Ethical Fee Webinar Sept – Oct 2014Oct 29th, 2014 | By critellilaw | Category: Alert
Missed the October 15, 2014 webinar? Click this LINK. The Webinar on Demand CLE Number is: 164205.
Missed the September 17, 2014 webinar? We’ve recorded it for you. Simply click on this LINK. The Webinar on Demand CLE Number is: 164204.
The Master Engagement Agreement can be downloaded from this LINK.
The 1968 Iowa State Bar Association Minimum Fee Schedule can be downloaded from this LINK
The October 15, 2014 PowerPoint can be downloaded from this LINK
The September 17, 2014 PowerPoint can be downloaded from this LINK
The IOWA CLE Numbers for the Webinars are; September 17 2014 CLE No. 155690. October 15, 2014 CLE No 155691
DISCLAIMER: The following comments and fee calculators are not sponsored by THE IOWA STATE BAR ASSOCIATION or the ETHICS COMMITTEE. These are the CALCULATORS that were discussed in the Webinars.
Cost of Production
1. Calculating COST OF PRODUCTION.
Calculating cost of production can be difficult. The simplest way is to base the calculation upon last years historical data. The following is designed to help you with the task. Be sure to fill in each blank putting in 0 (zero) if it is inapplicable.
This is how much it cost you to build and deliver one unit of legal service. Charge less than that amount and you are cutting corners with the service you are giving your client.
The FEE Component
2. Calculating the FEE COMPONENT. The fee component is that portion of the fee that compensates the lawyer for services rendered. It forms the basis for the lawyer’s income. How one determines one’s income potential is unique to each individual. However certain factors are quantifiable. Lawyers are highly educated, have incurred debt or loss of production while acquiring their high degree of education and training and are entitled to be compensated for their investment and efforts. But most importantly, lawyers as fiduciaries willing incur risk and responsibility. Commercial services are immune from these consequences. As a result the value of fiduciary services will always higher than commercial services.
In determining the reasonableness of your salary expectations databases containing the salaries of men and women of comparable education and responsibilities are a good reference point. However it should be kept in mind that these salaries DO NOT INCLUDE the value of insurance, retirement and other employee benefits. Likewise they do not include the risk that the employee will not be paid. Unlike the lawyer employed by the state or university a practicing lawyer must fund his or own retirement and insurance programs and always bears the risk of non-payment.
The first factor is the lawyer’s required annual compensation. For example, the following are some 2014 comparisons: Law Professor $225,000 Supreme Court Justice $175,000. Associate Law Professor $150,000. District Court Judge $140,000 Associate District Court Judge $125,000
The CIC Method
The CIC Method: COMPLEXITY, INTENSITY and CRISIS. This method identifies three variable factors: COMPLEXITY, INTENSITY and CRISIS and have rated each on a 1 to 3 scale with 1 being normal and 3 being extreme. Complexity is self explanatory. Cases are either normal, complex or extremely complex. Intensity measures the overwhelming nature of the case caused either by the number of witnesses, documents and/or the demands of the client. Crisis measures the external demands on one’s time caused by the nature of the case or remedy sought.
Triad Hourly Billing Method
The TRIAD HOURLY BILLING method. This method divides legal services into the following levels:
- Level 1. Routine legal services: including routine matters such as general client or staff conferences and preparation therefor; written or electronic communications and correspondence or general memorandum and preparation therefor; class planning an file review, document assembly, research and preparation of legal memorandums, routine written discovery including preparation therefore; , and logistical matters pertaining to the representation including time away from the office and any other general or routine legal services as identified by counsel.
- Level 2. Complex legal services: including I.R. Prof’l. C. Rule 1.4(b) strategic, tactical or contingency planning conferences; estate and tax planning; preparation and filing documents, pleadings, briefs and motions which are regulated by rules of appellate, bankruptcy, civil, criminal, juvenile or probate procedure; issuing and responding to request for admissions; preparation for court appearances and depositions; researching, drafting and executing instruments pertaining to rights, relationships or property or required tax reports; formal legal opinions and advice and any other legal service identified by counsel as complex and which could subject counsel or client to sanctions.
- Level 3 . Appearance and participation in courts proceedings, hearings and trials; depositions, settlement conferences, mediations, arbitrations or meetings with regulatory agencies and any other legal service which requires counsel’s unique talents, training or experience.
CALCULATING THE TRIAD: First calculate your hourly FEE component as described above; Second select the Trial Level
The result if the FEE component of the total fee. Add the FEE component to the COST OF PRODUCTION and you will find the total estimated fee which you will be able to ADJUST in accordance with the Iowa Rules of Professional Conduct 32:1.5.
In most, if not all situations, it will be more than what you have historically charged or what you believe the “traffic will bear.” That is to be expected. But the numbers are true and give you a realistic point from which to begin reduction. We caution, under no circumstances should you charge below the cost of production. We believe such a fee to be unreasonable under Iowa R. Prof’l C. 32:1.5. Be cautious, if you charge the client little or nothing for your services you run the temptation to avoid working on the case or to skimp.
