Access Training Materials – Cengage



Chapter 5

LEGAL FEES, TIMEKEEPING, AND BILLING

KEY POINTS

( TIMEKEEPING IS THE PROCESS OF TRACKING ATTORNEY AND LEGAL ASSISTANT TIME FOR THE PURPOSE OF BILLING CLIENTS.

( Billing is the process of issuing invoices for the purpose of collecting monies for legal services performed, and being reimbursed for legal expenses.

( Many legal assistants are given goals or standards for the amount of time they must bill weekly, monthly, and annually.

( There are many types of legal fee arrangements, including hourly rate fees, contingency fees, flat fees, retainer fees, and value billing.

( All legal fee agreements should be in writing. Contingency fee agreements must also be in writing.

( No contingency fee agreements are allowed for criminal or domestic relation matters.

( No matter the circumstances, only a reasonable fee can be collected from a client.

( Intentionally overbilling a client is a fraud and is criminal in nature.

CHAPTER OUTLINE/NOTES

I. KINDS OF FEE AGREEMENTS

Legal fees can be structured in many different ways depending on the type of case, the specific circumstances of each client, and the law office’s preferences.

A. Hourly Rate Fees

An hourly rate fee is a fee for legal services that is billed to the client by the hour, at an agreed-upon rate. There are several specific types of hourly rate agreements.

1. Attorney/Legal Assistant Hourly Rate—The attorney/legal assistant hourly rate is based on the attorney’s or legal assistant’s level of expertise and experience in a particular area. The hourly rate depends on which attorney or legal assistant is working on the case. See Exhibit 5–1.

2. Client Hourly Rate—The client hourly rate method is based on only one hourly charge for the client, regardless of which attorney works on the case and what he or she does on the case.

3. Blended Hourly Rate—A blended hourly rate fee is one hourly rate that is set taking into account the blend or mix of law office staff working on the matter. The “mix” may include associates, partners, and, sometimes, legal assistants working on the matter.

4. Activity Hourly Rate—An activity hourly rate is based on the type of service or activity being performed. Court appearances are usually billed at substantially higher rates than taking telephone calls, for instance.

5. A fee projection worksheet is shown in Exhibit 5–2.

B. Contingency Fees

1. A contingency fee is a fee that is collected if the attorney successfully represents the client. The attorney is entitled to a certain percentage of the total amount of money awarded to the client. If the client’s case is not won, and no money is recovered, the attorney collects no legal fees but is still entitled to be reimbursed for all expenses incurred. See Transparency Master 31 for a contingency fee example (Exhibit 5–3).

2. Contingency fees are typically used in representing plaintiffs in personal injury cases, workers’ compensation cases, civil rights cases, and medical malpractice cases.

3. Contingency fee agreements must be in writing.

4. Some states limit how high contingency fee agreements can be.

C. Flat Fees

1. A flat fee is a fee for legal services that is billed as a flat or fixed amount.

2. Flat fees are used in preparing wills, uncontested divorces, and bankruptcies. They are used when the legal matter is simple, straightforward, and involves few risks.

Exhibit 5–6 shows a comparison of fees for preparing a will using different billing arrangements.

D. Retainer Fees

1. Earned Retainer—An earned retainer means that the law office or attorney has earned the money, is entitled to deposit the money in the office’s or attorney’s own bank account, and can use it to pay the attorney’s or law office’s operating expenses (such as salaries).

2. Unearned Retainer—An unearned retainer is monies that are paid up front by the client as an advance against the attorney’s future fees and expenses, as a kind of down payment. Until the monies are actually earned by the attorney or law office, they belong to the client. According to ethical rules, unearned retainers may not be deposited in the attorney’s or law office’s normal operating checking account. Unearned retainers must be deposited into a separate trust account and can be transferred into the firm account as it is earned.

a. The written fee agreement should state what kind of retainer is being required.

b. When a fee agreement refers to paying a “nonrefundable” retainer, this usually means it is an earned retainer.

c. Flat fee rates are also usually an earned retainer.

3. Trust or Escrow Account—A trust or escrow account is a separate bank account, apart from a law office’s or attorney’s operating checking account, where unearned client funds are deposited.

