For as long as there have been lawyers, there have been arguments about how they should be paid. In the classical world, the Greeks and Romans prohibited paid advocacy, but they did so with a wink and a nod, such that advocates were routinely paid under the table.
For the past few hundred years, lawyers have generally been paid one of three ways: a fee dependent upon the eventual result, a fee for a broad array of work, or a running charge depending upon the quantity of work. (There are a handful of "alternative fee arrangements," but they are rare and are generally just a combination of the three typical ways.) . These days, that tends to boil down to contingent fee representation of civil litigation plaintiffs and large business deals (like mergers and acquisitions), flat or fixed fees for defense or transactional work, and "hourly billing," which is really "tenth of an hour billing," since it is usually done in 6 minute increments. The days of paying lawyers by the word, another form of “quantity” billing that was surprisingly common in the 16th through 18th centuries, died in the Modern era.
The hourly fee is, like the fee-by-the-word, anything but perfect. It gives the lawyers an incentive to waste as much time as possible, to routinely file unnecessary objections and motions, and to thwart settlement of matters until the last possible moment. Some insurance companies have caught onto that and have started trying to negotiate flat fee arrangements with their defense counsel, not all of whom were happy about it:
Last month Thomas D. Harper quit the firm he founded 27 years ago rather than agree to work on a flat-fee basis for his main client, State Farm. …
Harper said State Farm’s flat-fee arrangement could give a lawyer a financial incentive to provide only cursory representation to his client, the insured—even if the scheme is tiered so that successive phases of a case are assigned a specific value.
Having a sufficient pool of cases reduces conflict pressures, he said, because the money a lawyer loses on a time-consuming case is offset by more routine cases that resolve quickly.
So Harper said the first question he asked the State Farm managers at the August meeting was if the insurer would commit to a set number of litigation cases. "They would not guarantee anything," he said.
The whole article is worth reading for anyone interested in the subject. Frankly, like the plaintiff’s attorneys quoted in the article, I would love it if insurance companies all switched the flat fees, because then my opposing counsel would not have a financial incentive to waste as much time as possible, and instead would, while adhering to the dictates of the profession, simply raise and contest those issues which actually stood a reasonable chance of assisting their client.
That said, I don’t doubt that Harper is right: in certain circumstances, particularly where the lawyer’s income appears uncertain, flat fees can cause problems. But that’s not to say flat fees are inherently unethical: if State Farm had guaranteed Harper a certain amount of work, there wouldn’t have been a problem, since he wouldn’t have been left scrambling for as many flat fee clients as possible.
More to the point, there’s an elephant in the room: all fee agreements of any sort create a conflict between the attorney and the client, a conflict relieved or exacerbated by the lawyer’s own financial well-being. Even in a contingent fee arrangement, my preferred type of fee agreement since it aligns the interests of the lawyer and the client, attorneys may have the incentive to avoid certain costs, or let certain issues go, rather than commit more time and energy to that. Worse, if a contingent fee lawyer starts to worry about their cash flow, they might feel the pressure to encourage clients to compromise meritorious cases.
Is the hourly rate somehow immune to ethical concerns? Of course not. I frequently see cases in which the hourly-paid attorney is overworking the case for the benefit of their own fees (and cases like that in which parties folded early in the game rather than keep swallowing the bills), and cases in which the hourly-paid attorney has plainly not had a candid discussion with their client about the merits of the case, since the hourly-paid attorney doesn’t want to kill their revenue stream by settling.
I thus couldn’t believe Mark Bennett’s reporting on the Texas Bar Association’s complaints about criminal defense lawyers charging flat fees:
Current Disciplinary Rule 1.14 requires a Texas lawyer to hold property “belonging in whole or in part to clients” separate from her own property. Current Disciplinary Rule 1.05(d) requires her to “refund[] any advance payments of fee that has not been earned” when discharged. The State Bar’s position is that each of these lawyers in each of her cases—more than ten thousand lawyers, millions upon millions of cases—has violated Rule 1.14, and that in every case in which a lawyer was discharged before the case was complete and refunded nothing—probably millions of cases—the lawyer has violated Rule 1.05(d). …
Those in the State Bar who think that flat fees are unethical want people to be able to change lawyers; that’s a worthy aim, but if a defendant can’t afford to hire a lawyer in the first place, it doesn’t do him any good to be able to change lawyers—the defendant whose resources have been exhausted with the first lawyer can’t change lawyers freely. Neither, though, can the indigent defendant who has been appointed counsel, nor the client who has been tapped out by an hourly-fee lawyer. That defendants should be able to change lawyers at will is not a principle; it’s a nice goal, but there’s no reason it should control over the principle that the parties to a contract should be able to choose its terms, or the principle that private criminal-defense services should be accessible to more than only the very wealthy.
Even in civil cases, where judges will typically let attorneys out for unpaid fees, it’s tricky collecting fees in hourly-billing cases from uninsured clients. They’re frequently late on payments, frequently balk at paying, et cetera.
In a criminal case the situation is even worse since the judges frequently won’t let lawyers out merely for being unpaid, and for generations criminal defense lawyers have known that, if they do not collect all the fee up front, they have essentially waived any fees down the road. If you don’t believe me, just pick up your copy of Anatomy of a Murder, which is now over fifty years old, and witness Biegler as he frets about Manion’s proposal that he pay over time and the likelihood that Biegler won’t collect the whole fee.
Manion got lucky: his case was so prominent that Biegler took it anyway, knowing the risk of non-payment, since he found the case interesting and thought it would help his practice in the long-run.
Most people aren’t so lucky. I hate to break it to you, and to the Texas Bar Association, but access to civil and criminal justice depends upon ensuring that lawyers get paid. For better or worse, that’s the system we happen to have, a system in which parties with adequately-compensated lawyers do a heck of a lot better than parties without lawyers or with lawyers desperately trying to stay afloat.
If we’re not going to fully fund public defenders’ offices so that they can put the necessary time and attention on criminal prosecutions, then we need to make sure that all of the public, not just the parts of the public who can deposit huge retainers for massive hourly fees, has access to the private criminal defense bar. That, in turn, requires allowing attorneys and their clients the ability to come to whatever mutually-agreeable arrangements they can reach. The potential for "unearned fees" worries me a lot less than the potential for "underrepresented clients."