NEW YORK COUNTY LAWYERS’ ASSOCIATION
Committee on Professional Ethics
QUESTION NO. 695
TOPIC: FEES, “BLENDED HOURLY RATE”.
DIGEST: LAWYER MAY CHARGE SINGLE “BLENDED HOURLY RATE” FOR ALL LAWYERS AND PARA-PROFESSIONALS PROVIDED CLIENT CONSENTS AFTER FULL DISCLOSURE AND FEE IS OTHERWISE REASONABLE.
CODE: DR 2-106(A) & (B); EC 2-17, 2-18, 2-19.
This inquiry relates to a fee arrangement entered into by a law firm which ordinarily charges fees primarily based upon the time spent on a matter. In the situation in question, a number of lawyers and para-professionals will work on the matter, Each has a different hourly rate based on seniority and other factors. The client and the law firm have entered into a fee agreement for a single “blended hourly rate”, whereby the disparate rates are mixed to come up with a single rate to be charged for all lawyers and para-professionals. The client receives periodic advice from the lawyer as to time spent on the matter. After a review of those advices the client seeks a reduction in fees solely because the blended hourly rate agreed upon results in a fee which exceeds what would have been the aggregate amount of time charges for those involved, in the absence of the blended rate.
May the law firm base its fee on the blended hourly rate originally agreed upon?
The Lawyer’s Code of Professional Responsibility (1990) (the “Code”) provides that “[a] lawyer shall not enter into an agreement for, charge or collect an illegal or excessive fee.” DR 2-106(A). As well, the Code states that “[t]he determination of the reasonableness of a fee requires consideration of all relevant circumstances, including those states in the Disciplinary Rules.” EC 2-18. See EC 2-17 (lawyer to consider interest of both client and lawyer in setting fee).
The Code identifies the principal factors to be considered in determining the reasonableness of a fee. Those that may be relevant in the context of a blended hourly rate are “[t]he time and labor required, the novelty and difficulty of the questions involved and the skill requisite to perform the legal service properly, . . . [t]he fee customarily charged in the locality for similar legal services, . . . [t]he amount involved and the results obtained, . . . and [t]he experience, reputation and ability of the lawyer or lawyers performing the services.” DR 2-106(B)(1), (3), (4) & (7).
The reasonableness of a particular fee may also depend on the understanding of, and the relationship between, the lawyer and the client. We believe that the following advice is particularly relevant when the fee to be charged is based on a blended hourly rate:
As soon as feasible after a lawyer has been employed, it is desirable that a clear agreement be reached with the client as to the basis of the fee charges to be made. Such a course will not only prevent later misunderstanding but will also work for good relations between the lawyer and the client. It is usually beneficial to reduce to writing the understanding of the parties regarding the fee . . . . A lawyer should be mindful that many persons who desire to employ a lawyer may have had little or no experience with fee charges of lawyers, and for this reason lawyers should explain fully to such person the reasons for the particular. fee arrangement proposed.
In some situations, the pattern of cost may be clear. For example, in some litigated matters in the discovery stage, the rates of the lawyers involved will ordinarily be below the blended rate, with higher rates applicable to lawyers involved in the later hearing or trial stage. If settlement results, the blended rate will favor the lawyer. However, pretrial settlement does not ordinarily indicate an unreasonable blended hourly rate fee, but rather a fee resulting from the bargain of informed parties. In situations in which a predictable pattern may result in a blended fee result adverse to the client, disclosure is required prior to entrance into the fee arrangement.
Because the propriety of legal fees is primarily a factual question, this Committee will generally not opine as to the reasonableness of a particular legal fee. Assuming, however, that the client, prior to the representation, consented to the arrangement after full disclosure, and that the fee is otherwise reasonable, we believe that it is not improper for a lawyer to charge a legal fee based on a blended hourly rate.
It is obvious that the aggregate of the blended hourly rate charges and the aggregate of the hourly charges usual for the firm will be different.
The client in the situation described seeks a reduction in fees solely because the blended hourly rate agreed upon results in a fee which exceeds what would have been the aggregate amount of time charges for those involved in the absence of the blended rate. The question then arises whether a blended fee arrangement must necessarily be a “reduced rate” arrangement.
There is nothing inherent in a blended hourly rate fee agreement which requires that the blended rate result in a fee which is lower than the usual rate. Beginning with a usual fee standard, a blended hourly rate fee agreement allocates any excess over the usual charges to the lawyer and allocates any deficit from the usual charges to the client. The parties might have negotiated an arrangement which gave the client the lower of the blended or usual rate. They did not do so in this case.
We conclude that if the client, prior to the representation, agreed to pay based on a blended hourly rate and the fees charged are otherwise reasonable, a blended rate fee agreement does not require the return of charges in excess of usual rates.
March 11, 1993