ALL FEES MUST BE REASONABLE
Iowa R. Prof’l Conduct 32: 1.5 controls attorney fees. Rule 1.5(a) prohibits a lawyer from charging an unreasonable fee:
“(a) A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. …”
Iowa Rule of Prof’l Conduct 32:1.5(a) identifies several factors that must be taken into consideration when determining the amount of one’s legal fee. They are:
(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 likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and
(8) whether the fee is fixed or contingent.
While lawyers interpret the rule to prevent an unreasonably large fee, most fail to recognize the converse: than an unreasonably low fee can also violate the ethical proscription. The ethical implications that result from over-charging are obvious and disserve no further exploration. However, as will be shown, they are the same as those that emerge from undercharging. Central to the prohibition is the fiduciary relationship between lawyer and client. Over charge and one violates the punctilio of honor inherent in the fiduciary relationship. Undercharge and one lessens the ability to discharge the duty.
The Fiduciary Duty
When one undertakes a fiduciary duty, implicit in the undertaking is the ability to discharge the duty. The discharge of a fiduciary duty is more complex and intensive than the discharge of a commercial duty. A commercial duty impacts only oneself. Fail to perform thorough due diligence, research or preparation in a commercial transaction and only oneself is damaged. The same failure, in a fiduciary relationship damages both the client and the lawyer. Consequently the fiduciary must be equipped with sufficient resources and supported by a stable infrastructure so as to be able to discharge the duty at the fiduciary level. However altruistic one’s motive, cut corners on the resources or skimp on infrastructure and the fiduciary puts the client at an unreasonable risk. Consequently it is important that the lawyer, as fiduciary, have an accurate understanding of the scope and extent of the requested services and an assessment of the costs and expenses inherent in providing them.
You can’t store Service Hours
Lack of Inventory and Storage Product manufacturing enjoys the ability to store what has been built. Legal services, being a production product, does not. Legal services are fiduciary services and are unique to the client’s situation. There is no one-size-fits all legal fiduciary service. Consequently each unit of legal service must be custom built. Because it is a service as compared to a product it is a time limited. Because it is so limited the lawyer has a finite number of hours in each day with which to build the unique service product.
It Costs to Produce
Cost of Production. A manufacturer intending to produce and market a widget will first undertake a cost of production analysis. The analysis will identify costs of research and development, materials, production, marketing, delivery, business administration, a reasonable return on investment and an acceptable profit. Legal services are no different, it takes an infrastructure to build and market the cost of which is calculated into the price of the service. Consequently the lawyer must first determine the base cost of production as well as any unique or added cost associated with the particular service that is not built into the overhead and can be passed on to the client. Salaries of non-billing staff are included in the cost of production whereas salaries of billing staff, e.g. lawyers and associates are not. Traditional items such as rent, utilities, communications, parking, etc. are obviously included. However there are certain costs which lawyers usually overlook that must also be included such as office equipment, furniture and machinery, costs of obtaining the law degree and CLE and like expenses. In addition to the base cost the representation may require additional expenditures such as added staff, unique software the cost of which must be factored into the cost of production calculus. It is extremely important to accurately calculate what it cost you to produce a legal service unit. We believe it’s a matter of fiduciary responsibility. If you under calculate you will be tempted to cut corners or skimp on the quality of service given the client. The old adage that there is nothing more expensive than a cheap lawyer is true. The client is best served by keeping overhead low and running an efficient business operation.
1030 Legal Service Units per year
You ONLY have 1030 Legal Service Units to offer each year. There are twenty-four hours in a day but not all of them are suitable for the building of the legal service product. Of those that are suitable, not all are available. Suitability and availability constitute the two main limiting factors to the lawyer’s ability to provide the legal service product.
Suitability is defined by one’ s work-life balance. An eight hour day, five days a week for forty-eight weeks a year is the United States standard work-life balance for professionals. Work more or less than that amount and the standard is out of balance and one of the elements, work or life, suffers. No one expects a lawyer, doctor or other professional to work more than that amount. However they do, and most often to the determent of everyone including their families. Simply Google “work life balance” and you fill find a plethora of articles and analyses on the subject.
Availability is that amount of suitable time during which the legal service product can be built. Not all suitable time is available for the building of the legal service. For example, from the eight hour day a certain amount of time must be apportioned to non-client service matters such as managing one’s business, new business production and the training of new clerks and associates as required by Iowa Rule of Prof’l C. 32: 5.1 and 5.2. When one tries to accomplish these non-client service matters outside of the normal eight hour business day the work-life balance suffers. Out of a typical eight hour work day, only four and a half hours are suitable and available for the building of the legal service product. In summary, a lawyer striving to maintain an acceptable work-life balance has 1080 hours annually which are available for legal services. That number is further reduced by the Iowa Supreme Court suggested 50 hours of annual pro bono legal services leaving the practitioner with 1030 annual hours in which to provide fiduciary level services to one’s clients. Obviously this does not take into consideration the required 15 hours of CLE which would reduce available time further. If you have any questions or comments, please e-mail me at nick @critellilaw.com. Obviously this is a work in progress and your input will be appreciated.