Form of Fee Agreement
Contingency Agreements
Lawyer’s basis for the fee must be disclosed:
- Before commencing representation OR
- Within a reasonable time after commencing a representation.
General Rule—A fee agreement does NOT have to be in writing.
- Just need to be communicated
- Exception—CONTINGENCY AGREEMENTS
CONTINGENCY Agreements must be in WRITING and SIGNED by CLIENT and include the following:
- (1) the calculation methodology of the fee,
- (2) the expenses for which the client will be responsible, and
- (3) details of the calculation for deductions for expenses, including whether such expenses are to be deducted BEFORE or AFTER the fee is calculated.
Other Requirements
- Reasonable under circumstances
- At conclusion of matter, written statement showing outcome & method of determining client’s portion of recovery
PROHIBITED Contingency Cases
- Criminal cases
- Domestic relations cases when fee is contingent on obtaining of divorce or on amount of support recovered (enforcement allowed)
“Reasonableness” Requirement
Fees must be REASONABLE
- reasonableness trumps any contract.
- “Lodestar Test”—four factors (below) to determine the REASONABLENESS of rates
1) TIME—explain the fee up front, it cannot be changed afterward.
2) NOVELTY—New issue to you? may not be reasonable. New issue to everyone? It might be reasonable to charge a little more.
3) Amount in Controversy—More RISK = More FEES
4) Precluding Employment—E.g., paying a lawyer to conflict out a superstar lawyer
Retainers
Advance Payment of Legal Services vs. Retainer
- Advance Payment – Payment for legal services before lawyer renders services; Client’s Property Until Earned by Lawyer. Lawyer must return any unearned fees when representation ends
- Retainer – Money paid solely to ensure lawyer’s availability to represent client; Lawyer’s property once paid
Basic rule—the lawyer must keep the client’s money SEPERATE
- All UNEARNED legal fees must be placed in an escrow or trust account and unearned fees must be returned.
- All costs advanced to the lawyer must also be placed in escrow.
- Accounts of the lawyer and clients must be kept seperate
Interests in client as a fee
The lawyer takes something from the client instead of a fee.
- Example: Rather than taking a cash payment, Larry Lawyer takes stock from his corporate client.
- Example: To secure payment of a cash fee, Lorraine Lawyer takes a mortgage on the client’s property.
- Interest in a client can create a conflict of interest
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Business transactions with clients / acquisitions of an OWNERSHIP or SECURITY INTEREST in CLIENT’S PROPERTY REQUIREMENTS:
- Terms must be in WRITING
- Terms must be FAIR and REASONABLE
- Attorney must ADVISE the client, IN WRITING, of the prudence of hiring independent counsel to review the agreement
- Client must give CONSENT, in writing, signed by the client
Fee Splitting
Within SAME law firm
- Lawyers must enter into agreement to share fees (eg, partnership agreement, employment agreement)
- Total fee must be reasonable
With DIFFERENT law firm
- Shares must be PROPORTIONAL to services performed by each lawyer — OR — EACH lawyer must assume JOINT RESPONSIBILITY for representation
- Client must agree to arrangement, including each lawyer’s share, & confirm agreement in WRITING and
- Total fee must be reasonable
Referring attorney —may receive a portion of the fee, so long as:
- The overall fee is fair to the client;
- The fee-sharing arrangement is disclosed to the client; and
- The referring lawyer provides actual services or joint representation
With non-lawyers—Never
- legal fees can be shared among LAWYERS ONLY
Modification of Fee Agreement
1) A modified fee agreement can be enforced only if the modified agreement is REASONABLE.
UNREASONABLE
Basic Nature / Significant Increase
- UNLESS there has been an unanticipated change in circumstances AND
- modified contract is fair and reasonable to the client.
Modification beyond a reasonable time after the beginning of the representation
- UNLESS modified contract is fair and reasonable to the client.
2) Also must be PROPOSED or ACCEPTED by the client
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Modification not supported by Consideration
- nevertheless enforceable when there are unforeseen difficulties that would make performance impracticable
Refferal Fees
A lawyer is generally PROHIBITED from giving anything of value in exchange for a referral recommending the lawyer’s services.
- But a lawyer is NOT prohibited from charging a potential client a fee to refer the potential client to another lawyer, so long as the referral fee is REASONABLE.
Provision of law-related services is not distinct from legal services
Provision of law-related services is not distinct from legal services
A lawyer is subject to the Model Rules with respect to the provision of law-related services, if such services are provided by the lawyer in circumstances that are not distinct from the lawyer’s provision of legal services to clients. MRPC 5.7(a)(1).
Example: An attorney assists a client with drafting a will and also provides financial planning advice as part of his estate planning services. The attorney is subject to the Model Rules with regard to both his legal services in drafting the will and his provision of law-related financial planning services.
