Why don’t Americans like lawyers? (1) Lawyers are expensive. Depending on your locale, you may pay anywhere from $125 to $250 per hour for an attorney’s services. (2) Lawyers make people uncomfortable, sitting in their high-backed office chairs, behind huge mahogany desks and beneath a dozen framed diplomas. (3) A few lawyers are incompetent, unethical, or both, and thus many people are afraid of being victimized.
With so much to worry about, it’s no wonder that hiring a lawyer can make the most fearless business-person feel like the Cowardly Lion. But just as the Wizard of Oz was no one to fear, merely an ordinary man standing behind a curtain, a lawyer should not be viewed with awe or loathing but simply as an entrepreneur with a specialized service to sell–a service you might someday need.
Failing to retain an attorney when you need one can get you into a lot of trouble. Los Angeles trial lawyer Harold Greenberg tells the story of a client he represented in a lawsuit over the purchase of a small business: “My client had purchased a phone-order stationery supply business. The man tried to save money by negotiating the deal himself without using a business lawyer to assist him. This turned out to be a terrible and costly mistake.
“Because the man was not sophisticated in the legalities of a business purchase, he failed to insist that the phone number remain with the business. Worse, he didn’t put a ‘non-competition clause’ into the contract, which would have prevented the seller from going into the same business in the same locale. As soon as the seller had collected his money, he opened a competing phone-order business using the old business phone number. Naturally, customers reached the seller’s new business instead of the old business that my client had purchased–and he quickly went broke.
“It was only after the damage was done and my client’s house was in foreclosure that he came to see me. We brought a lawsuit that cost him thousands of dollars in legal fees and years of his time. All of this heartache and expense could have been avoided if only he had paid for legal advice when he was negotiating the purchase.”
CHOOSING A LAWYER
When and under what circumstances should you hire a lawyer? “It’s a real dilemma for entrepreneurs,” says David Voight, director of the Small Business Center for the U.S. Chamber of Commerce. “On one hand, they don’t want to get into trouble because they didn’t hire a lawyer; on the other hand, they don’t want to absorb an unnecessary expense.”
Voight lists several times in an entrepreneur’s life when a lawyer should definitely be hired:
When buying or selling a business; anytime you are negotiating a business contract involving significant money, time, or effort; whenever a real conflict arises in a business relationship; if you think you need a lawyer, you probably do.
“Just any lawyer won’t do,” says Lionel Allan, chair of the Small Business Committee of the American Bar Association. “Like doctors, lawyers are increasingly becoming specialized. A small-business person should look for a business lawyer who can give practical business advice but can also advise about business legalities such as leases and contract negotiations.”
Finding the names of good general business lawyers (or any other kind you may need) isn’t difficult. Some potential referral resources are satisfied clients, other lawyers, community contacts, local service organizations, and bar associations.
The number one criterion, of course, is a lawyer’s legal ability. But you also want a lawyer you can trust and can talk to, and who has enough perspective to step back from a tough issue and look at it from all sides. Throughout the course of your legal problem, you will be faced with making choices–to sue or not to sue, to sign a deal or let it pass, to go public with a stock offering or remain a closely held company. There is rarely one fight answer to these dilemmas. Your lawyer’s job is to present you with options, explain the consequences of each choice, give a recommendation, and allow you to decide what to do. If he or she cannot do this, you may have the wrong lawyer.
UNDERSTANDING LEGAL FEES
Before hiring a lawyer, make sure you understand how you will be billed. Lawyers bill clients in four basic ways: the contingency fee, the flat fee, the statutory fee, and the hourly fee. In a contingency fee, you pay the lawyer an agreed-upon percentage of the money a lawsuit makes. A statutory fee is one that is set by law or by a judge. A flat fee means an attorney agrees to perform a specified service for an agreed-upon price. However, most business attorneys charge by the hour. If your lawyer charges $200 per hour and he speaks to you on the phone for 12 minutes, you will be billed $40.
The legendary movie mogul Samuel Goldwyn once said, “An oral contract ain’t worth the paper it’s written on.” Mr. Goldwyn was right: Never hire a lawyer based on an oral agreement. Insist on a written contract–called a retainer agreement–that specifically defines how you are to be charged. Most attorneys ask you to sign preprinted retainer agreements. Here’s what to look for when reading the agreement:
1. How are you to be charged? If you are charged an hourly rate, the agreement may also provide for the payment of flat fees for specified services. For example, you may pay a flat fee if your lawyer attends court, regardless of the time it actually takes.
2. Is there a retainer fee? Retainer fees differ, but general retainer fees cover a predictable amount of legal work performed on a regular basis.
3. Does the lawyer charge minimum billing units? To keep billing from becoming too complicated, lawyers usually bill in tenths of hours (six minutes). This is reasonable. However, some lawyers put a clause in their retainer agreements allowing them to charge “minimum billing units.” For example, if the retainer agreement states that the minimum charge to be made to your file is three-tenths of an hour, that means that each time the lawyer works on your file, there will be a minimum charge of 18 minutes, even if the work performed took only 10 minutes. Lawyers commonly use unreasonable minimum billing units to pad their bills.
