Avoiding Clearly Excessive Fees

Article Date: Tuesday, April 19, 2011

Written By: Erik Mazzone

When the topic of alternative fee arrangements comes up – and it comes up a lot these days – I hear one question more than any other: “if I do flat fees, what is a clearly excessive fee?”
Over the past few years, the use of alternative fee arrangements has picked up a lot of steam. In a time of increased competition in the legal marketplace, decreased corporate legal budgets and a still-flagging economy, more and more lawyers (and probably some clients, too!) look at billable hour reports and mutter, “there must be a better way.”

The variety of alternative fee arrangements continues to broaden. The flat or fixed fee, once largely the province of traffic tickets and residential real estate closings, has popped up all over the legal landscape, including in highly sophisticated litigation and transactional practices in which lawyers pride themselves on their bespoke legal work. Similarly, success fees (fees arrangements in which, upon the successful conclusion of a matter, a lawyer receives a set payment unrelated to hours billed), fee certainty plans (in which a firm bills hours but commits to a cap on the hours to be spent on a given matter) and the acceptance of equity stakes in client businesses are all additional arrows in the alternative fee quiver.

But for all the innovation and sophistication of the fee arrangements in legal practice today, they all share the same Achilles’ heel - uncertainty of how to avoid charging a clearly excessive fee. Or more precisely, how to avoid charging a fee which the North Carolina State Bar decides was clearly excessive. Rule 1.5 of the Rules of Professional Conduct is frustratingly, if necessarily, vague.

Lawyers are charged as follows:

A lawyer shall not make an agreement for, charge or collect an illegal or clearly excessive fee… The factors to be considered in determining whether a fee is clearly excessive 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; …the fee customarily charged in the locality for similar legal services; …the amount involved and the results obtained; …the nature and length of the professional relationship with the client; …[and] whether the fee is fixed or contingent.

The notes and opinions go on to provide some elucidation, but a bright line rule as to what constitutes “clearly excessive” remains elusive. Understandable, perhaps, but not very helpful in guiding one’s future choices on fee setting. It’s a bit like driving down a highway and seeing a sign that reads, “Speed Limit: Don’t Go Too Fast.” Enough information to make you nervous but not enough to help you avoid a ticket.

Here’s the thing, though: this entire issue is a red herring.

It’s not necessary for the State Bar to clearly define what an excessive fee is (even if it were possible to do so), because we already know. Or, to put it a different way, we have total, 100% certainty about what kind of a fee is not excessive: the kind where the client does not complain to the State Bar.

This may sound glib, but it is empowering once you accept it: if your clients are happy, your fees will never be excessive. Happy clients, by definition, do not complain about your fees or services to the State Bar. There is no such thing as a satisfied client who files a fee dispute. As they say about adultery and divorce: the fee dispute is not the problem but merely a symptom.

You may be rightly thinking, “well, keeping clients happy isn’t so easy… so what’s so empowering about all this?” What’s empowering is that it reminds us of something terrifically important yet terrifyingly easy to forget: that happy clients are the bedrock of a successful private law practice. Many lawyers like to think of their work as if they were surgeons: that their results are all that matter. As this line of thinking goes, if you obtain successful results, your clients are obliged to be happy. Unfortunately, clients don’t seem to sign on for that deal. (Neither do medical patients, for that matter. Don’t believe me? Try Googling “malpractice bedside manner” tonight when you get home.)

We tend to think of keeping our clients happy as some kind of fluffy-bunny feel-good baloney out of place in the bare-knuckled world of modern law practice. Nothing could be further from the truth – keeping clients happy is a business exigency. You want to escape the billable hour trap of selling your time in six-minute blocks for the rest of your career? You want a new arrangement with clients where your efficiency is rewarded as richly as your perseverance? You want to try out a success fee so when you hit a grand slam home run for a client you feel like you are rounding the bases, too?
Keep your clients happy.

You already know how to do it: over-communicate. Talk to them even when there is no news in their matter. Manage their expectations. Help them to understand what a great result looks like. Survey them. Ask them every few months if they still like you well enough to refer their friends and family. Knowing how to keep your clients happy is straightforward. Actually doing it requires commitment and prioritization.

Do yourself a favor in the upcoming months: first, rededicate yourself to ensuring that your clients are satisfied. Then experiment with an alternative fee arrangement. See if you can find a way to craft a win-win arrangement that rewards you for more than just hours of butt-in-chair.

And when you receive that success fee from a client who is happy to pay it, sleep the contented sleep of the just and know that whatever a clearly excessive fee might be for some other lawyer – one less committed to keeping clients happy than you – it doesn’t matter.

Erik Mazzone is the Director of the Center for Practice Management at the North Carolina Bar Association.

Views and opinions expressed in articles published herein are the authors' only and are not to be attributed to this newsletter, the section, or the NCBA unless expressly stated. Authors are responsible for the accuracy of all citations and quotations.