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Wednesday, September 05, 2007

I can't wrestle myself to the ground as your advocate against me in our fee discussions

David Giacalone is a lawyer who hates contingency fees.

Although he and I have never met, David and I have bumped into each other a few times in the blogosphere, most recently through a long-running but very civil discussion, partly here but mostly in the comments section his Overlawyered post about the Rutgers basketball player's defamation case against shock-jock Don Imus.

I became a fan of David's, and silently indebted to him, several years ago in reading through some of his many, many criticisms of the contingent fee structure for lawyer compensation. There was much food for thought on his blog, then called "ethicalEsq." And when I re-entered solo practice last year and was designing the six separate pages in the fees and expenses section of my new professional website, I tried to keep in mind his views, many of which I emphatically agree with.

David's unquestionably correct, for example, in arguing that most lay consumers of legal services don't have a sufficient appreciation for the fact that they can, in theory and usually in practice too, haggle with lawyers over rate structures and fees in pretty much the same way that they can haggle with car salesmen. They can comparison shop. They can improve their odds of making a good decision, and reduce their odds of unpleasant surprises, by doing research before making commitments. If a lawyer tells prospective clients he won't haggle, that's also his right — and maybe the market will sustain him in that, as it sustains the car salesman who's offering next year's new BMW that's restricted for limited U.S. distribution, and therefore insists on a "premium above sticker."

In his most recent post on the subject, however (h/t Ted Frank on Overlawyered), in the midst of many other good points, David makes one argument with which I wholly disagree (emphasis and links his):

Unfortunately, as ethicalEsq wrote in June 2003 at this weblog, when it comes to lawyers who use contingency fee contracts, there appear to be “Fiduciaries everywhere except in the mirror.”   Even worse (and shamefully), lawyers have pushed bar counsel and courts to hold that fidiciary duties do not arise until after a retainer agreement is entered into with a prospective client (see Brickman’s The Continuing Assault, at 1197, which is excerpted below the fold). That’s right: some lawyers are shameless enough to argue that their duty to put the client’s financial interests above their own — and to give clients enough information to make intelligent decisions — does not exist until after the level of fees has been settled.

I agree entirely that lawyers are bound by ethical duties to the profession and to the public generally when they are negotiating their fee arrangements with prospective clients. Those include obligations to make full and fair disclosures and, in general, not to overreach or take advantage of our prospective clients' lack of sophistication. I agree, too, that a lawyer's duties to prospective clients include being candid and reasonably forthcoming in describing his preliminary opinions about the economics of a case, at least in general terms and very broad ranges.

But David is badly wrong in arguing that those duties rise to the level of owing fiduciary obligations to prospective clients with regard to fees: We can't yet be bound by fiduciary duties, because by definition, a fiduciary is obliged to put his beneficiary's welfare above his own. And it's unrealistic — it's impossible — for any prospective client to expect me to negotiate against myself on his behalf in order to get my prospective client my absolute best, lowest, most unfavorable-to-me and most favorable-to-him fee terms.

Instead, here's what I say about that specific subject on my professional website:

I try to deal fairly with my clients on fees both because that's the right thing to do and because it's in my own long-term interests.

Whether you're dealing with me or any other lawyer, however, remember this:

A lawyer whom you haven't yet hired must always be his own advocate with respect to the prospective fee arrangement between you and that lawyer. As a businessman, his interest has to be in getting himself paid — and most lawyers (including me) would rather be well paid than poorly paid. Your interests at that stage are certainly different from his, and in fact, depending on the arrangement under discussion, your interests may be exactly the opposite of his. Hopefully you can find an economic arrangement that will be fair to you both. But you must not rely on your prospective lawyer to put his own interests behind yours during the fee negotiation process.

Once I am retained, then I do indeed have an obligation to put my client's interests ahead of my own  — including on matters that relate incidentally, or even profoundly, to my fees. Knowing that I will be exposed to risks from such obligations is something I do consider up front, in deciding what engagement terms will be satisfactory to me — and that's altogether appropriate, since I have the experience to make informed predictions and evaluate that risk. My clients' interests not infrequently oblige me to do things that would not be cost-effective for me personally, but once I'm their fiduciary, my obligation is to protect and further my clients' interests even at the cost of my own. And I'm fine with that — once I'm hired.

Before then, however, I would be deceiving and misleading my clients if I even suggested to them that I was putting their interests ahead of my own in my evaluation of how I can use their case to help me run a profitable business. Instead, in order to be candid with them, I think I must tell them that I am a businessman, in business to make a profit, and that they cannot and should not expect me to wrestle myself to the ground on their behalf during fee negotiations. Being a fiduciary is a profound responsibility, and it's not one that should be casually thrust upon any professional unless and until he's willing to undertake it for a specific client whom he's agreed to represent.

No amount of well-wishing or hand-wringing or pious virtue can change this. And by suggesting that it can, I think David dilutes the impact of some of his other, better observations.

Posted by Beldar at 01:06 AM in Law (2007) | Permalink


Other weblog posts, if any, whose authors have linked to I can't wrestle myself to the ground as your advocate against me in our fee discussions and sent a trackback ping are listed here:


(1) david giacalone made the following comment | Sep 5, 2007 7:01:58 AM | Permalink

Hello, Beldar. Thank you for continuing our conversation in a civilized manner. I must insist, however, that I do not hate contingency fees. As I say at the top my major series on contingency fees: "Despite the usefulness and benefits of the contingency fee concept when properly used, [I focus] on the ethical and competitive issues raised by applying 'standard' fee percentages without regard to the risk presented in each client’s particular case." When contingency fees are set in an appropriate manner, they are fair and advantageous to both the client and the lawyer.

