In this video, you will get answers to these questions:
- How are lawyers permitted to charge legal fees under court rules?
- When does it make sense to spend more money on a higher-rate attorney?
- What specific situations would you hire an attorney with a lower rate?
When is an experienced attorney worth the higher cost? If you are a business owner thinking about hiring an attorney, you are probably wondering, “At what rate do I want my attorney? Do I want an attorney who is at a low rate or a high rate?” And you might have different thoughts come to mind like, I want the best deal possible—I want a low rate, or I want the best attorney possible—I want to pay the highest rate.
Well, I will talk today about some considerations when selecting the attorney that is right for you and your individual circumstances. I am Aaron Hall. I am an attorney for business owners and entrepreneurial companies in Minnesota. If you don’t already have the “Seven Common Legal Mistakes Made by New Businesses,” it is a free cheat sheet that I give with some follow-up videos, a little free course if you will, to better understand how to run your company, and preemptively prevent problems in your company rather than having expensive legal problems later. So if you don’t have that, you can get it at aaronhall.com/free.
All right, so when you are selecting an attorney, it may be helpful to know how are lawyers permitted to charge legal fees under court rules. I will quote for you in Minnesota what the rule is here, and it is very similar in other states. A lawyer has to have a reasonable fee, and the reasonableness of the fee can be based on the following factors: (From the Minnesota Rules of Professional Conduct 1.5) the time and labor required, the novelty and difficulty of the questions involved, and the skill required to perform the legal service properly. The likelihood, if apparent to you as a client, that the acceptance of particular employment will preclude other employment by the lawyer. What is that talking about? That means if the lawyer takes representation of you, will the lawyer be prevented from representing an opposing party who the lawyer might want to preserve? So say, for example, you have a large firm, and they represent large companies, if they are thinking about representing an individual against a large company that will prevent them, under conflict of interest rules, from representing that large company down the road, or at least it could. And so under this rule, the law firm has a right to take that into account.
Another factor is the fee customarily charged in the locality for similar legal services. In other words, New York or LA might have high rates, but that doesn’t justify doing that in a small town. So the local rates are going to be a factor. The amount involved and the results obtained will be other factors. Obviously, if you have a 10 million-dollar case, it may make more sense to pay more for an attorney than a $5,000 case. Another factor is the time limitations imposed by you, the client, or the circumstances. So for example, let’s say you contact an attorney on Friday afternoon to help with a hearing in court on Monday morning. Because there is a limited amount of time, the attorney is going to have to work all weekend—there can be an upward adjustment in the rate because of that. In other words, the attorney can charge more. The nature and length of the professional relationship between the attorney and client is also a factor. Now you might say, “Well, which way does this go?” Well, it could actually go either way, but it is when there is a significant impact on the provision of attorney services or what the client is expecting, or the efficiency that might be involved. All those factors may be taken into account when determining what rate is reasonable. I am almost done. The experience, reputation, and ability of the lawyer or lawyers performing the services. So if you have a high-profile attorney, that attorney can charge more. And then whether the fee is fixed or contingent; a fixed fee is like a flat fee for a particular scope of services. A contingent fee would be a fee that says the attorney doesn’t get paid unless the attorney wins. And then there is an hourly fee, which is what is the most common and traditional. Okay, so that is the basis, but back to the big question, “When does it make sense to spend more money on a higher-rate attorney?” Well, we have talked about some of the factors, like if you need them urgently or if it is a large matter. But let me explain to you the difference you may get in an attorney that is low-rate and low experience versus high-rate and high experience, and I will use a personal example.
