What You Need to Know About Legal Fees in Civil Litigation
Legal fees, like all costs, are the price a person pays for a good or service. Each case and client are unique, so there is no single-set fee arrangement that fits every prudent consumer’s budget. While negotiating within this framework is appropriate, it is also necessary for all clients to have a rough roadmap for how various fees differ.
Traditionally, the "billable hour" concept has been the most common in American civil litigation. Here, an attorney or paralegal tracks the time he or she spends on the case (in one-tenth of an hour, or six-minute, intervals), and bills all of that time at the appropriate rate. In some cases, a retainer agreement may indicate that the retainer will cover a specific number of hours per month, and if the retainer runs low, that amount is replenished. In other cases, the hourly fees are invoiced monthly, and payment terms may require payment with another monthly check, or as soon as possible thereafter. These invoices itemize the work performed by the attorney on a date. The attorney may also bill separately for telephone conversations, costs such as messenger and filing fees, and in some cases, fees for phone calls outside of standard business hours. It is not unusual to see total fees of several thousand dollars, even for relatively simple tasks.
In flat-fee arrangements, the billing arrangements vary from the billable hour system. A flat fee arrangement involves an upfront flat fee that covers an entire matter. For example , an attorney might quote a flat fee for obtaining a divorce decree, regardless of how much time that takes. This arrangement may be ideal for small businesses and personal injury matters, since the client can get a reasonably accurate bid up-front for the entire issue. The cost of the flat fee will depend on the attorney’s hourly rate and how many hours the attorney believes the matter will take. In our hypothetical divorce matter, the attorney might agree to obtain a decree for $5,000. In complex personal injury matters, the flat fee can sometimes be as much as $25,000 or $50,000. Of course, the client retains the right to ask for an hourly accounting of the matter, which the attorney must provide if requested. Flat fee arrangements are relatively uncommon in civil matters, although they do appear sporadically for discrete matters.
The third major category of legal fees is a "contingency" arrangement. Lawyers use various formulas to determine what percentage of a recovery is appropriate, but in general, contingency fees run between one-third and one-half of the recovery. If the case is lost, the attorney receives no fees; if it’s won, the attorney keeps the entire fee. In other cases, the attorney is entitled to either the regular fee or the contingent fee, whichever is less. While this sounds reasonable, the issue is that attorneys generally charge their regular hourly rates for contested matters, which can easily exceed the contingent fee amount.
The American Rule says you pay your own fees
The general rule in the United States is that each side to a civil lawsuit pays its own legal fees. This is called the American Rule, and it is different from the rule applied in many other countries, where the loser pays the successful party’s costs. The American Rule used to be a common law rule, but it became enshrined in Section 272 of the Judiciary Act of 1848, which was signed into law by President Polk as part of the "California Donation Land Claim Bill." The United States Supreme Court has repeatedly applied this rule to civil actions, and there are only a few exceptions.
There are only a few ways in which a party to a litigation can have its legal fees paid for. One of those is through the contract between the litigants, if there is one—that is to say, expenses can be shifted from one party to another by private agreement. Another is if one party has acted in bad faith or if there is some statutory or other exception.
California Civil Code section 1717 provides for an award of fees and costs for legal representation on "in line" and "on-off" contracts. Attorneys’ fees are appropriate only when the prevailing party is either the party to whom fees are awarded under the fee provision or the party claiming contractual breach or enforcement. A number of statutes provide for the award of fees to parties who obtain court orders or judgments in their favor. These statutes are usually based on a policy that promotes particular behavior by punishing the person or entity whose failure to do the required act necessitated the litigation.
Although the American Rule governs fee-shifting in most civil actions in the United States, there are a few exceptions. The American Rule was recognized as being "a harsh discretion" that caused injustice, and so Congress passed a bill to require losing parties to pay prevailing parties’ reasonable attorneys’ fees and costs as court-ordered sanctions upon offending parties’ failure to comply with discovery requests. The bill was signed into law in 1980 by President Jimmy Carter; this is called the "Equal Access to Justice Act," and it is particularly applicable to (but limited to) cases involving the federal government.
The American Rule has its exceptions
There are notable exceptions to this rule. Most typically, a party may be required to pay the legal fees of the winning party. Such circumstances arise in connection with a statute that provides for the recovery of attorneys’ fees. The Fair Labor Standard Act (FLSA), Immigration Reform Control Act (IRCA), and the Truth in Lending Act are examples of statutes that provide for fee-shifting. Under the IRCA, for example, where a court finds after a hearing that a party has "willfully" failed to comply with the FLSA, it may award reasonable attorneys’ fees to the prevailing party. There are other examples of fee-shifting statutes, including those related to patent infringement and civil RICO.
If a lawsuit is brought, or a defense raised, during an ongoing dispute between the parties and the case settles, on terms unacceptable to the defending party, the court may rule that the defense was submitted only for harassment purposes and award the costs of defense to the prevailing party. See, e.g., Kentucky-Brewster Stave Corp. v. Adams, 118 N.E.2d 679 (Ohio Ct. App. 1953) (court awarded damages where pre-litigation demands were made in bad faith and plaintiff had obtained net recovery less than its settlement offer).
Criminal defendants may generally not recover attorneys’ fees under the "American Rule." However, under various statutes, courts have awarded attorneys’ fees to successful criminal defendants. See, e.g., United States v. Baca, 859 F.2d 338 (2d Cir. 1988) (time spent by defendant in collecting his attorney’s fees, as well as the attorney’s fee, should be paid by prosecution); United States v. Oelrich, 973 F. Supp. 1066 (N.D. Ind. 1997) (defendant entitled to attorneys’ fees, possibly including appellate costs, where government exceeded its authority). Similarly, the Foreign Sovereign Immunities Act provides that a foreign state or its agencies and instrumentalities may be liable for attorneys’ fees. 28 U.S.C. § 1608(e).
