Hawkins Parnell Thackston & Young LLP IMPLEMENTING ALTERNATIVE FEE ARRANGEMENTS – CHALLENGES AND CONCERNS FOR CLIENTS & CARRIERS The information included in this panel is strictly the opinion of this panel and the individual panel members and does not necessarily reflect the beliefs of the DRI or the beliefs of any panel member’s employer. It is not our intent to render legal advice. If legal advice is needed, it should be obtained from your local legal counsel.
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Hawkins Parnell Thackston & Young LLP
IMPLEMENTING ALTERNATIVE FEE ARRANGEMENTS – CHALLENGES AND CONCERNS FOR CLIENTS & CARRIERS
The information included in this panel is strictly the opinion of this panel and the individual panel members and does not necessarily reflect the beliefs of the DRI or the beliefs of any panel member’s employer. It is not our intent to render legal advice. If
legal advice is needed, it should be obtained from your local legal counsel.
Hawkins Parnell Thackston & Young LLP
P R E S E N T E D B Y:
DR I ' S L A W Y E R S ' P R O F E S S I ONALISM A N D E T H I C S C O M M IT T E E
Edward M. Slaughter, Managing Partner, Dallas Office, Hawkins Parnell Thackston & Young LLP
Luanne Ellison, Director, Litigation ManagementResolute Management, Inc.
Ben Pellegrini, Assistant General CounselRheem Manufacturing Company
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History of the Billable Hour
“A lawyer’s time is his stock in trade.”-Abraham Lincoln
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Leading to the Billable Hour
• 1930 - State bars issue recommended/statutory minimum fee schedules
• 1960 – Bills for “services rendered” – and estimation of perceived value
• Mid 1960s to early 1970s – Anti-trust concerns, accountants and insurance carriers require more detailed information and a better way to track it – Thus the billable hour is popularized
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Alternative Fee v. Billable Hour
Perceived negatives of hourly billing:– Discourages attorney client communication– Discourages expedient resolution of cases– Based on work performed instead of value
obtained– Creates a conflict between attorney and client– Slave to the clock – Bad for the Profession
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"We can't solve problems by using the same kind of thinking
we used when we created them."
- Albert Einstein
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Can Alternative Fee Agreements Improve
Attorney Client Communication?
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American Bar AssociationModel Rules of Professional Conduct
Rule 1.4: Communication
(a) A lawyer shall:
(1) promptly inform the client of any decision or circumstance [requiring] the client’s informed consent…
(2) reasonably consult with the client…
(3) keep the client reasonably informed…
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AFAs and Attorney-Client Communication
• Process of creating AFA facilitations communication about expectations
• AFAs can set routine communication as part of an overall fee or pay as a line item
• Eliminate clock watching by client
• Eliminate needless over-reporting
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Can AFAs be used to encourage attorneys to expedite
litigation and other legal matters?
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American Bar AssociationModel Rules of Professional Conduct
Rule 3.2: Expediting Litigation
A lawyer shall make reasonable efforts to expedite litigation consistent with the interests of the client.
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Expediting Litigation
• AFAs can discourage boilerplate excess work
• AFAs can encourage attorneys to be efficient
• AFAs can expressly reward speedy resolutions
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How can AFAs be used to ensure that clients get value for
the fees they spend?
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THE VALUE EQUATION
VALUE = Result - Cost
Value is realized when a client’s expectations are met (or exceeded) at what they consider a reasonable price. It is a
subjective assessment of the overall worth of a product or service.
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Work Performed and Value Obtained
Task Time
Read opinion, report, and salient reliance materials;
6 hours
Collect and review published literature with differing view;
12 hours
Collect bias materials for cross; 3 hours
Depose witness in person with documents; 12 hours
Example #1: Attorney prepares to depose hazard communicaton expert
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Work Performed and Value Obtained
Task Time
Read opinion, report, and identify new reliance materials;
2 hours
Update opposing literature; .5 hours
Depose witness by telephone; 2 hours
Example #2: Attorney deposes same witness second time
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AFAs Reward Value Obtained
• AFA might pay less than hourly rates in some instances
• AFAs should reward expertise and encourage development and use of institutional knowledge
• AFAs should encourage best staffing practices
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What do the rules of Professional Responsibility
require when creating the terms of Alternative Fee Agreements?
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American Bar Association
Model Rules of Professional Conduct
Rule 1.5: Fees
(a) A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. The factors to be considered in determining the reasonableness of a fee include the following:
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(1) The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
(2) The amount involved and the results obtained;
(3) The time limitations imposed by the client or the circumstances;
(4) The nature and length of the professional relationship with the client;
(5) Whether the fee is fixed or contingent.
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Creating Ethical AFA’s
• Time and Labor + Skill Required
• Consider the amount of work
• Consider the use of work product
• Consider the best staffing plan
• Consider the expertise of the team
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Creating Ethical AFA’s
• Amount involved + results obtained
• More risk = more reward
• Consider contingent component
• Consider bonuses for performance
• Consider refund for poor performance
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Creating Ethical AFA’s
• Whether the fee is fixed or contingent.
• Contingent fees can be created for any case
• Complete Contingent fees based on results
• Contingent bonuses
• Hybrid – Hourly and Contingent fees
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Do AFAs increase or decrease potential conflicts of interest
between Attorney and Client?
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Conflicts of Interest
A conflict of interest is involved if there is a substantial risk that the lawyer's representation of the client would be materially and adversely affected by the lawyer's own interests or by the lawyer's duties to another current client, a former client, or a third person.
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Inherent Potential Conflict?
• Will Client may seek lowest cost per service?
• Will Client press for more work than necessary under AFA?
• Will Attorney seek higher profit margin
• Will Attorney seek to avoid work that would benefit client?
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ETHICAL ISSUES INHERENT IN THE TRIPARTITE
RELATIONSHIP
• Insured may second guess AFA where the fees are paid by a carrier
• Motivation by attorney to trim unnecessary work may be seen by insured as a reduction in service
• AFAs more workable where insured has SIR
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What type of AFA will work best for the situation?
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Fixed or Flat Fee
• Price charged for defined services
• Shifts some of the risk of cost overrun to law firm
• A total fee or segments of the service
• Useful where there is litigation is most predictable
PRICE = BUDGETED VALUE
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Model for Determining Appropriate Flat Fee For Individual Matter
• Based on ABA codes
• Customized by inputting rates, likelihood of reaching certain phases and whether the firm has experience with similar cases
• Experience in the area and trust in the relationship is key