Note: This case study by Wendeen H. Eolis has previously appeared in the New York Law Journal. I republish this article in 4 parts during December 2009 in response to current client demand for advice on law firm retention arrangements (whe).
Sitting in my office, I estimate that a client has paid approximately $250,000 more would have been chargeable with just a few reasonable changes in the law firm's boilerplate agreement.
Looking at the document, I spot the big trouble item: "Billing rates are periodically reviewed and adjusted." This is exactly what happened, quietly, on four separate occasions, over the fourteen months under review. The first increase occurred thirty-four days into the matter with a firm wide upward adjustment of 3 %. The last increase took effect in the most recent invoice, another firm wide increase-this time 4 %. In between the firm wide increases, the rates were separately elevated for partners and then associates and para legals.
The upward adjustments flowed as follows: (a) annual firm-wide rate revisions (January) (b) annual partner billing rate reviews (March) c) annual bumps of associates and para legals following acceleration in associate starting salaries (September). The firm invoked this and other policies to keep its business healthy-in a manner it considered "least painful for clients to bear."
After recalculating the company's bills at the original billing rates of timekeepers as specified in the retention agreement (and researching others who later joined the team), I find that the $1,245,000 in billable time would have been reduced by $240,000. I also ponder the possibility that the key partner's increased rates could reflect a compensation reward by his firm- thanks to the new business my client infused into his portfolio! When I review the billable time, I find that the firm bills in time increments of ¼ hour rather than six minute intervals I would recommend; that would produce another chunk of change. Then, I scan the addendum to the retention agreement that spells out the firm's disbursement policy. Aside from items dubbed "expenses" that look like "allocable charges," the provisions secure travel accommodations fit for a king. I proceed through the letter, dissecting and redrafting the language and noting modifications that make fractional differences that add up.
At the end of the review, Mr. Wise faults mostly himself for getting stung, telling me that he did not see himself in a strong negotiating position; a mammoth lawsuit was at his door. In fact, law firms salivate for interesting legal work that can produce $1,000,000 of business in the course of the year! He now concurs that the negotiated retention agreement is a critical document, not only for the provisions it contains, but also for the way in which it structures the relationship between client and counselor.
In discussing the negotiating process, he says that he and his general counsel might have happily agreed to provisions that I or others might be more likely to resist-such as specified conditions for a premium or a discount on fees. He has been stunned by the obvious! A contract between client and counselor (whether it be oral or written, signed or unsigned) should be addressed with knowledgeable eyes on both sides and negotiated with mutual business and fiscal considerations in mind.
The third part of this article will appear on December 23rd.
