Many law firms today are moving away from hourly billing and going to “alternative fee arrangements” in which clients pay a single fee. While this certainly eliminate disputes over hourly billing issues, many types of alternative fee arrangements also have the potential for disputes. That is, while alternative fee arrangements seem simple, they are not always as simple as hourly-based fee arrangements. This is because many alternative fee arrangements do not just provide for one single fee, but may have added in “success fees” or other forms of extra money owed to the firm if the firm “wins” a case or even for a “successful” outcome. Unfortunately, the basis for additional money owed to a firm for what is considered a “win” or a “successful outcome” are not always well defined in alternative fee agreements.
I mediated a dispute between an attorney and his client involving an alternative fee agreement. The dispute really grew out of an ill-defined contractual agreement. The main dispute was what was owed the attorney upon discharge by the client. I found that this provision was ill-defined in the fee agreement. But, I also found that the success goal was ill-defined. Had the lawyer stayed on the case to the end, there likely would have been a dispute over what was owed the lawyer if he had won the case.
A dispute over whether the attorney achieved the success goal in an alternative fee arrangement was the main issue in Kasowitz, Benson, Torres & Friedman v. Duane Reade filed in Manhattan Supreme Court in New York. In that case, the client had decided on its own to negotiate and settle with the opposing party without the assistance of its attorneys. The attorneys claim that their alternative fee agreement still entitled them to a success fee because the client’s settlement “achieved the goals Duane Reade hired [Kasowitz] expressly to achieve.”
In a case that could be put in the category of “what were they thinking,” client AgriZap agreed to pay lawyers in the firm of Drinker Biddle & Reath triple their fee if they won the case. According to a report in the Legal Intelligencer, the Drinker lawyers won the case and presented the AgriZap with a bill for $5.4 Million or triple their fees of $1.8 Million. AgriZap called the fees “unconscionable.” For, according to AgriZap, the way the alternative fee contract was worded the lawyers would have been entitled to the $5.4 Million in fees even if the client had won just $1,000. That is what I call extremely fine print, at least it was just fine for the lawyers!