Use these tips to spot inflated legal bills.
A California physician fumed when his lawyer presented a $100,000 bill for handling his divorce. Nearly half that tab resulted from work the lawyer had done to correct his own mistakes. He'd overstated the doctor's net worth in court, an error that the ex-spouse's attorney pounced on to increase her award. To get a fairer settlement, the lawyer spent days preparing an appeal-and billed his client for each hour.
He eventually cut his bill by $30,000, but only after the doctor hired a second attorney, who threatened the first lawyer with a legal malpractice suit.
Beware the open-ended bill
Before you hire a lawyer, find out how he or she calculates his bills, advises Theresa Meehan Rudy, program director of HALT, a legal-reform organization based in Washington, DC.
That may sound like elementary advice, but HALT hears from plenty of clients who suffered after the fact. One person never pinned down the legal fees for selling a costly property and received a $34,000 bill from his lawyer. Only then did he request an itemized bill and explanation.
The law firm claimed it had spent 112 hours on the sale and charged $125 an hour, for a total of $14,000. Then the lawyers tacked on an additional $20,000, based on a percentage of the sale. When the seller complained to HALT, it gave him the bad news: In lieu of a formal agreement, the law sometimes permits such arbitrary fees.
When a lawyer quotes an hourly rate, don't assume the figure is carved in stone. His first quote may be no more than a bargaining chip. Tough times have forced many firms to accept smaller fees, although you can't expect them to say so. "In today's climate, lawyers tend to be flexible," says Stephen Gillers, a New York University School of Law professor who specializes in lawyer-client relations. "It's foolish not to try to negotiate."
Besides spelling out basic rates, written fee agreements should list which firm members will be working on the case. A typical agreement might say that your case will be handled by a senior partner who charges $400 an hour, an associate who bills at $250, and a paralegal who costs $100. Many lawyers charge flat fees for routine legal work, such as wills or house closings. In any case, "make sure to get your fees in writing and have the lawyer insert a 'caps' clause in your written agreement," says Rudy. "A caps clause requires the lawyer to get your approval before fees and expenses can exceed an agreed upon dollar limit."
Nevertheless, don't make a final decision based solely on hourly fees. "Chances are the person who has the lowest hourly fees probably takes the longest to complete a task," says Steven I. Kern, of Kern Augustine Conroy & Schoppmann, in Bridgewater, NJ. "Associates are notoriously slow at doing many things that a senior lawyer can do quickly. Even worse, an inexperienced lawyer can spend countless hours going down dead-ends that an experienced lawyer would never begin to venture down."