Attorney fee agreements – key provisions
Attorney’s fee agreements come in various forms and serve as the contractual basis for the services rendered by the attorney. Some of the more common arrangements include contingency, pro bono, and retainer agreements.
Following a rule adopted by most states, in a contingency fee arrangement the client pays no upfront fees. A contingency fee agreement is defined on the basis of the lawyer’s compensation being contingent upon the result achieved by the lawyer. Generally, in a personal injury case, the contingency fee arrangement constitutes a sliding scale that ranges from 30% to 40% of the recovery. For example, if you reach a settlement agreement in a personal injury case 1 year before the trial, you pay 30%. If you reach a settlement agreement just 6 months before the trial of your case, you pay 35%. As stated earlier, at trial you may pay 40%. Of course, the attorney will also bill you for out-of-pocket costs such as fees for accident reconstructionists or other medical-related costs. As discussed below, however, prevailing under the "American Rule," generally each party bears its own legal expenses unless a statute or a contract provides otherwise, many courts have refused to enforce contractual provisions that shift potential liability for costs and fees to the client.
Pro bono arrangements involve legal work done for free or at a highly reduced rate for a client who has no ability to pay. This arrangement allows individuals who cannot afford legal representation to receive it anyway. Pro bono is provided by private attorneys and public interest organizations. The "Ban on Charging in Civil Matters" located in California’s Code of Civil Procedure § 1032 adds to the rule that in California, attorneys cannot charge clients for pro bono work in civil matters.
Contingency fee arrangements are strictly regulated by state law and attorneys entering into these agreements are expected to comply with written and oral disclosures required by law. Many states, including California, have adopted statutes regulating attorney retainer fee agreements and requiring certain attorney-client disclosures. The legal assistance organizations themselves for their pro bono work are generally not required to comply with fee and disclosure requirements mandated by state law.
Factors impacting the amount of fees paid
The decision of who pays the legal fees in a civil case varies according to a number of factors. The primary factor that determines this outcome is the law of the jurisdiction and the type of case at issue. There are four major categories of laws that govern the shifting of attorney fees in a civil dispute: statutes, contractual laws, common law and equitable exceptions. When the law of the jurisdiction under which a case falls is a part of a statute, the rules for shifting legal fees to the loser of the case are laid out very clearly within the law. The law may call for the losing party to pay the legal fees of the other party or it may be silent on the issue and allow each party to be responsible for its respective legal fees. If the statute allows for shifting the award of legal fees to the winner of the case, the outcome of the ?who pays? issue is certain .
If the party seeking to recover legal fees resides in a jurisdiction without a legal precedent or a specific statute providing for recovery of fees, the party may still recover fees under common law, which is a form of law based on precedent as opposed to strict reliance on statutory law. Common law may allow the party to recover their legal fees from the opposing party. As a general rule, parties in civil cases are responsible for their own fees unless there are some extenuating circumstances that would allow the fees to be shifted to the other party. The most common type of circumstance that would allow the fees to be shifted would be if one party took an obviously unreasonable position in the litigation. There is no bright line test for determining whether the position taken in litigation was unreasonable, but there are a number of factors considered by the court in making the consideration.
Payment of fees – practical tips
For individuals involved in civil cases, managing legal costs is often a top concern. One of the easiest ways to reduce spending is to negotiate fees upfront with your attorney. It can be as simple as asking for a discount for referring other clients or committing to paying the bill in full by a certain date.
Alternative dispute resolution methods such as mediation and arbitration, rather than traditional courtroom litigation, provide opportunities to resolve your dispute quickly and easily for a fraction of the cost. These alternatives also allow you to retain control over the process and outcome, which is not typically the case if you proceed through the court system.
Lastly, to avoid avoidable costs, be sure you understand court processes, how they affect your case, and how you might avoid them. For example, when you hire a lawyer, you will likely receive a packet requesting all of your medical records back to at least 5 years. This is a necessity for many cases, but then you might wonder why you are being charged $2.50 per page (the cost of making certified copies from the hospital records department) and $50 for processing. This is a ridiculous amount of money to pay for something that can be done by your attorney in 10 minutes. Many facilities will waive these fees if you ask for reduced fees (such as for hardship) and/or agree to have the records provided without certification (which is usually really important once it is electronically filed with the court).
When you can recover attorneys’ fees
The general rule is that each party to a civil case pays its own attorney fees. But there are circumstances where you might be entitled to recover some or all of your attorney fees and costs from the other party. If your case is a consumer protection case (CSSA, DTPA, DTPA attorney fees clauses, Insurance Code violations, Deceptive Trade Practices Act, UCCP, Homeowners Associations), most likely you are entitled to such fees.
A breach of contract containing a fee-shifting provision provides a different vehicle to obtain attorney fees. For example, if a lease says "if either party sues or tries to collect amounts owed under this lease, the losing party will have to pay the expenses of the winning party, including reasonable attorneys fees and court costs," then the loser is liable to the winner for this item of damages/expenses/loss . This provision can also be applied to some tort cases, specifically fraud and DTPA cases, in which the DTPA section applies to attorneys fees as well as just damages and other losses. In these cases, the party who breaches the contract would have an obligation to pay the attorney fees and costs of the party injured, but only if the attorney fees were the result of suit to seek redress for the breach. However, you should consult an experienced attorney to test your fact pattern on the idea of recovering attorney fees because of the various permutations and transmutations possible.