ERISA and the Art of Lawyer Maintenance

An overwhelming majority of ERISA litigation occurs over disability benefits. Predictably, most disability claimants are financially strapped, have been out of work for some time and, at least in their own minds, have little (or no) prospect of returning to work anytime soon. How can people in such dire circumstances afford to hire a lawyer?

Good question. The answer – and there is not always a good one – requires an understanding of how single-task lawyers are paid, in general. Once you understand that, you will be better-equipped to determine how to best approach a prospective lawyer for help asserting your ERISA claim and to strike a bargain that will be acceptable to each of you. It boils down to a balancing of the case’s value, its strength and the relative risk tolerance(s) of the client and the lawyer.

While there are variations, there are three basic fee arrangements that can be made with lawyers undertaking the singular task of pursuing an ERISA claim: flat fees, hourly fees and contingency fees. These are easily stated and easily understood, but the true difference between them, a more elusive concept, should be noted: they are different ways of sharing, or allocating, the risks and expenses of litigation.

If you participate in an ERISA-governed disability plan and become disabled (or believe you have become disabled), you have a legal claim. If you assert that claim and the plan approves it, great. You won’t have to think about hiring a lawyer. But if the plan denies your claim – or if it initially allows it but subsequently denies it and terminate benefit payments - you will have to consider hiring a lawyer. This is so because while your claim may still have value, you don’t likely have the expertise necessary to realize that value. Think of your claim as a tool that you don’t know how to use. To harness the value of the tool, you need to hire someone who does know how to use it. That person will have to be paid.

You can hire a lawyer on an hourly arrangement. Easily understood: the lawyer goes to work on your ERISA case and keeps track of his/her time. Monthly, he/she sends you a bill that itemizes the time spent and any expenses incurred, and you pay the bill. If you don’t, you will probably find yourself without a lawyer very quickly. Lawyers can’t, and don’t, work for clients that don’t abide by the attorney/client contract. At least, not the most careful and diligent lawyers.

I probably don’t need to tell you that lawyers are very expensive. I routinely read ERISA cases where a party is asking the court to award attorneys fees. I look at the motions closely. They have timesheets attached. Depending on the area of the country in which the claim was asserted, and the level of expertise of the lawyer(s) involved, fees range from a low of $250.00 per hour up to $750.00 per hour. I’m sure many lawyers command even more – I just haven’t seen any motions asking for more. At these rates, the price of poker goes very high, very quickly.

It is critical that you note, too, that in an hourly arrangement, the lawyer takes no risk at all. He or she will be paid regardless of whether you win or whether you lose. If outright victory is achieved quickly, you get everything you want and the lawyer makes a very modest fee. If the claim turns into a hotly and extensively litigated nightmare, taking years to end, and you lose, the lawyer still gets paid – a lot, as there was a lot of time and effort expended – but you get nothing. All of the litigation expense, and risk, is on you, the client. The lawyer bears none.

Most disabled people simply don’t have the resources to hire a lawyer on these terms. Also, even if the client doesn’t know at the outset what sort of fees will ultimately be incurred, the lawyer usually does, and is unlikely to take a case on an hourly basis unless she is confident the client can pay. Most simply can’t.

Which is where the contingency fee comes in. These share the risks of litigation and allocate them between the client and the lawyer. It’s a partnership, of sorts, often described as “the poor man’s key to the courthouse door”. The client invests his asset (the claim) and the lawyer invests her assets (time and expertise) trying to realize the claim’s value. If she succeeds, the money is shared, like partners, between the client and the lawyer.

Looking more closely at contingency fees, we see that the client’s biggest risk is this: the lawyer may invest very little time but, nonetheless, reap a very large reward. Example: client is a highly compensated individual whose ERISA disability policy pays as much as $10,000.00 per month. She makes a claim. The plan denies it and refuses to pay anything. She fights for 4 years before finally throwing up her hands and consulting a lawyer. Setting aside future benefits, that means her claim might be worth as much as $480,000.00 at that moment. She hires the lawyer on a 40% contingency, meaning that he will get that much of whatever he recovers for her. The same day he is retained, he writes a letter to the plan and explains why it’s denial of the claim was wrong. Reading this letter, the plan has an immediate epiphany and collapses like a cheap bra. It sends a check for $480,000.00. That lawyer, with one letter, has just earned $192,000.00. Not bad work, if you can get it. This will “hit” the client when the lawyer calls to report the good news. You can hear it now: “WHAT? You get to keep $192,000 for writing one letter? That’s not fair!” Well, actually, it is – because that’s what the lawyer is entitled to under the terms of the attorney/client contract. This is the client’s contingency risk, at the extreme.

