The Supreme Court has stated that a reasonable hourly rate is generally equated to the prevailing market rate for attorneys providing comparable services. The fact that a client is willing to pay rates in excess of market rates does not necessarily make the higher rates reasonable or appropriate, particularly where the charges will be passed on to third parties who may have a contractual obligation to indemnify. As the 1st Circuit has stated:
A law firm’s customary schedule of charges, though entitled to consideration, is not dispositive of the issue; a private client might be willing to buy a Stradivarius when a Guadagnini would plainly do, or to pay top dollar for either when the same instrument could be purchased less expensively elsewhere. The court must, therefore, turn a realistic eye on the proffered pricing, endeavoring to fashion rates ‘adequate to attract competent counsel but which do not produce windfalls to attorneys.’ U.S. v. Metropolitan District Commission, 847 F.2d 12, 17 (1st Cir. 1988).
Before hiring outside counsel, is important to negotiate “reasonable” billing rates in order to contain legal costs and fees. There are some credible resources to reference when determining what constitutes a reasonable billing rate in particular circumstances.
For example, an attempt can be made to evaluate the reasonableness of the billing rates by using billing rate surveys and reviewing billing rates charged by attorneys providing similar legal services in the relevant geographical location. Different surveys are available, including some that may be free, depending on your budget. For example, ALM Legal Intelligence publishes both the “Law Firm Billing Rates and Practices” and “Survey of Law Firm Economics.” Both are comprehensive national surveys of law firms which analyze hourly rates from all regions of the country for specialties and time in practice. There are many other reputable billing rate surveys and many are listed in “The LexisNexis Zimmerman’s Research Guide” online. There are also other sources to reference for information:
- "Law Firm Billing Rates and Practices" and “Survey of Law Firm Economics” by ALM Legal Intelligence
- “Real Rate Report” by CT TyMetrix
- The Laffey Matrix
- “Law Firm Billing Survey” by The National Law Journal
- “Report of the Economic Survey” by the American Intellectual Property Law Association (AIPLA)
- News articles with survey excerpts
- State rate surveys, such as the Oregon State Bar Hourly Rate Survey
Before using a billing rate survey in-house counsel should first review the background and profile of each proposed attorney timekeeper by reviewing the biographical information on the law firm’s website. Counsel should note the date of bar admission, number of years of practice and the specialties listed in a lawyer’s profile. Counsel should compare the actual hourly rates that outside counsel’s attornesy charge against the rates noted in legal surveys. Be sure to check survey rates listed for the same state, practice area and number of years in practice as the attorney whose fees you are reviewing.
Depending on the survey used, it may be possible to compare the billing rate for each timekeeper to the “average,” “median” and “ninth decile” rates reflected on the survey for each year for each of these categories. We often analyze the general rates for a state such as California and may find it necessary to compare these rates to another state as well. Particular surveys may even list rates for cities and metropolitan regions. We may then evaluate the attorney’s billing rate in several other ways. We may look at the specialty rates listed in the billing survey for partners specializing in a field such as intellectual property law to determine what an average rate is for partners with similar experience. We may also look at the billing rates listed for another specialty area such as insurance defense law.
Using this information, we can corroborate a range of hourly billing rates. We can also compile the average hourly rates published in other specific surveys. By reviewing the comparable rates for lawyers with similar experience practicing in similar specialties, it may be possible to evaluate a proper adjusted billing rate. Sometimes when determining whether attorneys’ fees are reasonable, we find it can be instructive to consider multiple billing rate data points from a variety of jurisdictions.
An attorney’s reasonable hourly rate is generally equated to the prevailing market rate for attorneys providing comparable services. By using numerous the resources available, it is possible to review the billing rates of individual lawyers in a particular matter and determine what a reasonable billing rate may be. In addition, in-house counsel should factor in the backgrounds of individual lawyers and the nature of the work performed before assigning the lawyer an adjusted billing rate that is appropriate based on the nature of her practice and the length of experience in comparison to lawyers providing similar services.
Sometimes this information can be used to negotiate a reasonable billing rate prior to legal work being performed. In other circumstances, determining a reasonable billing rate may assist in reviewing the legal fees for reasonableness.