My Shingle

When You Value Bill, Be Sure To Tell The Client

by Carolyn Elefant on November 12, 2006 · 1 comment

in Business Models, Ethics Issues, Setting and Collecting Fees

Print Friendly

Plenty’s been written about the evils of the billable hour; how the billable system measures time rather than value and in so doing contributes to inefficiencies and bill padding.   But criticism of value billing is harder to come by, and with the exception of David Giacalone’s writings, you don’t find much negative commentary about value billing in the blogosphere.

But just as the billable hour is not perfect, neither is value billing.  Consider this recent case involving Greenwich lawyer Gary Cohen.  According to this article, Cohen’s former client has filed an a grievance against Cohen for allegedly forcing him to pay a $300,000 bonus for successfully mediating a dispute.  The bonus bumped Cohen’s $450/hr rate up to $1500/hr.  The article also says that Cohen demanded payment of the bonus in the middle of the mediation, and that Cohen threatened to walk if he didn’t receive it.  Cohen denies that he ever threatened to abandon the client.

But Cohen has not reduced his fee requests.  Rather, Cohen and his attorneys defend the fee on “value billing grounds.”  From the article:

Cohen says he was worth every penny in a complicated case involving more than $100 million and a very needy client. He says he accomplished Zimmerman’s top goal, which was complete control of his company.

Katherine Callahan, Cohen’s attorney, said the additional fee was justified because the mediation was extremely time consuming and avoided a trial that could have resulted in a loss of millions of dollars in assets for Zimmerman. She objected to the state’s calculation of $1,500 per hour. “That is really an inappropriate way of looking at attorney fees,” Callahan said. “Disciplinary counsel is dumbing down the argument to convince the panel something inappropriate occurred here.”

Apparently, a jury did not buy the value billing argument.  As reported here, it found against Cohen and ordered return of the bonus.

Having repaid the money,  Cohen shouldn’t be subject to
disciplinary action as well.  To me, that’s just an added penalty.  But the Cohen case highlights some of the soft spots of value billing, particularly that it can be a hard sell for clients.  For example, despite what
the value billing experts say, many clients and laypeople feel that
when you pay a lawyer $450 an hour, you ought to expect a job well done
and that you shouldn’t have to pay $300,000 extra to get more value.
And while value billing advocates would argue that Cohen’s error wasn’t to make clear that he’d take a bonus up front, my guess is that if he had, his client would have simply found another lawyer to handle the
case.

The bottom line here, I guess, is that if you do decide to value bill, make sure that your client buys into your value proposition.  If not, you may find yourself in Cohen’s position.

  • http://www.LegalEaseConsulting.com Allison Shields

    Carolyn-
    Value billing, by definition, means that the client must understand and accept the value. Under a value billing model, the price is determined by the value to the client. Otherwise, it’s just not value billing.
    As I indicate in my post (http://legalease.blogs.com/legal_ease_blog/2006/11/the_november_6_.html) about the same case, I think the biggest problem here was the way the attorney-client relationship was managed, and the failure to set or ascertain expectations up front.
    It’s difficult to call this ‘value billing’ in the first instance – it’s really more of an hourly fee with a bonus than true value billing.
    According to the article you link to (which is different than the one I saw), the attorney had a fee agreement which provided for a success bonus. But it also provided that the client must approve the fee before it would be charged. It appears that here, the client did not approve the fee as a result of a rational discussion and agreement – rather (according to the client), the lawyer strong-armed him into transferring the money. Under no circumstances can that be considered value billing.
    The article you referenced also indicates that there was testimony that this kind of a fee arrangement may have been against the ethical rules with regard to divorce.
    Taken together, I don’t think this case is one which is an example of problems with value billing. Rather, I think it’s an example of poor handling of the attorney-client relationship at best, and purely taking advantage of a client at a weak moment at worst.
    Under a true value billing system, the lawyer couldn’t find him or herself in this lawyer’s position because the client would, by definition, agree to the value proposition and the fee itself, up front. If not, the work wouldn’t be done, or the fee would be refunded. As you said, perhaps the client would have found another lawyer. And that’s fine – not every lawyer is right for every client. And wouldn’t it have been better for the lawyer to determine that he didn’t want to take the case up front than to be embroiled in all of this litigation over the fee, especially if his appeal of this decision is unsuccessful? Even if he is successful, will this litigation help or hurt him as an attorney?

Previous post:

Next post: