Saturday, November 7, 2009

Reasonable Fees: Should There Be A Lower Limit?

Bar regulators show an increased willingness to police the upper limit of attorney's fees, declaring some to be too high. What about the flip side? When are fees too low?

Actually, the rules are silent on both the upper and lower limit. Rule 1.5 of the Connecticut Code simply advises: "A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses." The rule then goes on to state the factors that may be considered in any calculation of reasonableness. Among them are the time and labor required, the opportunity costs associated with selecting one case rather than another, the time limitations imposed by the client or circumstances, and the experience, reputation and skill of the lawyer.

What happens when a lawyer charges too little to a client?

Most firms represent a number of clients at the same time. That means the firm must manage the time and energy it devotes to each client. Too many clients can yield a situation in which necessary work does not get done. Too few clients means that the firm cannot generate the revenue necessary to keep working. Each firm, and each type of firm, must find just the right balance.

Firms that charge too little run the risk of having to take on too many clients to pay attention to the files of all clients. Assume for the moment overhead of $10,000 per week. That means a firm must generate $2,000 per day, Monday through Friday, to remain open and to keep working. In a bad economy, such a firm might decide to reduce its rates to remain in business and to remain competitive. But a fifty percent reduction in rates means taking twice as much work to break even. What firm is so awash in talent that it can double the workload simply on demand? Rates too low mean that corners will get cut, and the quality of representation will suffer.

And let's not forget that some clients have exceptional needs. Is it ethical to charge a flat fee for representation to such clients? Some clients require almost daily care and feeding. A client paying a flat fee for such service imposes a tremendous burden on the firm: Either respond to those needs, or stand accused of failing to communicate. Perhaps the rules should require a minimum hourly rate to be charged to all clients, the better to make sure that clients understand that a lawyer's time is limited.

Of course, the suggestion that there should be minimum fees will meet with resistance. We are professionals, after all, and guard jealously our independence. Yet to the extent that the bar sees fit to regulate the upper limit to protect clients, it should pay as much regard to regulation of the lower limit. This, too, protects clients in a paradoxical by assuring that a lawyer does not choose to spread himself too thin by taking too many clients, or that he be spread too thin by the demands of a handful of clients.

I do not favor the regulation of attorney's fees, mind you. It is an open and competitive market. But the dangers of charging too much are, I suppose, overstated. Clients are free to choose a lawyer or not based on the price demanded. Lawyers, too, are free to give their services away. On balance, however, I think there is a greater danger to all clients posed by fees that are too low. In such cases, necessary work does not get done, and clients are promised the illusion of effective representation by a lawyer too harried to do her job.

I am wondering whether anyone has ever read of a case in which a lawyer was disciplined for not charging enough? I suspect there are no such cases. But if one scratches the surface of many an ethics complaint, I suspect the driving force was not enough hours in the day to meet the demands of all the clients a firm has chosen to represent. Had the firm been required to charge a reasonable fee, these problems might be avoided/