chronomentrophobia

I'm not a psychologist, ethicist, nor economist, but I've often played one or more of these roles at my weblog, especially under the guise of ethicalEsq.  So, between you and me, I think you should know:

• the legal profession is suffering from mass chronomentrophobia -- "a persistent, abnormal, and irrational fear of clocks," along with excessive peniaphobia (the fear of poverty), but with no apparent symptoms of plutophobia (fear of wealth).
• from the client's perspective, there is nothing wrong with the billable hour fee system that cannot be cured by the lawyer merely doing what is required of him or her ethically and as a fiduciary: (a) following the standards embodied in Rule 1.5(a) of the Model Code -- e.g., basing the fee on the experience and capabilities of the lawyer, complexity of the matter, etc.; (b) performing in an efficient and competent manner; and (c) keeping the client well-informed [see fees and the lawyer-fiduciary; Model Rule 1.4(b); Intro to ABA Statement on Principles in Billing for Legal Services; and Brickman].
• from the perspective of the overworked associate or partner, there is nothing wrong with the billable hour fee system that is not very likely to be carried over to any alternative billing arrangements, if the firm expects the shift to be made without reducing its income or profits.  See fee fie foe and fum; MyShingle; Prof. Schiltz's Sermon as Required Reading; "Money and Ethics: the Young Lawyer's Conundrum," Patrick J. Schiltz.
• clients expect "alternative fee arrangements" and "value billing" to result in lower overall fees, not higher ones. [see value billing or venal bilking? and Brand LEX]

[Please excuse my citing to my own materials, but there sure isn't much out there on the blawgs that looks at these issues from a similar perspective -- it's all just ranting about hourly billing and cheerleading over value billing.]

As for ecomonics and the billable hour, I have to disagree with Bruce MacEwan's assessment two days ago at Adam Smith, Esq (beyond the fact that he wants to avoid issues of ethics in discussing and setting lawyer fees). Bruce's first complaint against the billable hour is that it is "based on 'cost of production' rather than 'value to client'."    I didn't go to the Stern School, but I would have sworn that the American economic system is premised on the fact that (workable) competition will yield prices that are based on the cost of production.  The real Adam Smith warned us about guilds of sellers, but he surely would have expected a profession with over a million active practitioners to compete actively over price and service, with market forces bringing price down very near to cost.

Bruce says lawyers should be able to value their services fairly and readily, giving as an example the ability to reach purchasing agreements on the value/price of a home, which has "almost too many factors" to consider.  What Bruce overlooks is that both buyer and seller have much information readily available -- and professionals willing and eager to help -- in the market for homes.  Sophisticated law clients (who I bet will be trying to figure out the cost of production for a law firm when arriving at a fee) may have lots of information, experience and leverage when dealing with the "value" of legal services, but the average legal consumer does not.    It is the inability to make informed pricing decisions that creates the lawyer's fidcuiary duty when setting fees.

As I've noted, famed chronomentrophobe Matt Homann suggests asking a client

"What do you think X would be worth to you?" And remember, "X" is not a contract, will, or deed, but rather peace of mind, security, or some other intangible benefit tied to the specific legal service you'll be providing.

This approach turns the fidiciary relationship into an auction, where the single potential buyer is unaware of the seller's knockdown price and has no way to judge whether the object for sale is a valuable antique or a fake.   No matter the soothng words and good-feely ambience, it comes down to playing on the consumers fears and sentiments and then saying "make me an offer."

In setting fees, the lawyer-fiduciary must act in a manner that puts the client's interest first.  Making sure the client is fully informed when entering into the fee arrangement is essential, taking into account the sophistication level and experience of the particular client. 

Of course, alternatives to the hourly fee can be ethical and beneficial to lawyer and client, and should be encouraged -- because they are a spur to creating the efficiency, innovation, and competition that lead to better client service and lower fees, not in order to lull the client into paying higher fees.  As Niki Kuckes describes in The Hours, the hourly fee was originally used as a tool for capturing a lawyer's value, by measuring the use of his "only expendable resource."   There is no reason -- other than the profession's peniaphobia and "plutophilia" -- that the fee based on an hourly rate should be feared by lawyers or clients.  Let's stop blaming the billable hour for the profession's focus on profits over professionalism and a healthy lifestyle.

Comments

[Aaron]

From a client's perspective, a flat fee is often highly desirable. First, it provides certainty as to the maximum amount that will be paid. Second, it provides for much easier fee comparison between lawyers and firms.

Additionally, clients are accustomed to paying for services, even professional services, and for high-priced goods on a flat fee basis. Many of those fees (including fees for many medical services, accounting and tax services, title company services, and financial services) would be astronomical if translated to an hourly basis.

Further, of the few other services which bill ostensibly on an hourly basis, the use of an actual hourly basis seems quite rare. Auto mechanics, for example, and many computer repair technicians bill for "hours" of labor, but the number of hours billed is typically determined by a book dictating how many hours a particular service function should take, as opposed to the clock on the wall. I have never seen a company using this method of "hourly billing" provide clear notice to a consumer that the bill is premised upon a theoretical number of hours worked as opposed to the actual number of hours, usually to the significant benefit of the service provider. I bring that up not to justify the use of such tactics, but to highlight how rare it is for consumers to encounter a bona fide "billed by the hour" service.

Restaurants could bill for meals on the basis of the cost of materials plus hours of work performed. Auto makers could make customers buy cars before the start of the manufacturing process, and do the same. Do you think that would make it easier or harder for consumers to find the best deal?

[Carolyn Elefant]

David is right that his view is absent from the blogosphere. While I am suspect about the billable hour, more because it gives firms incentive to nickel-and-dime and run up bills, I have always been nervous about value billing as well, though I find my discomfort hard to articulate. I think it's because value billing is a subjective concept and also a circuitous one because the client needs to rely on the judgment of the attorney (an interested party) in ascertaining the value of a particular service. On the other hand, if value billing results in lower rates to clients and compensates the attorneys, I'm not concerned because the end result is reasonable.
What I don't understand is the aversion to firm fee estimates and fee caps. If I, an expert attorney, estimate how long a case will take and err on the low side, why should my client pay the difference if the matter requires more work(unless the client's actions caused the added costs)? Revising estimates after the fact seems to be a common and accepted practice in the legal profession and one that I simply don't understand (I posted on this previously but I can't yet access my archives)

[David Giacalone]

Aaron, You've created so many strawmen, you seem to be aiming at something other than this posting. I'm not against lawyers using methods other than hourly billing -- as a 30-year advocate for consumers and competition, the last thing I want is consumers having fewer pricing options.

I am pointing out that most of the so-called problems with that method of billing are not inherent in the system and are not likely to be prevented merely by switching to other methods.

Clients look to alternative billing methods as a way to bring their overall fees down. Virtually everything I've read on the web (especially in weblogs) on the subject, however, seems to be aimed at using alternative methods in a way that will increase fees and overall profit for lawyers.

By the way, restaurant bills would be a LOT smaller if the price was simply the cost of production (food plus prorated wages of the preparers, and overhead). Also, manufacturers and sellers of services are expected, under capitalism's market economy, to offer a price that is closely related to the cost of service plus a reasonable return on investment -- that's the role of competition, driving the price to such a level, while motivating sellers to compete on quality, too. The fact that "branding" or guild-licensing-cartelization effects keep the prices higher than cost for many products does not make it appropriate for professionals with fiduciary and ethical duties to attempt to do so.

An adequately informed client can make intelligent choices between pricing options and competiting lawyers. At the very least, the lawyer-fiduciary should be letting the prospective client know what services are being provided for a flat fee, including approximately how much attorney time is likely to be spent on a particular matter.

I'd like to know just which of the points that I actually do make in the above post you disagree with and why. Then, we can have a useful conversation.

[Aaron]

David, straw men? Spare me. You already know that I find your arguments on attorney fees are so tired, overused and unpersuasive. And as you move into the economics of restaurant pricing, you're just "making stuff up". Frankly, I am astonished you don't faint from the rush of blood to your face when you criticize somebody else's analysis on the subject - don't you blush?

