[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]

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[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 (6^th 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.”)