A safety valve in a flat fee litigation agreement that puts off for a later date the negotiation of fees for late phase activities such as trial should probably include at least a default hourly fee pending the re-bargaining of a new flat rate. (Yes, notwithstanding my strong bias in favor of flat fee pricing, I’m suggesting a possible, limited application of an hourly-based fee.)
My flat fee engagements for litigation services tend not to cover trial or the 60-90 day run-up to trial but instead propose to negotiate a mutually acceptable terms if and when the matter reaches this stage. This "safety valve" protects against a situation where the time required to provide effective representation increases dramatically due to circumstances not reasonably foreseeable at the outset of the engagement.
There are very good reasons for building in such a safety valve. The legal services provided in connection with trying a case are shaped by a myriad of strategic decisions that are made by client relatively close in time to the commencement of trial and these decisions in turn are heavily influenced by case developments occurring over many months if not years. It often is too difficult at the outset of the engagement to gauge pricing for trial with any precision.
While the presumption is that budgets and workplans should be “sticky,” no client wants an honest firm working at such a deficit such that the lawyers involved are incented to look at how they can cut corners or complete the matter more quickly than advisable. Thus, it is necessary for value-based fee arrangements to consider what kinds of “safety valves” can be triggered in the event the time required for effective representation increases dramatically due to unforeseen circumstances.
Inserting the safety valve is rarely a deal killer in eyes of the client, who, at the outset of a matter, are focused on reducing the cycle to resolution or achieving a favorable outcome in the near term – trial, in their minds, is far off in the future and easily left for another day. And why should trial counsel seek to disabuse them of this attitude where the great, great majority of litigations are resolved prior to trial?
However, leaving the re-bargaining of trial services for another day has it’s own issues, as explained (and solved) after the jump.
So why not leave the negotiation of fees for trial-related services to "another day"?
- Ethical issues: if outside counsel and client are unable to agree upon new terms, the next step is client discharge or lawyer withdrawal that, given the late and intense stage of the proceedings, might impose undue hardship on the client and also might raise questions whether outside counsel has satisfied its obligations to provide diligent and competent representation through completion of the assignment. Furthermore, negotiation leverage is decidedly skewed in favor of outside counsel where re-bargaining occurs in the midst of the representation, raising serious questions whether outside counsel has complied with its duty of loyalty and the client has been given a full and fair opportunity to evaluate and consent to the new engagement terms.
- You may not be able to pull out even if you want to: many courts will not allow counsel to withdraw if it would affect a previously scheduled trial, forcing counsel to try the case with no fee agreement in place.
- You may not have reasonable opportunity to re-negotiate: rarely is there a bright line indicating where pre-trial investigation and motions end and in-depth trial preparation begins (e.g., argument and ruling on a case-dispositive summary judgment motion remains pending and extends into the scheduled run-up of activities (e.g., identifying and marking trial exhibits) to the final pre-trial order); under the circumstances, both counsel and client are distracted and otherwise "under the gun" – this is hardly an environment conducive to mutually agreeing on how best to share the risk and otherwise align respective interests.
- The uncertainty surrounding whether and to what extent counsel will represent the client through trial could unduly influence and prejudice the settlement outcome. For example,the client agrees to a less favorable settlement rather than face the uncertainty of an unresolved representation at trial. Likewise, counsel might be forced to bargain away otherwise reasonable terms for providing trial representation in return for the client "continuing to fight" as opposed to the client "caving in" and accepting a lower settlement payment that reduces counsel’s contingency fee recovery.
The solution that we’ve begun to use is to build in a default hourly fee that will cover the trial period until and unless the parties agree otherwise. The engagement language generally reads something like:
If the case does not resolve during phases X through Y, we would of course continue to provide legal services during the next phase covering final pre-trial preparation, trial and post-trial tasks and commencing the earlier of the date after the completion of summary judgment hearings or 60 days before the scheduled final pre-trial conference. With respect to this phase, we will enter into a mutually acceptable fee arrangement, but pending any such agreement we would be compensated at [insert hourly rates] [ at our normal hourly rates less 10%] [etc]
Yes, you read this right, I’m suggesting an hourly fee. Yes the billable hour is perverse in its disincentives to lawyer efficiency, but given the need for a default safety valve fee, the billable hour shortcomings are outweighed by the positives of having something so simple in application and so easy to insert at the outset of the litigation.
Client and counsel remain motivated to agree upon a non-hourly fee arrangement for trial because it will far better align their interests. Plus their interaction over the course of the phases leading up to trial builds additional trust and solidifies the relationship, creating a fertile environment for agreement on alternative fees. In the meantime, the existing hourly default addresses the ethical and practical issues that otherwise would otherwise exist if the safety valve simply leaves open the question of fees going forward.