How Should We Pay Our Lawyer?

Small Businesses, especially those that don't qualify for sexy grants, loans or venture capital money, fight a constant battle in their infancy to keep their heads above water in the short term, even if they have a long-term business plan that is profitable. These businesses are the mom-and-pop stores, the bars, the restaurants, the artisans, the contractors and subcontractors, and the low-cost Internet companies that you see surrounding the Pittsburgh area. They struggle first to pay employees, rent, and overhead, and, if the cash flow runs dry after these costs are paid, they too often cannot afford necessary legal services.

Your small business can avoid this problem by working with attorneys to find mutually beneficial, creative means of compensation that you can structure so that you can afford the legal services that you need. Attorneys do not need to work on an hourly basis -- and if you don't think you can afford monthly invoices (or the retainer that an attorney requires for hourly work), then I suggest that you work with a willing attorney to explore the following options.

Consider Compensating Your Attorney with Equity in the Company:

Although it may be a difficult sell, it can't hurt to see if your attorney is willing to work for equity in your business (assuming, of course, that you are willing to give up a slice of your equity). This may be a difficult sell for two reasons. First, in regard to an attorney's reluctance to accept equity, an attorney may think that your business plan is too risky for her to consider equity in lieu of hourly compensation. With a well-presented business plan, you may be able to convince her otherwise.

An attorney may also be reluctant to accept equity for a more subtle reason: Any attorney ought to recognize that she will immediately assume a potential conflict of interest by accepting equity as compensation (i.e. the lawyer's ability to give prudent legal advice may be compromised by her personal stake in the company as a shareholder and her desire to be compensated as such). This conflict is curable -- indeed it would be up to you the shareholders to cure the conflict by waiving it -- but some attorneys may still be uncomfortable at the prospect of the conflict, no matter how vigorously you contend that you are willing to waive it.

You also ought to consider whether you are comfortable with such a conflict and, moreover, whether you are comfortable with giving a slice of equity away to anyone. However, if you are looking for immediate (and competent) legal advice at the company's outset, but you have no means to afford it, this may be the best way of attaining it.

Flat Fees:

Flat fees may not actually save your company much money over paying an attorney on an hourly basis (attorneys will likely set a flat fee for the scope of their work based on their experience in handling a matter on an hourly basis), but it will allow you to plan your budget much more easily. A lot of attorneys purposefully obfuscate the number of hours they estimate they will put into a legal matter, as they don't want to mislead you or be held to any number should a time-consuming problem arise. Requesting a flat fee will hold them to the fee that they quote you and will allow your business to budget for the legal work that will be done. Also, paying upfront as opposed to paying on an hourly basis won't affect your time value of money, as most attorneys will require a retainer that they hold in trust for hourly work anyways (so the money you paid at the outset of a matter for flat fee representation wouldn't be collecting interest for you during the course of your representation had you elected to pay an hourly rate invoiced monthly). Flat Fees are ideal for relatively simple matters like entity creation, simple contract drafting, and simple litigation (litigation matters where the money at stake is under the compulsory arbitration limit in Allegheny County of $25,000).

Find an Attorney Who Will Take a Collection Matter on a Contingency Basis:

Contingency fees are not exclusive to personal injury cases. If your business needs to litigate an unpaid contract and you are having liquidity problems, ask if your attorney will take your collection case on a contingency fee basis. You may be able to negotiate a graded fee that will allow you to pay her less if she is able to reach a quick settlement or more if she must file a law suit. Contingency fees generally allow your company to avoid attorneys fees and the costs of litigation until you successfully recover the debt or the amount in dispute.


There may be even more ways to structure your lawyer's compensation so that you can avoid an hourly rate that your company can't afford (including some hybrids of the above mentioned fee agreements). Each company has a unique situation. Explain yours to your attorney and work together to find an affordable solution to legal problems.

Peter Kurzweg, Esq.

Carefully Drafted Contracts Avoid Lawsuits (and usually win them when they don't)

Along with representing my clients in the Pittsburgh area, my legal services occasionally include the opportunity to serve as an arbitrator on various arbitration panels in the Pittsburgh area. For those of you who are not familiar with arbitration, the general premise is that three impartial lawyers sit on a panel, playing both judge and jury, and decide a legal dispute.

While many lawyers dread serving on a panel, I've always enjoyed the opportunity to "play judge" as an arbitrator because it provides me with the chance to observe litigation from a unique angle for many attorneys: that of the fact finder.

The majority of cases that I've arbitrated to date are contract disputes between two small businesses or between a service business and a consumer. And I'm always terrified to see how many small businesses are doing business with horrifically drafted contracts or (suprisingly often) no written contract at all. These cases are almost always the ones that make it to trial or arbitration as opposed to settling, because neither party really knows where they stand legally pursuant to the contract, and neither party wants to concede its position. In cases like these, many times the arbitrators are left to decide the case on a "he-said-she-said" credibility determination or, worse yet, on a "what does 'is' mean" analysis, where the contract is so terribly ambiguous that we can do nothing more than guess as to the intended meaning of terms. These cases are essentially coin flips for the litigants, where, unable to form an opinion on a more rational basis, the arbitrators' moods or personal opinions will come into play.

And while someone will win the coin flip, there are no winners in this type of litigation. Both parties will have incurred legal bills that they would have rather avoided. Both parties will have dealt with the uncertainty in their accounts books for the duration of the litigation. And the companies' employees' time will have been wasted at depositions, trials, or arbitration hearings.

Contract litigation does not NEED to be an inevitable cost of doing business. Instead, it can be avoided by carefully drafted contracts that reflect the parties negotations and a mutual understanding of the terms settled upon during these negotiations.

The next time your business, no matter how small, needs to enter into a contract, HIRE A LAWYER TO DRAFT THE CONTRACT! Consider these points:

* Lawyers know what questions to ask and what outcomes should be considered. They understand what protections the law provides each party and know how to draft the contract to provide or waive these protections.

* It will cost you less in the long term to hire a lawyer to draft your contract! A lawyer will generally bill disproportionately fewer hours in drafting a contract than he will in litigating a dispute arising from it. And, when the parties KNOW concretely what happens pursuant to a contract when certain conditions occur, then they are exponentially less likely to sue one another when a certain condition occurs. They can read the contract and, when it was well drafted, they each know where they stand in relation to one another.

* Lawyers have drafted contracts in the past and they probably can draft this one quickly based on that experience. Not only does this mean that they won't bill you nearly as many hours as you may expect (i.e. it's cheaper than you'd expect), it also means that they will take far less time than you will in attempting to draft your contract. Focus your time and attention on what you do best, managing a business. Allow your lawyer to do your legal work.

* Allow lawyers to take the blame in negotiations! Many small or family businesses are too concerned that they will look "untrustworthy" or "aggressive" if they ask for a written contract. This is CRAZY! Contracts PROTECT relationships; they don't destroy them. Everyone should be on the same page in any business deal. And, if you feel uncomfortable asking for a specific provision, allow your lawyer to negotiate for it. Your customer or vendor can blame your request on your evil lawyer, and won't think any less of you for it.

As always, if you or your Pittsburgh business has a legal question regarding contracts, don't hesitate to contact me for a free consultation. (412) 246-2023

Peter H. Kurzweg, Esq.