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Alternative Fee Arrangements: Ethical and Practical Considerations.

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Presentation on theme: "Alternative Fee Arrangements: Ethical and Practical Considerations."— Presentation transcript:

1 Alternative Fee Arrangements: Ethical and Practical Considerations

2 Ethical constraints  Bob Rohde (Rohde & Van Kampen) Panel discussion of ethical and practical considerations  Parker Folse (Susman Godfrey), Mark Parris (Orrick), Bob Rohde, Isabella Fu Audience discussion Contributors: John Wilson (KL Gates), Elana Matt (T-Mobile), and David Binney (Law Office of David H. Binney)

3 Traditional hourly billing not affordable for some clients

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5 Up to 30% of money spent on outside counsel was billed via AFAs 81% of large companies are satisfied with the work done using AFAs Source: Fulbright’s 9 th Annual Litigation Trends Survey Report, at

6 Fixed Fee  Either for entire engagement (e.g., trademark application) or by stage of litigation (e.g., early stages, through Markman, through close of discovery, trial). Sometimes for bucket of several projects or cases, or all matters of XX type that arise during a specific time frame. Capped Fee  Hourly rate up to a cap, often with caps for several litigation stages Partial Contingency Fee  Reduced hourly rate combined with reduced contingency fee  Reverse contingency fee where client is defendant: discounted hourly rate plus some percentage amount “saved” from agreed risk

7 Variables in all cases:  Who pays costs (or percentage shared)  Performance bonuses for non-contingency fee cases, particularly for caps or reduced rates

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9 “A lawyer’s time is his stock in trade.” Abraham Lincoln

10 RPC and ABA Model Rule 1.5  All fee agreements must be “reasonable,” and a lawyer may not enter into an agreement for, charge, or collect an illegal or excessive fee  Specific requirements for contingent fees  For retainers  For flat fee RPC and ABA Model Rules 1.7 and 1.8  Lawyers are prohibited from any representation where there could be a conflict of interest.

11 All fee agreements must be “reasonable,” and a lawyer may not enter into an agreement for charge, or collect an illegal or excessive fee Time and labor required, novelty and difficulty for the questions involved, the skill requisite to perform the service properly  Whether the representation will preclude other employment by the lawyer  The customary fee for the locality  The amount involved and the results obtained  Any time limitations imposed  The nature and length of the relationship with the client  Experience, reputation and ability of the lawyer  Whether the fee is fixed or contingent  The terms of the fee agreement between lawyer and client RPC RULE 1.5 FEES

12 Ethical Pitfalls:  Using unqualified lawyers: The reasonable fee rule should be seen as a prohibition against pushing work to a less experienced lawyer to maximize profitability under a fixed fee arrangement. Rule 1.1 requires a lawyer to always provide “competent” representation to a client. In certain cases this may prevent using less-experienced lawyers to maximize the benefit of an AFA.  Minimizing Time Spent: Attorney efficiency—less time spent on a matter— could work against the client if the client’s best result will require more time on the matter. There is an ethical violation if an attorney does not act at all times in the client’s best interest.  Curtailing Work: Once the cap in a capped fee is reached, an attorney cannot ethically curtail the work necessary to continue a matter. The comments to Rule 1.5 impose a high standard on the attorney, who cannot enter into any type of capped fee agreement that “might induce the lawyer improperly to curtail services for the client or perform them in a way contrary to the client’s interest.” RPC 1.5, cmt. 5. AFAs may present ethical issues because the interests of the client (best result possible) and the lawyer (most efficient resolution possible) diverge.

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14 RPC 1.7 – Fee Arrangements Must Avoid Conflicts of Interest

15 Ethical Pitfalls:

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