Types of fee arrangements
(1) Flat fee
(2) Hourly rate fee
(3) Proportional fee
(4) Contingent fee
M.R. 1.5(a) - Multi-factor test for fees
Fees shall not be “unreasonable”
The factors in determining the reasonableness of a fee include:
(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and
(8) whether the fee is fixed or contingent.
Disputes and arbitration
Engagement letters may contain fee arbitration clauses
- Clients may opt out
- Enforceability of clauses is based on “informed consent” of the client
California requires lawyers to arbitrate if the client asks for it
Illegal fees - Fraudulent fees
Padding
- Rounding up
Double-billing
- Can’t bill 2 clients for the same moment in time
- EX: Can’t bill a client for travel time on a plane, and then work on another client’s matter while on the plane
Churning
- Doing unnecessary work
Illegal fees - other forms
Exceeding statutory limits on fees
- e.g., court-appointed criminal defense counsel; Federal Tort Claims Act
Fees collected for illegal purposes
- e.g., collecting fees to pay a bribe
Fees from proceeds of criminal activities
Contingent fees
Right to the fee based on agreed-upon possible outcomes
- Can be a percentage of recovery or a set amount
- May not be used in divorce or criminal defense cases
Requirements:
- Must be reasonable
- Must be agreed to by the client in writing
- Writing must show how expenses will be handled
- A lawyer must provide a written statement at the end of the matter
Handling client property
Must keep the property/money of the client or third party separate from the lawyer’s own property/money
- Must keep complete and accurate records of the client’s money
- Use the client trust account for advanced fees, receipt of settlements, and other related transactions
- Lawyers can make withdrawals only for fees incurred
- When receiving funds or other property on behalf of a client, the lawyer must promptly notify the client and then promptly deliver funds to which the client is entitled
Separate accounts
- Firm’s main account –> operating account (used for the lawyer’s money from the fees they charge)
- client trust account –> Used for the client’s money
Retainers - special retainer
Essentially a deposit
- Advance payment for work to be performed
- Remains the property of the client until fees are actually incurred (i.e., until the client does the work)
- Anything that is left in the client trust account that wasn’t used gets refunded to the client
Retainers - special retainer - evergreen retained
A type of retainer where a client must maintain a minimum balance in a trust account for ongoing legal services
- The law firm withdraws funds from this account to pay for services as they are performed
- When the balance drops below a predetermined threshold, the client is required to replenish it
Retainer - general retainer
An advance payment that is “earned” when received, even if the client does not end up using the lawyer for actual work
- Entitles the client access to the lawyer, but the lawyer isn’t technically doing anything for them
Put it directly in the operating account
- If you put it in the client trust account, then it’s commingling
- Non-refundable (needs to be clear in the engagement letter)
