by lawyers by either stuffing the ballot box with votes of the lawyer’s friends or by paying a fee.

The bottom line here – especially for non-lawyer clients – is that a lawyer’s advertised professional designations may look and sound impressive. But unless you want to do the research to find out if they really mean anything or not, I would not do put much weight on the lawyer’s “professional designations” as a criteria to use when selecting a lawyer.

If you are unsure of what exactly to look for when hiring a lawyer, you may want to read my book The Art Of Hiring The Right Lawyer And Negotiating A Fee Agreement That Will Save On Legal Costs. In it, I discuss the important issues that should be considered when hiring an attorney and in negotiating terms in a fee agreement. Information on ordering this book can be found at my website, https://legalbillaudit.com/available-books/

For Attorneys Only! How to Avoid Legal Bill Disputes.

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As most of my posts have been for the benefit of clients of lawyers, I thought it about time to write a post for the benefit of lawyers. And since lawyers like to get paid for their services, what better topic to write about than how to significantly reduce, it not totally avoid, the chances of becoming embroiled in a dispute over your legal bill.

In my CLE seminars on ethical billing practices for attorneys, I gave 4 main tips on how to avoid disputes with clients over legal bills. These tips also mirror an attorney’s ethical obligations when it comes to dealing with clients on fee billing. Continue reading →