The Flat Fee Is One Of The Culprits

Parsley is most popularly used as a garnish and a breath freshener.  That might well be the ultimate presentation of the Bankruptcy Court in In re William Allen Parsley handed down in the Southern District of Texas recently.  (Review the decision in two parts by clicking here and here). 

The case itself concerns an absolutely scathing review of the lack of review, sloppy work and misrepresentation of prominent real estate law firm Barrett Burke Wilson Castle Daffin & Frappier (BBWCDF).  In excruciating detail the case dissects what happens in many bankruptcy related real estate claims and what the parties are now doing to try and remedy the problems in this case from happening again.  That, I guess, is the breath freshener of the case. 

The garnish is the Court's findings on the fortune and folly of the fixed fee or flat fee business.  As to the fortune end of the argument, the Court points out on page 70 of its opinion that BBWCDF generate $9.7 million to $11.5 million annually by filing motions for relief of stays and other matters in the United States bankruptcy courts for a small fix fee.  A larger law firm, McCalla Raymer the opinion states has generated approximately $28 million over the past decade in its representation of Fannie Mae alone under such arrangements.  For a few hundred dollars a case, that is a whole lot of work generated for a disproportionately small amount of money.

The folly end of the fixed or flat fee situation is the attempt to trying to sustain this business model  at a great price to accuracy, leadership and truthfulness in our judicial system.  It obviously leads to lapse in judgment and ill defined work practices.  As the Court stated on page 70 of its opinion, "Over the past several years, attorney's fees and costs have risen steadily -- some clients would doubtless say astronomically.  Corporations in particular have reacted by demanding concessions such as flat fee pricing for each file.  In the consumer bankruptcy field, many financial institutions -- for example, Fannie Mae in the case at bar -- have negotiated flat fee engagements with certain law firms to avoid large fees that can accrue under an hourly rate system.  In theory, this arrangement seems appropriate:  fixed fees minimize costs that are primarily passed on to consumer debtors.  In practice, this arrangement has fostered a corrosive 'assembly line' culture practicing law."

This is my belief as well.  And, the truth of the matter is, although flat or fixed fees is certainly suitable for some legal services, it is wrong to make it apply to all legal services, especially single shot litigation as is represented here.  You can see the trouble to which it leads.

Also, from a practical matter, fixed and flat fees in cases of this nature fly in the face of the Third Wave practice of law because they result in the snowball effect, in which you have to take on a monumental case load just to justify the low fees.  Because of the case load you then have to retain more staff, more lawyers, and more vendors just to process these cases.  This results in acquiring a lot of expensive office space, office furnishings, equipment, tech, insurance and the like.  This of course takes a whole lot of money -- from a terrible treadmill of earnings.  To pay for these increases you have to take in even more low flat and fixed fee cases, which just starts the whole snowball rolling again, until it just crushes you.

As in this case, the debtor, the creditor and the entire bankruptcy court system was made to suffer.

All of this is the opposite of working from home or in a small office, operating a solo practice, operating without staff, working from home even, downshifting, trying to present a custom job and, as you might guess, finding any reasonable work-life blending or balance.

At least in this regard, the fixed or flat fee is simply madness.

Comments

[D. Todd Smith]

I don't read your post as saying this, but it's worth pointing out that flat fees aren't bad in and of themselves. The real problem is the "assembly line" required to profit from them in the sort of practice you have featured and all that goes into setting up that kind of "factory." I manage to incorporate flat fees into my practice and am able to do so because I can estimate with some precision what it will take for me to handle a particular matter. It's a far cry from the assembly line business model, and clients like the certainty and predictability that this fee structure brings.

[Bryan]

I am not sure that the problem in this situation is that the fee was flat, but instead, that the fee is not sufficient to pay for the services of an attorney to actually perform legal work on the file.

Thus, the cause of the problem is not the method of calculating the fee (flat or hourly) but instead that the fee is too low.

[mike anderson]

No matter the amount of the fee, a flat fee helps to turn the legal product into a commodity. Once everyone decides to step into the flat fee arena, the commodity competition becomes a race to the bottom.

[PerGynt]

Regardless of how you bill your customers, if you aren't keeping track of your time on your work you're screwing up! There is no way to measure your productivity other than to put a clock to it, and if you are actually engaged in a money making enterprise you need to measure your performance. You need to do it, or at least to have done it, or you will have no indication whether you are billing enough money or overestimating your skills. That poetry that you see in certain blogs advocating "value billing" and "selling your value" won't help you make good decisions about setting fair and adequate fees.
Good luck.