How to avoid a legal fee dispute Featured

7:11pm EDT December 31, 2012
How to avoid a legal fee dispute

It’s easy to forget about costs when you’re embroiled in a lawsuit, but you could end up winning the trial and losing the fiscal war if you let the litigation tab spiral out of control.

“Business owners can be bamboozled by a litigation attorney when they’re in the heat of battle,” says Kim Karelis, a partner and expert witness with Ropers Majeski Kohn & Bentley PC. “Avoid disputes by negotiating a reasonable fee schedule in advance.”

Smart Business spoke with Karelis about the best ways to avoid and resolve a legal fee dispute.

What is a legal fee dispute?

Attorneys usually charge a flat fee for routine tasks like reviewing a contract or setting up an LLC, so novice executives may experience sticker shock when they receive a bill from a litigation attorney if they don’t perform adequate due diligence. The lack of a formal fee schedule can sometimes lead to a dispute and additional litigation if the two parties can’t resolve the issue.

What should business owners know about hiring a litigation attorney?

Refuse block billing and question vague descriptions for services when negotiating a retainer agreement so you can compare and determine whether an attorney’s fees are reasonable and customary. Only the senior partner should bill for in-house strategy meetings involving several staff members and you shouldn’t pay bloated fees for photocopies, phone calls and secretary time.

Consider the cost for expert witnesses, court filling fees and depositions, and estimate your true ROI by comparing the total tab to what you may gain or lose by going to trial.

Finally, be wary of an attorney who seems unreasonable or wants to bill for every single second. Lawyers should be willing to negotiate, especially in this market.

What else can business owners do to prevent legal fee disputes? 

Hiring a referral from a trusted colleague is probably your best bet, but you still need to get everything in writing and seek an outside opinion before signing an agreement if you’re unfamiliar with litigation costs.

Establish a budget and a goal for the action and consult several attorneys to see if they’re reasonable and attainable.

Lastly, nip potential problems in the bud by reviewing invoices and questioning any unreasonable charges you find in a timely basis.

What happens if a dispute arises? 

Clients have the right to seek arbitration by a panel consisting of neutral attorneys and a layperson who will decide the appropriate amount of attorney’s fees through an informal, low cost proceeding administered by the local bar association. The losing party has the right to pursue a court trial. However, they must act quickly and file the paperwork within 30 days of the loss.

What are the legal standards that apply to legal fee disputes?

A signed retainer agreement takes precedent when a fee dispute arises. If none exists, the court will attempt to determine a fair charge for the attorney’s services, in part by assessing whether his fees are unreasonable or unconscionable.

While the courts tend to side with clients, especially when the attorney’s charges are vague, there’s little sense in taking chances when the problem is avoidable.

How are legal fee disputes usually resolved?

Most executives and attorneys don’t want to air their dirty laundry in public, so they try to resolve their disputes through informal, private discussions and by consulting an outside expert.

While few disputes end up going to trial, the chances increase when emotions run high and business owners don’t do their homework.

Kim Karelis is a partner and expert witness with Ropers Majeski Kohn & Bentley PC. Reach him at (213) 312-2012 or kkarelis@rmkb.com.

Insights Legal Affairs is brought to you by Ropers Majeski Kohn & Bentley PC