legal-bill-review

Can A Lawyer Be Held to His Estimate of Costs?

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[The following isn an excerpt from my book, The Definitive Guide To Resolving A Legal Bill Dispute. Information on obtaining a copy of this book can be found at https://legalbillaudit.com/available-books/]

Many times, what triggers a fee bill dispute in the first place is that the total amount of the fee bills has exceeded the lawyer’s estimate of what the legal costs would be in the matter.  Although not technically a billing issue, it is nevertheless a common issue I have come across in many fee bill disputes.

It has always been a mystery to me why lawyers provide estimates of costs. For providing an estimate of costs is not at all something that a lawyer is required to do. Also, it may be that the lawyer really does not have that much experience in handling a particular type of matter to be able to provide a meaningful estimate. Moreover, my experience and observation over the years has been that most lawyers, even if they are experienced in handling certain types of matters, really do not have a good handle on their costs. (This is one reason why lawyers hire administrators to run the business side of their firms!)

Despite their lack of knowledge, lawyers often do provide an estimate of costs when asked to do so by a client. In fact, many corporate clients – particularly insurance companies – actually require that their attorneys submit case “budgets” at the outset of a matter. And case budgets are, in reality, estimates of how much in legal fees a case will cost.

To be sure, large corporations and insurance companies have a lot of bargaining power with attorneys.  As such, they can require cost estimates from attorneys handling their cases. But for an individual client, unless the case is significant, there really is not much incentive for lawyers to provide cost estimates. And as there is so much danger for the lawyer in doing this, I am not sure why a lawyer would voluntarily do this.

And when the actual case costs do exceed the lawyer’s original estimate, even by a large amount, there may be legitimate reasons why this occurred. But for whatever reason or reasons the cost overruns occurred, the client is entitled to know in detail those reasons. Moreover, the lawyer has an ethical duty to tell this to the client and to explain it to the client’s satisfaction.[1]

One legitimate reason for the cost overrun could be that the client changed the scope of the work or otherwise asked the lawyer to do more work than was originally agreed to at the time of the initial engagement. And don’t forget, all those numerous and lengthy emails and phone calls that clients make to their lawyers. They can often add up to a considerable amount!  So, a client should first consider whether he contributed to the costs exceeding the original estimate.

Another legitimate reason for the cost overrun could be that the lawyer ran into some “unforeseen” difficulties.  This sort of explanation should begin with the lawyer detailing exactly what the initial estimate was based upon if this was not done at the beginning of the representation.   

A statement that the estimate was just based upon his “experience” in such matters is not good enough. The lawyer needs to break down the estimate and provide specific detail on how the estimate was determined. Then, the lawyer should provide the specific details of how the estimate was in error or otherwise identify the specific reasons for the cost overrun. This is because the client has a right to know exactly what these unforeseen or unexpected circumstances were and more importantly, why it was that the lawyer considered them to be truly unforeseen or unexpected.  

In considering the lawyer’s response, keep in mind that experienced attorneys who claim the expertise to take on a certain type of matter are presumed to have the required knowledge to actually handle the matter competently.  This knowledge would include knowing what types of things might occur in a matter that could increase costs. If not included in the original case estimate, they should at least have been identified as possibilities that could contribute to the increased costs.

But if there were no truly “unforeseen” difficulties (or at least none that were identified by the lawyer as the matter progressed) or the client did not change or add to the scope of the original agreement about what the lawyer was to do, then the lawyer could be bound by his original estimate.  This is because the law does not allow an attorney to simply walk away from a lowball or inaccurately prepared estimate – especially if the estimate was a critical part of why the client decided to employ the attorney.[2]

Also, the cost overrun issue may turn on how large the variance is between the original cost estimate and the final costs.   Giving the lawyer the benefit of the doubt, consider that estimating is not an exact science.  And if the final costs in a matter are somewhat “close” to the original estimate, this may not be sufficient grounds for a refund or to refuse to pay the final amount.

However, if the variance is large, and the matter did not involve anything truly “unforeseen” or result from the client changing the scope of work, then the client may have a right to hold the attorney to his original estimate.[3]

Also, even if a lawyer gives the client a reasonable explanation for the cost overruns, this may not be good enough if the cost overruns have been going on for some time.  This is because of a lawyer’s ethical duty to keep a client timely informed of mounting legal costs before they become cost overruns.[4]  Lawyers who do not keep their clients properly informed of mounting legal Information costs have been subject to lawyer discipline.[5]

[1] See RPC 1.4(b).

[2] See In re Crown Orthodontic Dental Group, 159 B.R. 307 (Bankr. C.D. Cal.1993)(“If an attorney estimates the cost of his or her services and that esti mate is a critical part of the negotiations upon in employing the attorney, unless there are some real, unexpected changes of circumstances, the attorney should be bound by that estimate”).

[3] See In re Chas. A. Stevens & Co., 105 B.R. 866 (Bankr. N.D. Ill. 1989) (“The court holds that when professionals . . . project estimated fees or budgets to a client, they should expect to be held to the same or some reasonable variation thereon.  For (the applicant) . . . to apply to this court after such enormous overruns and expect payment in full is unrealistic and unreasonable.”).

[4] See RPC 1.4(a) and (b); ABA Annotated Model Rules of Prof. Conduct (6th ed.. 2007), at p.57 “Duty to Inform Clients Promptly about Important Information.”

[5] See In the Matter of Daniel G. Areaux, 823 N.E.2d 1192, 1193 (Ind. 2005)(“The respondent violated Indiana Professional Conduct Rules 1.4(a) and 1.4(b) by failing to keep his client reasonably informed of her escalating attorney fees owed to respondent and Baker & Daniels.”). In the Matter of Patrick R. Taylor, 741 N.E.2d 1239 (Ind. 2001) (“Failure to keep a client apprised of escalating fees may constitute a violation of Prof.Cond.R. 1.4.”)

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)).

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.