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How do securities attorneys get paid?

The rules that govern how attorneys can be paid are complex and vary from state to state. The information below is a general guideline and may not be applicable in your state.
As a general rule, attorneys who handle securities cases on behalf of investors can be paid in one of four ways.

Hourly Fee. First, the attorney and client can agree to an hourly fee arrangement. This means the attorney will track and record all of the time he or she spends on the case and will send the client a bill, usually monthly, to be paid based upon hours worked. The attorney and client must agree to an hourly rate, which can vary substantially depending upon the area of the country in which you live.

Hourly fee agreements normally require retainers. A retainer is an amount of money to be kept in the attorney’s trust account as a cushion. This cushion protects the attorney from getting “stiffed” if the client refuses to pay a bill.

Hourly fee agreements might also require a trial retainer. As a trial approaches, the client must normally deposit a large amount of money to cover the expected upcoming fees. Again, the attorney needs to protect himself or herself from expending a large amount of time at trial and then not getting paid.

Attorneys can never guarantee success in a given case. Good cases are sometimes lost. Bad cases are sometimes won. In hourly fee arrangements, the client pays regardless of whether the client wins or loses.

Contingency Fee. Alternatively, the attorney and client can agree to a contingency fee arrangement. This means the client pays the attorney a percentage of whatever sum is recovered from the defendant, whether through settlement, trial or arbitration. The client pays the attorney’s fee at the end of the case. If the client recovers nothing, the client pays nothing in attorney’s fees.

Contingency fee arrangements carry substantial benefits and risks for both the attorney and the client.

From the client’s point of view, the client receives a substantial benefit because he or she receives no monthly bills throughout the course of the case, and he or she pays no attorney’s fees at all if the case is not successful. On the downside, however, contingency percentages can be high, and in a successful case, the client normally pays more than he or she might otherwise have paid on a traditional hourly-fee arrangement.

From the attorney’s point of view, he or she takes the risk of getting paid nothing if the case is not successful. The attorney takes this risk in order to gain the benefit of the higher fees offered by contingency fee arrangements.

Keep in mind that attorney’s fees are not the same as costs. Every legal case requires the attorney to expend out-of-pocket costs to third parties, such as court filing fees, deposition fees paid to court reporters, expert witness fees, and the like. The attorney and client must also come to an agreement as to who will pay these costs.

Hybrid Fee. A hybrid billing arrangement is a mix between hourly-rate and contingency. The client agrees to pay one half of the attorney’s normal hourly billing rate and one half of the attorney’s normal contingency fee percentage. This is a way for both attorney and client to minimize the risks posed by the hourly fee arrangement and the contingency fee arrangement.

Flat Fee. Finally, the attorney and client can agree to an up-front flat fee for the entire case. These are not common in securities cases since investors who have suffered losses are usually not in a position to pay a large, up-front flat fee at the beginning of the case.

Regardless of the type of fee arrangement, most attorneys will reduce their fee agreement to writing to be signed by the client. This is known as a Retainer Agreement or an Engagement Agreement. You should make sure that you understand this agreement in full before signing it.

Please Note: McCabe Rabin, P.A. provides these FAQ’s for informational purposes only, and you should not interpret this information as legal advice. If you want advice as to how the law might apply to the specific facts and circumstances of your case, please contact one of our attorneys.

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