4. Cash Advance Retainer—A cash advance retainer is unearned monies that act as an advance against the attorney’s future fees and expenses. Until the cash advance is earned by the attorney, it actually belongs to the client. The cash advance is a typical type of unearned retainer.

5. Retainer for General Representation—A retainer for general representation is used when a client, such as a corporation or entity, requires continuing legal services throughout the year. The client pays a sum of money and receives services for the rest of the year. This is usually an earned retainer.

6. Case Retainer—A case retainer is a fee that is billed at the beginning of a matter, is nonrefundable, and is usually paid to the office at the beginning of the case as an incentive for the office to take the case. This is an earned retainer.

7. Pure Retainer—A pure retainer is paid up front and obligates the law office to be available to represent the client (usually a corporation) throughout the time period agreed upon; the firm also agrees not to represent any of the client’s competitors.

E. Court-Awarded Fees

1. In certain federal and state statutes, the prevailing party (i.e., the party that wins the case) is given the right to recover from the opposing side reasonable attorney’s fees. The amount of the attorney’s fees is decided by the court.

2. Court-awarded fees are provided for in federal civil rights law, antitrust, and civil racketeering statutes, to name a few.

F. Prepaid Legal Services

1. Prepaid legal services are plans that a person can purchase that entitle the person to receive legal services (as set out in the plan) either for free or at a greatly reduced rate.

G. Value Billing

1. The value billing concept represents a type of fee agreement that is based not just on the time required to perform the work but also on the complexity of the matter and the expertise of the attorney required to perform it. Value billing typically provides that the attorney and client reach a consensus on the amount of fees to be charged.

II. Ethics of Timekeeping and Billing

A. Ethical Considerations for Legal Fee Agreements

There are more timekeeping and billing-related ethical complaints filed against attorneys and law offices than all other types of complaints.

1. Fee Agreement in Writing—All fee agreements should preferably be in writing. The Model Rules at 1.5(b) states:

(b) The scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation, except when the lawyer will charge a regularly represented client on the same basis or rate. Any changes in the basis or rate of the fee or expenses shall also be communicated to the client.

a. If the fee agreement is not in writing, the attorney and client may (will) forget the exact fee agreement.

b. If there is a factual dispute regarding a fee between a client and an attorney, the evidence is typically construed in the light most favorable to the client.

2. Contingency Fee Agreement Required To Be in Writing

a. Contingency fee agreements must be in writing, according to Model Rule 1.5(c):

c) A fee may be contingent on the outcome of the matter for which the service is rendered, except in a matter in which a contingent fee is prohibited by paragraph (d) or other law. A contingent fee agreement shall be in writing signed by the client and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial, or appeal; litigation and other expenses to be deducted from the recovery; and whether such expenses are to be deducted before or after the contingent fee is calculated. The agreement must clearly notify the client of any expenses for which the client will be liable whether or not the client is the prevailing party. Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement stating the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination.

3. No Contingency Fees in Criminal/Domestic Relations Cases

a. Contingency fees cannot be used in criminal and domestic-relation proceedings, according to Model Rule 1.5:

d) A lawyer shall not enter into an arrangement for, charge, or collect:

(1) any fee in a domestic relations matter, the payment or amount of which is contingent upon the securing of a divorce or upon the amount of alimony or support, or property settlement in lieu thereof; or

(2) a contingent fee for representing a defendant in a criminal case.

B. Only a Reasonable Fee Can Be Collected

1. No matter what the fee agreement says, only a “reasonable” fee can be collected.

2. According to the Model Rules at 1.5(a), factors used to determine “reasonableness” include:

(a) A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. The factors to be considered in determining the reasonableness of a fee include the following:

(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;

(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;

(3) the fee customarily charged in the locality for similar legal services;

(4) the amount involved and the results obtained;

(5) the time limitations imposed by the client or by the circumstances;

(6) the nature and length of the professional relationship with the client;

(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and

(8) whether the fee is fixed or contingent.

C. State Bar Oversight of Fee Issues

1. Many state bar association and courts provide for immediate and informal review/arbitration of fee disputes.

D. Fraud and Criminal Charges

1. Charging an unreasonable fee may rise to the level of fraud.

2. Criminal fraud is a false representation of a present or past fact made by the defendant, upon which the victim relies, resulting in the victim suffering damages.

E. Ethical Problems

Hard ethical billing problems that come up include the following:

1. Billing two clients for the same time, or “double billing”—This happens when the timekeeper is traveling for one client and works on another client’s case during the travel, for instance. The prudent thing to do is to bill one client or the other client for the time, or to split the time between the cases, but it is not prudent to bill both cases as full time.

2. When billing by the hour, is there an ethical obligation to be efficient?—Law offices should not “milk” their clients. Law offices and timekeepers should work efficiently. If the attorney or legal assistant works so inefficiently that the fee is no longer reasonable, a violation of the ethical rules will have taken place.

3. Should legal assistants bill for clerical or secretarial duties?—Legal assistants cannot bill clients for clerical duties.

4. Should the client pay for the mistakes of the law office?—The prudent thing to do is to not bill clients for mistakes. Clients come to attorneys because attorneys are the experts.

5. Should a task be assigned to less-expensive staff when possible?—Yes; clients should not have to pay for attorney time when the work can be provided by a legal assistant.

III. Legal Expenses

A. In addition to recovering for legal fees, law practices are also entitled to recover from clients the reasonable expenses that are incurred by the office in representing the client.

B. Copying costs, postage, long-distance phone calls, court fees, and travel expenses are common expenses for which clients reimburse law offices.

C. In cases involving litigation, expenses alone can exceed tens of thousands of dollars.

IV. Timekeeping

Timekeeping is the process of tracking what attorneys and legal assistants do with their time. A time sheet or time slip is where legal professionals record information about the legal services they provide to each client.

A. Manual and Computerized Timekeeping

1. There are several different types of manual timekeeping systems. Most systems allow the timekeeper to record his or her time chronologically, and then separate the sheets and file them with each case.

2. Some timekeeping and billing programs provide assistance in keeping track of time. This usually consists of telling the computer what case you are going to work on, and to turn the “meter” on and then off when you are done.

B. Billable v. Non-Billable Time

1. Billable time is the actual time that a legal assistant or attorney spends working on a case, which is directly billed to a client’s account.

2. Non-billable time is time that cannot be directly billed to a paying client, such as general or administrative activities for the firm, personal time, breaks, and pro bono work.

3. Pro bono work is legal services that are provided free of charge to a client who is not able to pay for the services.

4. Exhibit 5–8 shows some common billing complaints of corporate law departments.

C. Minimum Billable Hours

1. Most law offices have a minimum number of hours that legal assistants must bill every year. Billable hours are typically between 1,400 and 1,800, though they can be higher in some offices. Exhibit 5–16 shows expected billable hours for legal assistants.

2. Legal assistants should always track how much time they are billing to see if they are complying with the minimum number of hours, and they should not wait until the last month of the year to find out they have not billed enough time.

D. Recording Time

1. Time is usually billed in either six-minute intervals or quarters.

Six-Minute Intervals

0–6 minutes = .1 hour 31–36 minutes = .6 hour

7–12 minutes = .2 hour 37–42 minutes = .7 hour

13–15 minutes = .25 hour 43–45 minutes = .75 hour

16–18 minutes = .3 hour 46–48 minutes = .8 hour

19–24 minutes = .4 hour 49–54 minutes = .9 hour

25–30 minutes = .5 hour 55–60 minutes = 1.0 hour

Quarter Intervals

0–15 minutes = .25 hour

16–30 minutes = .50 hour

31–45 minutes = .75 hour

46–60 minutes = 1.0 hour

E. Timekeeping Practices

1. Tips on timekeeping include:

- Finding out how many hours you must bill annually, monthly, and weekly up front, and tracking where you are in relationship to the quota.

- Finding out when time sheets are due.

- Keeping copies of your time sheets.

- Recording your time contemporaneously on a daily basis.

- Recording your actual time spent, and not discounting your time.

- Being aware if billable hours are related to bonuses or merit increases.

- Being ethical.

- Being aware of things that keep you from billing time.

