As summarized by Michael J. Fish from the State Bar Mandatory Fee Arbitration, Arbitration Advisory 98-03, Determination of a “Reasonable” Fee, dated June 23, 1998.
As attorneys we are often called upon to look at the reasonableness of our own fees charged for the legal services we rendered—if not by our clients, then by our own sense of fairness.
When a client’s challenge raises the requirement of determining a reasonable attorney fee, the burden of establishing entitlement to the amount of the charged fee is upon the attorney.
In cases involving statutory awards of attorney’s fees, it is clear that the party seeking the award has the burden of establishing that the fees incurred were reasonably necessary, and reasonable in amount.
It is therefore important for the attorney to regularly review their billing records and fees and to take a reality check.
Factors which affect determination of a reasonable fee
Whether a fee is reasonable, unreasonable or unconscionable is often a matter of degree and involves the assessment of a multiplicity of factors which are discussed below. Consideration should be given to each factor.
One of the most significant factors in determining a reasonable fee is the amount of time spent. Thus an attorney who fails to keep adequate time records, or uses the questionable practice of “lumping” time or “block billing” may have difficulty meeting the burden of proof. The practice of block billing will also violate Bus. & Prof. Code § 6148(b) if the client cannot reasonably ascertain the time and rate for particular tasks.
The State Bar Mandatory Fee Arbitration Committee has formulated a list of relevant questions which may provide some guidance in determining the reasonableness of your attorney’s fees. The questions are designed to trigger appropriate areas of inquiry and analysis. Obviously, the issues raised in these questions will not be relevant to every case, but it is recommended that each attorney consider them in the course of conducting their own regular reasonable fee analysis.
- Did the attorney do what the client requested? Did the attorney accomplish the client’s goals (and was it reasonably possible to do so?)
- Were the services provided by the attorney necessary, reasonable, and efficient, or excessive, duplicative, and inefficient?
- Were the results obtained by the attorney generally considered successful, or within the reasonable expectations of the parties?
- Did the client receive a benefit from the services commensurate to the amount of compensation sought by the attorney? Did the client receive fair value for the services performed?
- Did the client have a reasonable expectation of a fee that would be charged, and if so, what rate and amount? Is the fee charged substantially more or less than the reasonable expectations of the parties?
- Did the client have any understanding as to the approximate amount of time which would be incurred?
- Was an estimate provided? If so, how does the fee sought to be charged compare with the estimate?
- What are the prevailing hourly rates in the legal community in which the services were performed?
- Did this representation involve peculiar expertise, beyond the capabilities of an average attorney?
- Is there any reason to believe that the attorney’s services or the complexity of the matter required extraordinary effort or talent to justify a fee in excess of rates customarily charged by other attorneys in the community?
- Was this representation particularly contentious, or involve extraordinary services which would warrant an enhancement over the community standard?
- Was the client kept reasonably informed during the representation of the services being performed and the charges incurred?
- Were regular billing statements sent to the client?
- Did the billing statements provide adequate detail and comply with Business and Professions Code 6148(b)?
- Did the attorney adequately communicate with the client regarding the strategies, legal options, and choices which impacted the amount of the fee?
- Were there communications difficulties between attorney and client [Rule 3-500 of the Rules of Professional Conduct]?
- Was there any conduct, act or omission of the attorney which affected the outcome of the representation in a negative way? Is there any professional misconduct which affects the value of the fee?
- Did such act or omission deny to the client the benefit of competent legal representation for which the attorney was retained?
- Was the attorney’s conduct professional? Did the attorney comply with the ethical standards of the profession?
- Did the attorney complete the project? Was the project abandoned?
- Was the client required to retain another attorney to accomplish the client’s goals?
- Were the client’s overall fees or expenses increased by the necessity to discharge the attorney or retain other counsel?
- Did the client impose conditions which made it more difficult or time consuming for the attorney to render the requested services? Was the client difficult, unreasonable or demanding?
- Was the amount of fee or the time incurred affected by the personalities of the adverse party or its counsel?
- Was the tenor of the litigation particularly contentious (i.e. “scorched earth” or “take no prisoners” litigation)? If so, who was responsible for that?
- How long have the attorney and client done business with each other?
- Did the client have reason to know the attorney’s billing practices and procedures, such that the client was not surprised?
- Was the client adequately informed of the litigation process and the projected fees or expenses which might be incurred?
There are also some statutory principles to consider. Bus. & Prof. Code § 6146–6148 and applicable case law will limit an attorney to a reasonable fee in many instances.
The Rules of Professional Conduct also provide guidance. They prohibit the charging of an “illegal or unconscionable fee” [Rule 4-200 of the Rules of Prof. Conduct (“RPC”)]. Under RPC Rule 4-200(B), unconscionability is determined on the facts and circumstances existing at the time that the agreement is entered into, in consideration of the following factors:
- the amount of fee in proportion to the value of the services performed;
- the relative sophistication of the member and the client;
- the novelty and difficulty of the question involved and the skill requisite to perform the legal service properly;
- the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the member;
- the amount involved and the results obtained;
- the time limitations imposed by the client or by the circumstances;
- the nature and length of the professional relationship;
- the experience, reputation, and ability of the member or members performing the services;
- whether the fee is fixed or contingent;
- the time and labor required; and
- the informed consent of the client to the fee.