Clients can and do use alternative billing methods to achieve lower legal costs. Insurance companies seem to be quite good at negotiating lower rates of reimbursement for the firms with which they contract. Counties sometimes contract out a year's worth of criminal and juvenile defense work to the lowest bidder, and some have historically offered "flat fee" reimbursement on a per case basis that is so low as to call into question its sufficiency to fund a constitutionally adequate defense. Governments and businesses may buy all of a lawyer or even a law firm's time to devote to a particular legal matter or set of matters. So certainly, many sophisticated clients do expect to save money with alternative billing, and achieve that end.

But if the client's assumption is that they should always save money when they ask for, or are offered, an alternative billing arrangement, why do you find that assumption to be reasonable? The client who asks for work to be performed on an hourly basis is presumably seeking to have that work done well. The client who seeks to have the same work performed on a flat fee basis is seeking something more - the security that comes from knowing that the fee cap cannot be exceeded. You believe the client should assume not only a right to that security, but that it will come at a discount? And it is the attorney's fault when economic realities dictate something different?

I have had clients ask about flat fee services for litigation services. My response to them is that they can expect that in a typical case they will pay more for work performed on a flat fee basis than for work performed on an hourly basis, because I am absorbing a risk of loss. I have yet to find a client who did not understand the simple economics of that proposition - and they seem to be more interested in fee certainty than in fee savings. Is your experience different? (For that matter, is your experience on these issues actual or theoretical?)

If we shift to a forms-driven area of law, such as estate planning, where a lawyer can draw upon a library of forms and clauses when creating estate planning documents, and may well have automated forms for many basic documents, it is easier to average the number of hours that are going to be invested in a typical client's file. Here you criticize "value billing" as being an opportunity for a lawyer who has developed a sound foundation for a forms-driven practice to profiteer. If an attorney offers a set of estate planning documents to clients on a flat fee basis, you argue that the attorney should also inform the client of what the services would cost on an hourly basis. How is that determined? The total hours it would take to research and draft the estate planning forms from scratch? The actual time it takes to fill in the blanks, perform any necessary customization, and proofread, with no allowance for the value of (and investment in) the form bank? Is the lawyer to provide some form of accounting of the costs of creating, updating, and maintaining the system, broken down over the number of anticipated clients, and to turn that data over to each prospective client?

Your goal seems to be less in providing the legal consumer with necessary or helpful information, than with shocking the legal consumer with the impression that they are paying exorbitant attorney fees (if calculated on an hourly basis) for a service that they otherwise believe is reasonably priced - and which in most cases will be far superior to anything the attorney could produce at a comparable price if built "from the ground up" at an hourly rate.

And this is better for the client than simply being able to call several law firms, get a fixed price from each firm for the preparation of a similar forms package, and to decide on the basis of the bids to select one over the others? You call yourself an advocate for consumers, but you seem to look down your nose at them. You don't think clients are smart enough to price shop?

For that matter, if you were to hire an attorney for your own legal needs, would you make your hiring decision on the basis of the criteria you are presently presenting as of overriding concern? Because I can think of darn few circumstances when I would hire an attorney on the basis of "who has the lowest hourly rate".

[David Giacalone]

Whoa there, Aaron, you've got enough straw here to keep a mattress factory working all weekend. Your comments seem to fit squarely within the Wikipedia description of "straw man":

The straw-man rhetorical technique is a the practice of refuting weaker arguments than one's opponents actually offer. To "set up a straw man" or "set up a straw-man argument" is to create a position that is easy to refute, then attribute that position to your opponent.

One can set up a straw man in several different ways:

Present only a portion of the opponent's arguments (often a weak one), refute it, and pretend that all of their arguments have been refuted.
Present the opponent's argument in weakened form, refute it, and pretend that the original has been refuted.
Present a misrepresentation of the opponent's position, refute it, and pretend that the opponent's actual position has been refuted.

As seems to happen whenever we have a discussion at a weblog, you have mangled my positions and worked up a head of rhetorical steam. I invite anyone who cares about these issues to read the post above and the pieces linked, and decide for themselves whether my arguments are tired and unpersuasive. The post on value billing is particularly helpful.

