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Alternative Fee Arrangements: Pros, Cons and Ethical Considerations. Jean L. Bertrand. Last in vogue in 1990 ’ s For some of us, never went “ out ”. AFA ’ s are “ in ” again. G.C. survey: 24% use billable hour model only

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Presentation Transcript
afa s are in again

Last in vogue in 1990’s

  • For some of us, never went “out”
AFA’s are “in” again
some statistics

G.C. survey: 24% use billable hour model only

  • Companies with revenues > $1B: only 12% use billable hour model only
  • AFA discussions initiated by law firms: 3%
Some Statistics
conflict in every fee deal
Conflict in Every Fee Deal

There is an inherent conflict in every fee deal

  • If you win  the client was right all along so why should they have to pay lawyers?
  • If you lose  you messed up and you charged too much.
solution
Solution
  • Give value to the client as defined by the client
  • Let the client set the level of risk it is willing to take
  • Build on a relationship based on trust
  • Incorporate escape clauses for both client and firm
  • Align the interests of firm and client
selecting an afa
Selecting an AFA

Match the AFA to the client’s driving need

  • If the client’s biggest concern is the end result  contingency fee
  • If cost is the driver  blended fee
  • If predictability is key  flat fee
  • If the client cares most about access to top legal talent  retainer/bonus structure
our duty to zealously represent our clients
Our duty to zealously represent our clients

 Tension with firm’s economic interests

  • Fixed fees
  • Capped fees
  • Blended rate deals

 A different tension if flat fee is too low

solutions
Solutions
  • Disclosure, discussion, write it down
  • Motivate lawyers and legal assistants
  • Reward results
our duty not to impair the client s absolute right to fire us
Our duty not to impair the client’s absolute right to fire us

 Tension with firm’s economic interests

  • Contingency fees
  • Bonus deals
  • Other back-loaded arrangements
solutions1
Solutions
  • Disclosure, discussion, write it down
  • Motivate lawyers et al.
  • Use a guaranteed reduced hourly-rate set-off against contingency fee recovery
    • Be aware of special rules applicable here
our fees must be reasonable
Our fees must be reasonable
  • Tension with firm’s economic interests
    • contingency fees
    • fixed fees
    • partner-only deals
    • bonus deals
  • Reasonableness will be evaluated at the beginning
  • And at the end
solutions2
Solutions
  • Disclosure, discussion, write it down
  • Motivate lawyers et al.
  • Quantum meruit conversion clause
  • Escape clause
  • Make bonus discretionary
hourly billing raises ethical issues too
Hourly billing raises ethical issues too
  • Reasonable fees duty
  • Obligation to be efficient
solutions3
Solutions
  • Disclosure, discussion, write it down
  • Agree in advance on “milestones”
  • Use Trust account