The most relevant of the Rule 4-200 factors are items (1) comparison of fee charged to value received; (8) the experience, reputation and ability of the attorney; and (11) the informed consent of the client to the fee. Informed consent generally requires that the client’s consent be obtained after the client has been fully informed of the relevant facts and circumstances, or is otherwise aware of them. The client must be sufficiently aware of the terms and conditions of the fee arrangement so as to make an informed decision.
A fee which is unconscionable is necessarily unreasonable, and cannot be allowed. The real question you must consider is whether the unconscionability is so extreme as to warrant complete denial of a fee or whether the fee should be adjusted and allowed on a quantum meruit basis to avoid unjust enrichment to the client.
An unconscionable fee is difficult to define, prompting comments like: “I don’t know how to define it, but I know it when I see it.” An unconscionable fee is one which is “so exorbitant and wholly disproportionate to the services performed as to shock the conscience”.
An attorney’s fee that is high is not the same as an “unconscionable” fee; but, a high fee may be found to be an “unreasonable” fee.
If the fees charged by the attorney are disproportionately high compared with similar services performed in the legal marketplace where the contested services are performed, then such fee may be considered unreasonable. Rates and charges on par with similar charges for similar services performed by other attorneys in the community with similar experience may be considered “reasonable.”
In a small community where hourly rates average $150–200/hour, it may be highly unusual or excessive for an attorney to charge $400/hour. Such a rate may not be considered excessive in a major metropolitan area. In analyzing the weight to be given to a community standard, one must also consider whether the attorney’s higher rate is justified by reputation, by specialized experience in a complex field of practice or by the client’s informed consent to the rate.
The internal cost of providing the services, however, is not relevant to a determination of their value. Thus it is not proper to consider the amount paid by a law firm to its associates or contract attorneys, to determine whether the profit margin is reasonable. Attorneys’ fees for hours spent should be awarded based on quality of the work done, the benefit it produces for the client and the community, not the cost of heating and lighting the office where the work was performed.
The primary inquiry in hourly rate matters is the quality and necessity of the services and a comparison of their cost with what would be charged for such services by other attorneys in the community who have similar experience and ability.
A lawyer’s customary hourly rate can be evaluated by comparison to that rate charged by others in the legal community with similar experience. The number of hours expended by a lawyer can also be evaluated in light of how long it would have taken other attorneys to perform the same tasks. After consideration of these factors, adjustments can be made to the hourly rate and number of hours expended and this should yield a reasonable value of the work completed.
The determination of a “reasonable” fee also involves consideration of the adequacy of the attorney’s time records. Information crucial to making a determination regarding a reasonable fee in an hourly context thus would include whether the attorney maintained records showing the number of hours worked, billing rates, types of issues dealt with, and appearances made on the client’s behalf. This is a performance based analysis in which the arbitrator looks not only at the quantity of time spent but the quality of the time as well.
Failure to maintain adequate time and billing records, or failure of the billing statements to clearly show the amount, rate, basis for the calculation or other method of determining the fees and costs charged, in addition to being a potential violation of Bus. & Prof. Code Section 6148(b), may be a reason to disallow some or all of the claimed charges based upon the inadequacy of the evidence supporting them. Additionally, time records should be scrutinized for such matters as duplication of services and excessive services in determining the reasonableness of the overall fee claimed by the attorney.
The nature of the matter and the amount at issue should be considered, such as in the case of Levy v. Toyota Motor Sales, U.S.A. Inc. (1992) 4 Cal.App.4th 807, where the attorneys requested $137,459 in connection with a lemon law case over a vehicle which had a value of $22,000. The court rejected the request and reduced attorneys’ fees to $30,000.
Rate increases are improper unless provided in a valid contract and properly noticed to the client. Fixed or minimum time charges (i.e., four hours for any court appearance) are impermissible unless clearly disclosed and specified in a valid fee agreement. Such charges should not be allowed if the effect is to compound the attorney’s hourly rate (i.e., one attorney covers three appearances in one morning and bills four hours to each of these clients). Such a billing practice may be fraudulent unless it has been disclosed to the client and there is an agreement that the attorney may bill the same hours to multiple clients. In such cases, the arbitrator should closely examine whether the client has given informed consent.
Attorneys may be faced with a case which is prosecuted “as a matter of principle”. The fee sought to be charged grossly exceeds the recovery derived, resulting in the client receiving little or no financial benefit. Sometimes this occurs in cases where the client asks the attorney to prosecute or defend a case “as a matter of principle”. Such matters are inherently uneconomical. The decision in such cases may turn on whether the client gave informed consent (i.e., with knowledge of the likelihood that fees may exceed results). Fees may be adjusted in such cases, where appropriate.
