General Practice, Solo & Small Firm DivisionBest of ABA Sections
William J. Wernz
In the life of a law firm, fees and principles often collide. The overriding issues are: What losses do lawyers suffer by not heeding the ethics of their profession in their fee practices, and how can they avoid these losses?
You need pragmatic answers to these questions, but pragmatism is not enough. Start first with principles. As a profession, we are engaged in serving clients. When we talk about ethics, we must recall the underlying principles. Too often, discussion of legal ethics is merely talk about refined applications of the Rules of Professional Conduct—discourse about trade regulations dressed up in Sunday clothes.
The Rules alone are not a sufficient guide to full professionalism. They state minimum standards to avoid discipline. Any discussion of losses from unprofessional or imprudent attorney fee practices requires analysis of the Rules, the law of malpractice, and the growing web of law on attorneys’ fees. Also to be considered, at every turn, is whether a particular fee practice costs us most dearly, in loss of our own professionalism and the public’s estimation of us.
Professionalism aside, lawyers suffer losses measured in money from unwise and improper fee practices. Losses also are incurred in lawyer time, reputation, and even livelihood when improper fee practices become the subject of civil litigation and of disciplinary proceedings. Good judgment and adherence to basic principles are essential to a healthy practice of law, but they are no longer sufficient. We lawyers work in an increasingly regulated and litigious environment, and we need to take account of the growing body of law on attorneys’ fees.
The basic requirements are simple: fees must be reasonable and legal. Some fees are subject to a tribunal’s approval or otherwise specifically regulated. Within this broad universe, attorneys and clients may agree on fees that are hourly, contingent, mixed, based on units of work or rates blended among members of the firm, fixed, periodic, or calculated in any other fashion that is reasonable.
The most important way to avoid losses of all sorts, including lost fees, is to do good work for good clients. Dishonest, cantankerous, or irresponsible clients will not be handled effectively through good law office management techniques or compliance with professional rules. Of course, some good clients cannot afford legal fees or can afford only reduced fees. They should be identified as such and they should still receive professional services. Pro bono work should be viewed as a professional gain, rather than a monetary loss.
Check the pedigree and probity of prospective clients—this step is crucial to avoiding losses.
Learning whether the client has been dissatisfied with others’ legal services is important. Consult public and third-party resources to learn about judgments, credit histories, newspaper articles, and the like before entering into substantial engagements, and before deciding whether you need a retainer fee or other security for a representation.
Retainers come in several varieties. Retainers may be for "availability" for a case or for a period of time. Such fees must be reasonable in amount and must be clearly denominated for availability rather than for particular services. There are "evergreen" retainers, a fixed amount maintained in the trust account during the representation, to be drawn on only if there is a delinquency in regularly billed fee payments.
Retainers are most commonly advances against unearned fees, and must be deposited in a trust account and withdrawn only as they are earned. State ethics agencies increasingly regulate trust accounts and the handling of retainers; the lawyer who does not have appropriate accounting systems and controls for handling retainers risks the substantial loss of reputation and licensure for improper trust account practices. The client is also at risk: a lawyer may spend an unearned retainer, or have it attached from a nontrust account by a creditor, leaving the client with lost fees and no services.
Recognize that there is an inherent conflict between attorney and client in setting fees. Reasonable fees, good work, and good clients often mute this conflict. There is often no perceived tension. Nonetheless, the conflict is there, and it can become acute, whether the fee is contingent, hourly, or on some other basis.
Too many lawyers are prudes when the time comes to discuss fees with clients. We are afraid that raising the issue will seem too forward to a reluctant client. But ABA Model Rule 1.5(b) requires communication about fees at the outset of a representation, at least where the client is not regularly represented by the lawyer.
Most states require written fee agreements for contingent fees under Rule 1.5(c). Only a few states mandate written retainer agreements for other representations, and then usually for only new clients. The engagement letter will serve many loss-prevention purposes. There are several subjects that the letter would normally cover: (1) identification of who is the client—including the capacity in which a client is represented—and who is not the client, including clarification of the status of any represented party other than the one paying the fees; (2) description of the work to be done, including any limits on the representation (through trial but not appeal); (3) the fee basis; (4) costs and service charges, including indirect costs; (5) billing and payment arrangements, including retainers, security for payment, and billing cycles; and (6) provisions on withdrawal of the representation consistent with Rule 1.16.
When you consider whether to terminate a representation you face several ethics and loss issues. On what grounds may the lawyer withdraw? What withdrawal procedures must be followed? Could the present dilemma have been avoided? The answers are both practical and principled. Before answering these questions directly, two planning issues should be considered.
Let’s assume the good news that a tribunal’s permission is not needed for withdrawal, and the bad news that no prospective contractual waiver was obtained. What grounds, if any, must the lawyer have for withdrawing? Model Rule 1.16(b) is permissive: a lawyer may withdraw for any reason, or for no reason, "if withdrawal can be accomplished without material adverse effect on the interests of the client."
We have discussed whether you may withdraw from a case. If you may withdraw, how do you go about it? Consider the time and manner of withdrawal. The sudden, courthouse-steps withdrawal violates Rule 1.16(d), which requires giving "reasonable notice to the client" and taking steps to mitigate prejudice. Give fair notice to the client before key litigation dates of intent to withdraw if specified payments are not made by definite dates. Failure to give timely notice can put you and your client in the unhappy situation of choosing between a last-minute withdrawal, which may prejudice the client and result in attorney discipline, and your unwillingly having to provide free services.
A lawyer engaging in clear serious violation of duty to a client may forfeit some or all of the lawyer’s compensation for the matter. In determining whether and to what extent forfeiture is appropriate, relevant considerations include the extent of the violation, its willfulness, any threatened or actual harm to the client, and the adequacy of other remedies. Restatement of the Law Governing Lawyers: Tent. Draft No. 4 (1991) § 49.
Through fault or through circumstance, we lawyers regularly confront fee issues with ethics and loss dimensions. Pragmatic judgments, governed by knowledge of intricate regulations, are required to address these issues rightly and well. A healthy realism is also required—one that does not pretend that fees are unimportant to lawyers, but also recognizes the professional losses that can far exceed the fees themselves.
William J. Wernz is a partner at Dorsey & Whitney, L.L.P., in Minneapolis, Minnesota.
This article is an abridged and edited version of one that originally appeared in Litigation, Summer 1996 (22:4).