Meanwhile, you have not pointed to one sentence in this post that is in error. Instead, you've manifested major defensiveness over the fees that you charge. Let's hope, Mr. Larson, that your current or prospective clients won't come across this example of your style of argument, and your attitude about fees and fiduciary relationships.

Do I think that many lawyers very often charge too much? You bet. Do clients have to be told that by me? No way. Do sophisticated clients have the ability to fend for themselves when negotiating for legal fees? Yep, but not the unsophisticated Main Street client. Have I ever said that the lowest hourly fee is the best? Of course not -- I've only argued that the fee rate be fair in relationship to the quality of the lawyer's work. Do I believe the legal profession has an obligation to take advantage of the cost savings achievable through the digital revolution and pass them on to the client? Absolutely.

As an experienced appellate lawyer, you know that the most annoying pleadings to receive from an opponent are those that make little sense and fail to focus on the actual issues under discussion. Therefore, I'm sure you will understand why I won't waste my energy responding to each of your many points. I will say, since you seem to ask, that (in addition to a decade at the FTC) I have worked in three law firms (each quite different from the others), and then spent a decade as a solo practitioner. You can learn more about me in the ABOUT ethicalEsq section that appears at the bottom of this page.

[Aaron]

David, I am sorry that you are so blinded by your prejudices to be unable to engage in rational discussion on the subject of attorney fees. I am sorry that your history of ad homimem attacks against me when I have addressed your illogic have further colored your ability to debate the issues, as well as my ability to shrug off your petulant, sneering attitude and childish insults (which, as it seems, are your preferred approach when caught with your logical pants down).

I guess that's my way of saying, if you wish to remain wedded to your anti-lawyer irrationality, I am not inclined to try to stop you. But do try to grow up.

[Mike]

David, I read this post for the first time, and I must say that it's among your greatest hits. Sometimes I think you tend to rely on innuendo ad hominem attacks. Here, e.g., saying that Aaron is relying on straw men implicitly says that he make fallacious arguments. I'm not sure that's the best way to persuade. So while this post was a home run, your comments sorta left me with a bad taste in my mouth. But enough of my pontificating.

Re: value billing. Some lawyers say, "Well, this form only takes me an hour to fill out, but it's worth a couple of grand to the client. So why should I bill by the hour? Besides, why is it fair for the client to reap this windfall from my past labors. Therefore, I should 'value bill' for this document."

Well, doesn't the client own the copyright to the form, since the client retained the lawyer to draft the document? Thus, shouldn't our hypothetical lawyer here pay money to the client for whom he drafted the document similar to the way others pay to license a work?

We can see that relying on value billing is really a way for the attorney to reap a windfall from the clients for whom he initially drafted the (now) boilerplate document.

[David Giacalone]

Mike, Thank you for your compliments on this piece, and your criticism as well. The exchange with Aaron Larson was indeed unproductive and left me, too, with a bad taste in my mouth. It turned what I thought was a useful and fun look at the issues surrounding hourly billing into one more incentive for me to get out of the punditry business.

Unlike some webloggers who thrive on contention, I don't like it when a back and forth gets ugly. Given the frequency of my posting and commenting, the subjects that are my focus, and the resistance to them by many lawyers, it happens rather rarely for me -- except, when dealing with one or two commentors who repeatedly distort what I actually say, and instead attack my supposed "anti-lawyer" (usually in defense of lawyer fee levels).

I do not think it is unfair nor an ad hominem attack to say that Aaron was using rhetorical "straw men" tactics (which are defined in a Comment above. That is, in fact, about the most diplomatic way to describe his "analysis."

Is it a fair assessment? Was he doing it intentionally or merely unable to comprehend my use of the English language? I will leave it to others to decide. I invite you to read what I have said in the post, the cited materials, and my response to Aaron, and draw your own conclusions as to whether he has fairly characterized my positions and asked questions that are fairly derived from those positions.

This kind of antagonism with a Commentor is very unpleasant for me, and I am sure for many readers. That is why -- except to correct glaring mistatements of my positions or motives, which will last forever in search caches and I think need to be rebutted -- I hope to be able to ignore Comments that do not appear to be a good faith exchange of opinion and sharing of perspectives.