The issues which arise in fee disputes involving contingency fees are the subject of a separate Arbitrator Advisory entitled “Fee Arbitration Issues Involving Contingency Fees” [Advisory 97-03 dated August 22, 1997].
Applying the factors in Rule 4-200(B), the courts have upheld contingency fee awards where a complying written contract exists even though the attorney may receive compensation which exceeds the reasonable value of his or her services if an hourly rate had been applied. The rationale for this is that the lawyer on a contingency fee contract receives nothing unless the plaintiff obtains a recovery. Further, the fee is contingent only on the amount recovered. As such, the lawyer runs the risk that even if successful, the amount recovered will yield a percentage fee which does not provide adequate compensation. Further, there is a delay in the attorney receiving the fee until conclusion of the case. The lawyer, in effect, finances the case for the client during the pendency of the lawsuit.
It has been held that a one-third contingency was not unconscionable even though the defendant lost by default, where the parties could not ascertain that defendant would default, and the services might have required a contested trial and possible appeal. The reasonableness of the contingent fee is to be judged not by hindsight but by the “situation as it appeared to the parties at the time the contract was entered into”.
A personal injury fee contract will often provide for a one-third contingency. This is routine and commonly accepted. But if the attorney settles the case with the adjuster after three phone calls and two hours of work, the fee may be unreasonable or even unconscionable in light of all factors. The determination must necessarily consider the relevant facts, the unconscionability factors described above, and the circumstances known to the parties at the time. A case with severe injuries and immensely strong settlement value may not be contingent at all where it is likely that the recovery will be quickly derived through an insurance carrier without litigation and such event is predictable to a virtual certainty. The “unconscionability” implications of such an arrangement may weigh heavily in the reasonable fee analysis.
While the foregoing may not be a complete recitation of all of the considerations which may be applicable to the setting of a “reasonable” fee in all cases, it may be used as a guide regarding the factors which should be considered and how they might be applied generally. In each case the inquiry will be “fact-specific”. Each case requires the attorney to apply his or her individual judgment and reasonable discretion, with a view toward achieving fundamental fairness. Remember: BE FAIR!
Michael J. Fish is a partner with the firm of Merrill, Arnone & Jones (MAJ Law) located in Santa Rosa with a satellite office in Novato. He is a past chair of The State Bar of California Mandatory Fee Arbitration Committee, former Chair of the Marin County Bar Association Client Relations Committee and a current member of the MCBA Board of Directors.
Please consider offering to serve as a Fee Arbitrator on the Sonoma County Bar Association Panel. See State Bar Mandatory Fee Arbitration, Arbitrator Advisory 96-03, Burden of Proof in Fee Arbitrations dated June 7, 1996. Levy v. Toyota Motor Sales, U.S.A., Inc. (1992) 4 Cal.App.4th 807, 816. Cazares v. Saenz (1989) 208 Cal.App.3d 279, 287-89. State Bar Mandatory Fee Arbitration, Arbitration Advisory 98-03, Determination of a “Reasonable” Fee, dated June 23, 1998. Shaffer v. Superior Court, supra, 33 Cal.App.4th 993, 1002. Goldstone v. State Bar (1931) 214 C. 490, 498. Aronin v. State Bar of California (1990) 52 Cal.3d 276. Shaffer v. Superior Court, supra, 33 Cal.App.4th 993, 1002-3. id. at 1002-3. id. at 1002; Margolan v. Regional Planning Commission of Los Angeles County (1982) 134 Cal.App.3d 999. Shaffer v. Superior Court (1995) 33 Cal.App.4th 993, 1002-3. Cazares v. Saenz (1989) 208 Cal.App.3d 279. Cazares v. Saenz id. at 279. Margolan v. Regional Planning Commission of Los Angeles County (1982) 134 Cal.App.3d 999; Martino v. Denevi (1986) 182 Cal.App.3d 533. Martino v. Denevi (1986) 182 Cal.App.3d 533. Margolan v. Regional Planning Commission of Los Angeles County (1982) 134 Cal.App.3d 999; Martino v. Denevi (1986) 182 Cal.App.3d 533. Severson & Werson v. Bolinger (1991) 235 Cal.App.3d 1569, 1572-73. ABA Formal Opinion 03-379; COPRAC Formal Opinion No. 1996-147; Los Angeles County Bar Assn. Ethics Opinion No. 479. See, Franklin v. Appel (1992) 8 Cal.App.4th 875, where a fee award which was equivalent of $1,184 per hour was affirmed on appeal. See also, Cazares v. Saenz (1989) 208 Cal.App.3d 279. Cazares v. Saenz, supra, 208 Cal.App.3d 279. Setzer v. Robinson (1962) 57 Cal.2d 213, 218. Youngblood v. Higgins (1956) 146 Cal.App.2d 350.