V. Billing

A. Legal Assistant Profitability

1. It is profitable for law offices to hire legal assistants since their time can be charged to clients, they do not earn a share of the law office profits, and they are less expensive to employ than associate attorneys.

2. Clients like legal assistants to work on their cases as well, since their fees are much lower than attorneys’ fees.

3. The U.S. Supreme Court case of Missouri v. Jenkins (1989) allowed a law firm to recover the market value of its legal assistants’ time when receiving “attorney’s fees” under a federal civil rights statute. Because the case was specific to a federal civil rights statute, other courts using other statutes and circumstances may not follow this ruling. However, it is the trend to allow recovery for legal assistant time.

4. Exhibit 5–18 shows average legal assistant billing rates by region.

B. Leveraging and Setting Hourly Rates

1. Leveraging is the process of earning a profit from legal services that are provided by law office personnel, including partners, associates, and legal assistants.

2. Leveraging allows the law office not only to recover the cost of an attorney’s or legal assistant’s salary but also to pay overhead expenses and make a profit on each person billing.

C. Manual Billing Systems

1. Manual billing systems usually include typing billings on typewriters or word processors. The problem with manual systems is that it takes a lot of time to bill manually; when invoices are late going out, the payments are late coming in, and the office may experience cash-flow problems.

D. Computerized Billing Systems

1. Computerized billing systems are widely available, and many are very inexpensive. Often they can produce invoices very quickly and help to solve cash-flow problems in many offices.

E. Timekeeping and Billing Cycle

1. The timekeeping and billing cycle in many offices is as follows:

a) Client and attorney reach an agreement on legal fees.

b) Attorneys and legal assistants perform legal services and prepare manual time slips.

c) Time slips and out-of-pocket expense slips are entered into the computer.

d) Pre-billing report is generated and reviewed by managing attorney.

e) Client billings are generated and mailed.

f) Management reports are generated.

g) Client payments are entered in the computer.

F. Bill Formats

1. There are many different billing formats that invoices can take. The bill format used should be the one that the client wants, and that meets his or her needs. Exhibit 5–21 shows a final client billing.

G. Management Reports

1. Management reports are used to help management analyze whether the timekeeper and the office are operating in an efficient and effective manner. Many different management reports can be generated in most computerized billing programs, including:

- Case/client list (list of all cases)

- Aged accounts receivable report (list of balances due and how long they have been due)

- Timekeeper productivity report (how much billable/non-billable time is billed by each timekeeper)

- Case type productivity report (shows what types of cases are the most profitable)

WEB LINKS



Alabama State Bar Association site devoted to law practice management.



American Bar Association site.



American Bar Association site devoted to law practice management.



American Bar Association Legal Technology Resource Center site.



Association of Legal Administrators site.



Georgia State Bar Association site.



Home page for Law Office Computing magazine.



Home page for Law Technology News periodical.



Home page for Law Technology News white papers on legal technology issues.



Maryland State Bar Association site.



Mississippi State Bar Association Client Relations Handbook site.



Home page for the National Association of Legal Assistants.



Home page for the National Federation of Paralegal Associations.



New Jersey State Bar Association site devoted to law practice management articles and information.

Management.htm

New York State Bar Association site devoted to law practice management.



South Carolina State Bar Association site devoted to law practice management.



Perfect Practice billing and accounting site.



PCLaw site.



DDI time and billing site.



Thomson software site.



Journyx site.



Juris site.



Verdict time and billing site.



Omega billing and accounting site.



Timeslips site.



ProLaw site.



RainMaker site.



Tabs3 site.

KEY TERMS

ACTIVITY HOURLY RATE

aged accounts receivable report

attorney or legal assistant hourly rate

billable time

billing

blended hourly rate fee

case retainer

case type productivity report

cash advance

client hourly rate

contingency fee

court-awarded fees

criminal fraud

earned retainer

electronic billing

flat fee

hourly rate fee

leveraging

management reports

non-billable time

outside counsel

overhead

pre-billing report

prepaid legal service

pro bono

pure retainer

retainer for general representation

timekeeper productivity report

timekeeping

time sheet or time slip

unearned retainer

value billing

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