4. Is the lawyer permitted to raise the fee? Your retainer agreement should specify when and under what circumstances the lawyer can raise the fee. Generally, lawyers give a 30-day notice before the fee hike takes effect, so you will have time to find a new lawyer should you desire.
5. Are you responsible for the lawyer’s expenses? Increasingly, lawyers are charging their clients for expenses once considered to be part of the attorney’s overhead. Photocopying, secretarial time, and parking expenses can add up quickly.
Don’t be afraid to negotiate terms of the agreement so that you get the best deal possible. For example, if the lawyer asks for a $2,000 retainer fee, you may offer $1,000 instead. If the lawyer wants you to pay a flat fee for court appearances, you may state that you will pay only for the amount of time actually spent performing the service. If the lawyer wants to charge a full fee for travel time, think about offering to pay half the usual fee.
It’s important to receive a detailed monthly billing statement. Never accept a legal bill that states, “$250 for services rendered.” After all, you wouldn’t pay a restaurant bill that read, “$80 for food eaten.” The bill should tell you the following:
* The date a service was rendered
* The time spent on the service
* The amount charged for the service
* Expenses incurred on your behalf
* Credits for payments made during the month
* The total amount due or credit remaining on the file
* The period of time covered by the bill
DISPUTING A BILL, SUING FOR MALPRACTICE
The fly in the ointment of the attorney-client relationship usually involves fee disputes. “The most common problems clients have with lawyers is the lack of communication over billing,” says Theresa Meehan Rudy, director of education and research for HALT, a legal-reform nonprofit organization based in Washington, D.C. “Many clients aren’t told and don’t ask what is billed and how many hours a legal problem will take for resolution. This results in misunderstandings and legal bills that are higher than they need to be.”
Fee disputes used to end up in litigation, but now many states have a mechanism to resolve these controversies out of court, called the “attorney-client fee dispute arbitration.” Arbitrating the controversy has several benefits:
* You may not need to hire a lawyer, especially if you kept accurate records.
* The formalities of court procedures are dispensed with in favor of an informal atmosphere.
* The dispute can be resolved quickly.
* The emphasis is on a fair resolution of the dispute, not winning and losing.
Contact your state Bar Association if you want more information on attorney-client fee dispute arbitrations.
If you have lost money because of misconduct on the part of your lawyer, you may be able to recover all or part of your loss. Most state bar associations maintain a client-security trust fund to reimburse victimized clients. Contact your state Bar Association for details.
In extreme cases, you may even consider suing your lawyer for malpractice. Malpractice, or negligence, doesn’t necessarily mean losing a case, or even making a tactical error. It means a lawyer’s conduct is below the “standards of practice for lawyers in the community.”
Proving negligence is only half the battle in a legal malpractice suit. You also have to prove you suffered damages because of the malpractice. For example, if your lawyer gave you incorrect tax advice, you have to prove you paid unnecessary taxes as a result. Or if your lawyer blew a court case, you have to prove that you would have won the case. Often, proving you were damaged is the most difficult part of the case.
Some people contend that it is difficult to get a lawyer to sue another lawyer. This may or may not be true, depending on where you reside. If You Want to Sue a Lawyer: A Directory of Legal Malpractice Attorneys (Edited by HALT; Random House, New York; $10) lists attorneys that will take a legal realpractice case on behalf of a client.
If you don’t have cause to sue but believe that you have been the victim of unethical conduct, report your lawyer to the state Bar Association. Reporting your lawyer could lead to disbarment, so it’s .not a step you should take lightly. Here are some examples of unethical conduct that should be reported:
* Stealing client property
* Breaking client confidences
* Failing to disclose conflicts of interest
* Covering up or lying about mistakes
* Abandoning a client’s case
* Failing to perform
* Refusing to communicate with the client
* Commingling personal assets with client assets
FIRING YOUR LAWYER
If you and your lawyer cannot resolve differences, change lawyers. This will cost time and money, but if you feel that the relationship has run into a dead end, you really have no choice.
Ironically, many people are afraid to fire their lawyers. I once spoke with a woman on the radio who was on the eve of an important trial and who had no confidence in her lawyer. “Why didn’t you fire him?” I asked. Her answer, “Because I was afraid he would get mad at me.”
Let’s face it, lawyers can be intimidating, and most people avoid confrontation like cats avoid water. However, legal matters are too important to allow fear to keep you from doing what must be done. If you are going to fire a lawyer, remember the following:
* You have the absolute right to fire your lawyer.
* You will have to pay your fired lawyer’s fees unless the firing was for good cause. However, according to HALT, if the firing was for unethical behavior, such as abandonment, you may not have to pay.
The laws differ from state to state, so ask your new lawyer about this issue or contact your state Bar Association.
* Your new lawyer can do the firing for you. You merely sign a form or give the new lawyer written authority.