A New Way to (Possibly) Add to Your Bottom Line — Write A Bonus Into Your Fee Agreement

Fee Agreements for Bonuses

I had nothing to do with this case, but an attorney friend of mine alerted me to this very interesting issue arising from an attorney fee application.

Here is the scenario. A party won a breach of contract action and was entitled to attorney fees under the contract in question. As you are no doubt aware, the normal mechanism to calculate reasonable attorney fees is by way of the lodestar method – multiplying the reasonable number of hours spent on the case times the hourly rate, which must be in line with what other similarly situated attorneys charge.

But there are a number of variables. In some instances, if the case was particularly challenging, a multiplier is permitted. Also, if the case was taken on a contingency basis, courts have held that can be an appropriate method for determining the fees. For example, keeping the numbers simple, if a $300 an hour attorney took a case on a 40% contingency, and spent 100 hours on the case to win $100,000, then his hourly fees would be $30,000 but his contingency fee would be $40,000. Cases have held that the a $40,000 fee award is appropriate since that is the real cost to the client and because we must encourage attorneys to take contingency cases since plaintiffs might not otherwise be able to afford counsel.

So back to our scenario. The attorney was representing the client at a rate of, say, $400 per hour. The client could not keep up with the bills, so the attorney agreed to reduce his rate to $200 per hour, with the understanding that if he prevailed in the action, and obtained a verdict above a certain amount, he would get a $100,000 bonus. He won, he achieved the milestone, so in his motion for attorney fees, he sought the $100,000 bonus from the other side.

He argued that the bonus was no different than a contingency fee, and he should be able to obtain it because of the risk involved. Like an attorney handling a matter on a contingency basis, he had made the action affordable to the client by way of this bonus arrangement, and in that manner had made representation available to a client who might not have otherwise been able to afford counsel.

Bonus-Attorney-Fee-ArrangementConceptually the argument is not too far off the beam, but it raises a possibility that causes me great concern. What would keep attorneys from adding bonus provisions to all of their agreements? Indeed, if such fees were permitted, the situation would soon become standard even at the attorney’s full hourly rate. “I charge $450 per hour, but I only take cases where there is a chance of also recovering a significant bonus, so if you won’t agree to a $100,000 bonus, I can’t represent you.” It’s not hard to imagine that some attorneys would use this as a simple method by which to give themselves a big payday at the expense of the opposition, without increasing the fees to their own client.

In this case, the motion failed to recover the bonus, with the judge deciding that the lodestar method was appropriate, and that the bonus would amount to an unearned multiplier. But interestingly, he did consider it and had he found that the case was appropriate for a multiplier, he might have allowed the bonus. So, I throw it out there as something to keep in the back of your mind, should the appropriate circumstance ever arise where you must cut your fee in order to keep representing the client, but want to offset the risk of doing so. So long as you are honest and ethical with its application, I don’t see any downside to this approach.

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