This is a dreaded topic for many, but I believe introducing the concept of attorney fees is important because people who have never been involved in litigation or the legal system may not understand what attorney fees are and how they work. Removing the mystery of attorney fees may encourage people to seek legal representation who otherwise may avoid it, believing they cannot afford an attorney or simply not wanting to leap into the unknown of hiring an attorney. I was out with a friend this week who was in a car accident last year and – based on the information I was provided – was not treated properly by her insurance company. However, she did not think she could afford an attorney, not knowing that most personal injury attorneys operate based on a contingency fee – they are paid a percentage of the final settlement or judgment – rather than a predetermined or prepaid fee.
Simply put, attorney fees are the fees paid to your attorney to assist you in reaching your legal goals. Be it a document that needs to be drafted such as a will or living trust, assistance with a personal injury that may or may not end up in court, or a breach of contract that must be pursued through litigation, the attorney responsible for meeting your legal needs will need to be compensated for his or her time and energy. Attorney fees are the last thing that most people would like to think about, but knowing how attorney fees operate rather than avoiding the topic may comfort those who really need legal help. Attorney fees can be structured in a number of ways, including flat fees, retainer agreements, and contingency fees.
FLAT FEES: Flat fees are an initial, lump-sum payment paid to an attorney – typically prior to beginning the work – to cover a specific type of issue. Flat fees are common in estate planning matters, bankruptcies, some criminal matters, and a variety of other types of cases. Flat fees are common for attorneys who handle one specific type of case, and for more formulaic matters that require the same documents to be filed and the same process for generally every case.
RETAINER AGREEMENTS: A retainer agreement is one of the most typical types of attorney fee arrangements. Most lawyers charge an hourly rate for their time. Such fees typically range depending on the experience level, reputation, level of expertise, and other relevant factors. A retainer agreement is essentially an initial deposit paid to the attorney to compensate for time necessary to work on the case. For example, say a person hires an experienced family lawyer for a contested divorce. The lawyer’s hourly rate is $300 per hour. That lawyer may require an initial deposit of $3,500 to be retained for the divorce. Essentially, the client is buying a chunk of the lawyers time, in this case $3,500 divided by $300 which is nearly 12 hours. The lawyer will then keep track of his or her time, and if the lawyer ends up working beyond 12 hours on the case, then the client will need to either replenish the retainer or begin making periodic payments, depending on how the fee is structured in the initial contract.
CONTINGENCY FEES: A contingency fee is when an attorney does not charge a fee up front or bill by the hour, but rather receives a percentage of either the settlement or the judgment in the case. One third (1/3 or 33.33%) is a common percentage used for contingency fees, although some are higher. For example, if a judgment is entered for $100,000 in a personal injury case and the attorney fee was a one-third contingency fee, then the attorney will receive $33,333 and the client will receive the $66,667. However, if, instead, the case goes to trial and the judge does not rule in the client’s favor, then the attorney will have done a considerable amount of work for essentially no money. Contingency fees are common for personal injury and medical malpractice cases, although they can be used for other types of cases as well. Many times the client will still be responsible for costs and expenses in these arrangements, such as court costs, filing fees, court reporter fees, mediator fees, etc.
This blog was intended to provide an introduction to attorney fee arrangements. A future post will focus on whether the opposing party in a case may be ordered to pay for your attorney fees, and will provide specific examples and scenarios where attorney fee awards may be available.
Ryan C. Smith's Tennessee Family Law Blog 