You are correct that you should not have to jeopardize your livelihood in order to take a particular client's case. But, you have no right to demand a contingency fee from any one client that is not related to the apparent risk you are assuming in taking a case. Because you are far better able to judge that risk than is your prospective client, you need to share your expertise with that client, if you want to use a contingent fee arrangement -- and not simply take advantage of your leverage to insist on extracting a large amount of the client's damages, no matter how little value you bring to the case.

If you want to avoid "negotiating," simply make a fair offer to begin with -- and give the client enough information to allow him or her to see that it is a fair offer. Don't ask your client to pay for a high-risk case, when he or she brings you what is very likely to be an easy winner or a medium-risk case.

I hope interested readers will look at my approach more closely, before rejecting it as unfair to the lawyer. Start here.

(2) craig mclaughlin made the following comment | Sep 5, 2007 7:46:40 AM | Permalink

It seems to me that the only way to avoid this conflict of interest between attorney and client is for each to be represented by outside counsel when negotiating fees.
Though I'm not sure how to cure the conflict between the client and the fee negotiator over the negotiator's fee. Appoint a special master, maybe.

(3) Beldar made the following comment | Sep 5, 2007 10:39:32 AM | Permalink

Craig McLaughlin: I sense that your comment may be tongue in cheek, but sometimes clients actually do retain counsel to advise and represent them in negotiations for obtaining counsel. I've been in that role more than once, and been paid for it by very sophisticated clients who needed my local expertise (but who couldn't hire me directly because, for example, my firm had a potential conflict of interest that would block me from undertaking the direct representation).

Far more commonly, laymen ask their friends who are lawyers to recommend a specialist. Most of those lawyer-friends are competent, and often they're willing, to give a confidential "second opinion" on the terms of a proposed engagement letter with the specialist. Occasionally it may make sense for them to do more, and to become actively involved in negotiations with prospective counsel. I always welcome that sort of involvement from my prospective clients' lawyer-friends; any lawyer who resists it is throwing up a red flag.

David: Thanks for the comment, but you're missing what I agree with you on, and ignoring what I disagree with you on. I agree, for instance, that I ought to advise prospective clients that contingent percentage rates are negotiable, and I said so in this post and on the linked pages in my website. With due respect, though, you're ignoring my point specifically about fiduciaries. If I'm genuinely my prospective client's fiduciary even before I'm hired, then merely offering him a "fair" fee arrangement isn't enough. Being a fiduciary means that I have to put my client's interests ahead of my own, not that I get to balance them out.

(4) Paladin1789 made the following comment | Sep 5, 2007 1:05:31 PM | Permalink

Beldar -- Your entry concerns the problems associated with entering into contingency fee cases. Like you (and I suspect like most lawyers doing commercial litigation), we depend on hourly work with retainers and strongly prefer to avoid work under contingency. But the market and the needs of our clients will sometimes overwhelm our reluctance. We then find great tensions erupts at the end of a case when clients (or even more often the opposing side) uses fees as a tactical ploy.

Clients have come to expect they can lower their out-of-pockets with contingency contracts. Such a market force pulls even ordinary work toward percentage arrangements. Indeed, one positive moves in Florida has been a limitation on contingency representation for institutional clients: Our courts have ruled that banks and the like are ineligible for contingency fees because they can obtain qualified counsel through hourly arrangements. (This limitation has been evaded by many firms, but the principle remains a good one).

Our most perplexing problems have come up not at the inception of the arrangement but at the end of some cases. Several times a defendant has offered to settle the cause of action on the eve of trial while reserving on fees. This strategy creates a wedge between the attorney and client regardless of the clarity of the contract. Indeed, the interests diverge because the percentage fee is not limited to the amount of the court award. As a practical matter, this ploy makes for an unhappy client; as an ethical matter, true conflicts can arise when the client sees there can be a gap between the size of a court award and the amount of the fee as agreed.

Tensions between the market expectation of clients and the practical limits of running a contemporary practice just seem to be a reality of doing busines. But it never is pleasant to trade one fight with an opponent in for another conflict with the client.

(5) DRJ made the following comment | Sep 5, 2007 11:28:02 PM | Permalink

One reason I avoided contingent fee cases like the plague was that it's virtually impossible to tell a high-risk case from a medium-risk case in advance, no matter how experienced or smart you are. There are just too many twists and turns that can happen to do more than make an educated guess.

(6) EW1(SG) made the following comment | Sep 6, 2007 7:26:49 AM | Permalink

If I'm genuinely my prospective client's fiduciary even before I'm hired, then merely offering him a "fair" fee arrangement isn't enough. Being a fiduciary means that I have to put my client's interests ahead of my own, not that I get to balance them out.

Fair enough. Having done bidness with the company down the street, where Italian suits and alligator shoes were quite popular, as a consumer I'm perfectly content to deal with somebody fair, honest, and who makes no bones about being in business.

(7) Linus made the following comment | Sep 7, 2007 1:15:37 AM | Permalink

You didn't say so explicitly, but wouldn't a fiduciary who is putting the client's interest ahead of his own, in the negotiation of fees, have to do the work pro bono? Anything more than "no cost whatsoever to the client" involves a balancing out of interests. Right?

(8) cboldt made the following comment | Sep 7, 2007 11:41:39 AM | Permalink

If there's an error in reporting that makes the premise of Beldar's post inoperative, it is an error by CQ, not by AP.

And the part time prosecutor is described as being hired as "an expert," not as counsel.

That would still be "strange," and IMO, totally unethical on the part of BOTH Craig and the part-time prosecutor. But different from agreeing to be hired on as counsel.

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