Right after I graduated from law school in 2007, I got a job as a litigator in a law firm, and I will never forget this first time where an attorney told me to go check a particular rule to help me in preparing a motion. I think it was rule 115. I came back to him, and I said, “The civil rules, which are the main rules for a court that we learn in law school don’t have a rule 115.” And why did I say that? Because in law school, I learned about The Federal Rules of Civil Procedure, it was also mentioned in class that there was a Minnesota counterpart to that called the Minnesota Rules of Civil Procedure. Well, I went and checked the Minnesota Rules of Civil Procedure, and there was no rule 115. The attorney said, “Well, did you check the general rules?” I said, “Well, I checked the Minnesota Rules of Civil Procedure, is that what you mean?” And he said, “No, the Minnesota Rules of General Practice.” And I said, “The General Rules of Practice? What is that?” And he said, “Well, it’s a whole separate body of rules that applies to filings in court, like a motion.” So as you can see, as a beginning litigator, I simply didn’t even know what other bodies of law might apply. Well, I learned that one pretty quickly, and I was grateful to have a couple of mentors in the firm who guided me on that. They advised me to read through the General Rules of Practice multiple times, which I did at that point, and it was really helpful and relevant to all the work I was doing. But that was in the beginning.
Alright, next you have a situation where maybe an attorney has been practicing a few years, and they have a general idea on how to file cases in court, but they may not know about unusual statutes that come to bear on specific types of cases. I will give you an example. There is a general rule in court that says you cannot file a case unless you have an actual dispute with somebody. In other words, you can’t just go get what is called advisory opinions. You can’t just go to the court and say, “Hey judge, how should I write this language in my contract? I don’t want it to be a problem.” But then you might think, well, there is kind of a middle point. There is when you wonder about how to write a contract, and then once you have written that contract, you might have a dispute with a party, but there are no damages yet. Nobody has actually been harmed. In fact, you might be wondering, how do we resolve this issue? And then finally, there is the point when a party has breached a contract and there are now damages involved, but that middle point where the parties are trying to figure out, “What are our rights here?” For example, if this contract is enforceable, then our rights are written in the contract, but if the contract is not enforceable under statute, then the parties can proceed without regard to what is in the contract. If a party wants to know how to proceed, and there is a clear dispute between the parties about how to proceed, there is a special statute, it is called the Declaratory Judgements Act. Once there is a dispute, but before there are damages, you can go ask a court to make a declaration in a judgment regarding the rights and interests of the parties to a contract or under a statute, etc.
Well, this is not the type of thing that we are taught in law school. You are taught a lot of the basics in law school, but this is more of a niche that comes up in commercial litigation, and only certain types of commercial litigation and only certain circumstances. So that was something that I learned maybe three or four years into practicing. So as you can see, if you are working with an attorney who has less experience, they will have naturally less exposure to unique statutes and cases and perhaps even procedures that relate.
Alright, and then, let’s say you have an attorney who has 10 years of practice in a particular niche. Well, and I am not just talking about contract law or litigation or even contract litigation, but it might be in a certain industry or a certain type. That attorney will likely know about court procedures and other nuances of the law that allow you to navigate litigation in a more efficient way and a more effective way for their clients. I will give you a little example. Recently, I had a client who was facing an emergency situation. It is a business client, and the question was, “What are the options for bringing emergency action before the court to get a decision from the court, maybe same day or a week later or a month later, and what are the pros and cons of each of those?” Because it is harder to get courts to take action if you don’t give the normal amount of notice to the other side. So you are immediately going in the same day to get some sort of emergency action. I have done that, and the courts have granted it, but it was an emergency. And we had to show that we were likely to prevail on the merits if it went to trial, and if the court didn’t take action, there would be irreparable harm to my client, and I made good faith efforts to notify the other side of the hearing. So that is an example of a real emergency scenario. And by the way, even when the courts will grant it in that emergency scenario, typically it is only for a week or 10 days where the courts want to have another hearing to actually resolve this when the other side has time to prepare a defense. You might also have to put up a bond. There are lots of risks associated with filing a motion immediately, and getting a court hearing immediately versus waiting two weeks or even longer waiting a month depending on what the circumstances are. And so, a more experienced attorney will know that these three options are available right away, short delay, and the normal amount of delay. The experienced attorney will know what are the odds of prevailing on those three options, and the experienced attorney will know what the associated costs will be for each one of those.