The lawyer’s risk is at the opposite end of the spectrum. He may invest hundreds, even thousands of hours of time and thousands in expenses, and come away with nothing. Take the same example, but assume the plan digs in its heels and hires a large, nationally prominent law firm to defend against the claim. It takes years to wend its way through the legal system and ultimately, the claim fails, producing nothing. Since the client has paid nothing to wage this war, at least no more than she had already paid when she first walked into the lawyer’s office, she is no worse off in the end than she was at the start, but she has received the benefit of the claim being asserted as well as it possibly could. But the lawyer? She’s out hundreds, perhaps thousands of hours – at, say, $500 each – plus expenses, and has nothing to show for it. Zip, zilch, zero, nada. This is the lawyer’s contingency risk.

Of course, most cases resolve somewhere in the middle of this spread, which accounts, in part, for the contingency fee’s ongoing vitality.

The middle ground between hourly and contingency arrangements is the flat fee contract. This is how most medical care providers are paid – fee for service. The lawyer commits to perform a pre-defined service for a fixed fee, usually payable up front. Once that fee is paid, the lawyer gets to work and continues working until the service is fully performed. The outcome does not affect his/her right to payment. Nor does the amount of time he/she expends result in any increase or decrease in the fee. It’s fixed at a predetermined amount and does not vary with result or actual time expended.

Now, in my experience, few lawyers are fools. Jerks, maybe, but not fools. If they look at a case and see little prospect for success, it is very unlikely that they will accept it on a contingency basis. So, if a lawyer says “Gee, I really like your case, but can’t take it on a contingency”, what has she told you, really? She’s told you that she really doesn’t like your case and is unwilling to invest her time, or her treasure, in what she sees as a futile enterprise. But, if you have the money and are willing to shoulder 100% of the risk, you may be able to hire her on an hourly basis.

I’ve handled hundreds of ERISA claims. While evaluating them is always tricky, I have a distinct advantage in that area over a prospective client. How I am willing to take a case says as much (or more) about my evaluation than anything I might say about it. That is not to suggest I am deceitful with prospective clients. I’m not, and I think that most of my fellow-ERISA practitioners are equally candid. I’m saying this: prospective clients almost always ask “What do you think my chances are of winning, in percentage terms?” If I respond “30%”, they often reason that a 30% chance at winning, while dim, is better than the 0% chance of winning if the claim is abandoned. So they’ll want to hire me. But if I cut to the chase and respond to that question by saying “I really don’t want to put a number on it, but I will tell you that I decline to represent you on a contingency fee basis”, things take a different turn. Keep that in mind when you go to hire a lawyer.

I should note that there is another common reason lawyers have for not undertaking a case on a contingency basis, unrelated to its strength – the claim simply isn’t worth enough money. If monthly benefits are small, say, $350, and 6 months are in dispute, the claim is $2,100.00. The procedures for pursuing it, and the usual issues, though, are just like cases over much larger amounts. How much do you want to risk to get that amount in hourly fee arrangement? How much time do you think a lawyer will be willing to risk in a contingency arrangement?In short, sometimes, the economics simply don’t justify a complicated administrative appeal or lawsuit.

Finally, you ask, if you win your case, won’t the plan have to pay your attorney’s fees? Well, maybe. It won’t have to if you prevail at any stage short of litigation (a much desired outcome), and if you win at that stage, attorney’s fees may be awarded, but they don’t have to be. The judge may see fit to make the plan pay your fees, or he may decline to do that. It’s a bit of a crapshoot. Think carefully before counting on a judicial award of fees.