Another important factor when hiring an attorney is how many times has the attorney done this before? Because if they have done it before, they are not going to have to review court rules to figure out how to do something, or at least not as extensively. They will have templates from prior cases. Now, they will still have to rework those templates and apply them to the case at hand, but it will be much quicker for an attorney experienced to prepare those court documents. Usually, my practice is that I will charge the same rate for a particular action whether I had two years of experience—let’s say it would cost $5,000 for a motion–or I have 15 years of experience, I would charge typically about $5,000 for that same motion. Why? Because I want my clients to be paying the same rate, even though I am able to do it much faster today. So I would have a higher hourly rate today because I have substantially more experience. But I don’t want my clients to actually be paying anymore for that. It is just because I am faster, I can charge a higher rate by the hour for that. But the fixed rate for my client remains about the same. Not every attorney does it that way, and sometimes you are paying, as I mentioned a little bit earlier, for the fame, recognition, or prestige that the attorney has in the industry.
Okay, so now that we have talked about when it might make sense to hire an attorney at a higher rate and who has more experience, let’s think about the specific matters that might come up.
In what specific situations would you hire an attorney with a lower rate? Well, if the amount in dispute is pretty low or if the risk is low. Let me give you an example. Let’s say you have a business where you are a teenager and you mow lawns, and every Saturday you mow two lawns for a neighbor. And for that, let’s say you get paid $30, and you might have a contract that says that. Would it make sense to go and spend a lot of money on an attorney to draft a contract for you and your neighbor to make sure that your neighbor has to pay that money if you mow his lawn? Paying $500 for a lawyer to do that would be excessive. That is in a scenario where, alright, it is a small amount that is at risk every time you mow the lawn and then go to get paid by the neighbor. And by the way, if the neighbor doesn’t pay you, even if you have a contract, are you going to spend the money to sue them in court? No. You probably just won’t mow their lawn again. So that is an extreme example of where it just doesn’t make sense to have a contract written by a lawyer.
But on the other end of the extreme, I have had companies come to me with hundreds of thousands in transactions. So hundreds of thousands of dollars exchanged every year for product, and they have nothing more than a purchase order or a little email or an invoice. Well, that can be really frustrating because if you have to sue on that, you may not have provisions that you would normally in a contract that could protect you. That is where it makes sense to have an attorney draft that. And I would probably want an attorney, not just a newly experienced one who is kind of a general interest attorney, I would want somebody who is familiar with business contracts and that sort of transaction. That attorney is more likely going to have access to templates that can be refined for your scenario, and that attorney is going to be aware of the risks that you face, and what you are going to need to do if you need to sue on this contract because they breach. So you can build in all the provisions that are needed to give you leverage if the other party breaches.
All right, so that is a quick review of why attorneys charge different rates, why it is helpful to have the option of attorneys at different rates, and why you might pick an attorney who is more or less experienced based on your unique circumstances and your budget. Often when potential clients contact me and they want to hire me, I will ask for a little more information first because I am not the cheapest attorney, and sometimes it is worth them paying somebody at my experience level. But often, actually a majority of the time, I look at their situation and determine that it is not in their best interest to hire an attorney at my caliber and at my rate. They would be better off hiring an attorney at a lower rate, and so I will refer them to one of many good attorneys that I know in town who can assist them with something like that. So I always encourage people to reach out to me and ask me either if I can do it or if there is somebody I know who can do the work because I am glad to redirect people to great attorneys who are the right fit for the individual client’s needs.
I’m Aaron Hall. This channel is educational information to help you spot issues, avoid problems in your company, and enjoy more of the money yourself while spending less on attorneys. You are welcome to thumbs up this video if it is helpful. Thumbs down if it is not–if I rambled on too long. Subscribe to the channel if you would like more educational content like this. Otherwise, I look forward to seeing you in the next video.