Review of the ABA’s Jurisdictional Rules Comparison Chart, current as of December 11, 2018, shows that a substantial majority of states follow the guidance of the Model Rules and have adopted the “preferably in writing” approach to fee agreements.
At least two states (Tennessee and Washington) do not require fee agreements to be in writing. Instead, those states indirectly encourage lawyers to put their fee agreements in writing by identifying the presence or absence of a written fee agreement as one of the factors that determines whether a fee is reasonable under Rule 1.5(a).
And there are other variations in the states’ adoption of Rule 1.5, some of particular note for family law practitioners. For example, New York’s Rule 1.5(b) directs that fee agreements “shall be in writing where required by statute or court rule”; New York’s substantive law requires a written fee agreement in all domestic relations matters, and the agreement must include much more than what Rule 1.5 requires the lawyer to communicate to the client at the beginning of the representation. In addition, New York’s Rule 1.5(d)(1) provides that a lawyer may not collect “any fee in a domestic relations matter” if, among other things, there is no written fee agreement signed by the lawyer and the client. Hawaii’s Rule 1.5 does not require that hourly fee agreements be in writing. But if the lawyer wants to charge a flat fee, the agreement must be in writing, signed by the lawyer and the client, and the writing must include a specific set of notices. And only one state (Connecticut) incorporates into its version of Rule 1.5 express provisions governing limited appearance engagement agreements.
Given these wide variations in the ethical rules governing the documentation of fee agreements, all lawyers are well-advised to carefully review the version of Rule 1.5 that governs family law practice in your jurisdiction.
But even if the Rules of Professional Conduct (RPC) for your jurisdiction do not require it, having a written fee agreement for every representation is a best practice. A well-constructed engagement letter—that is, one that includes, among other things, a clear description of the scope of the representation—is one of the best tools for managing client expectations. And if a dispute with a client arises at some later point, the written engagement letter may mean the difference between summary judgment and a triable issue of fact, or between dismissal of a grievance complaint and a finding of misconduct. Having the fee agreement in writing establishes what actually happened at the beginning of the representation, rather than having to rely on memory or having to call a (former) client a liar.
Other Engagement Agreement Provisions to Consider
Beyond what Rule 1.5 requires—communication of the basis of the fee and the scope of the representation—your engagement agreement also should include provisions identifying exactly who is the client (especially important when a third party has agreed to pay your fee), what is not included in the representation (for example, “the representation will not include any appeals”), how frequently the client will be billed, and how deposit payments will be handled. The engagement agreement is also the place to address, and obtain consent to, any possible conflicts of interest (if consentable).
Some things have no place in engagement agreements. You should avoid superlatives and express promises of service such as “You may expect our firm to be both sensitive and professionally responsive to your situation” or “My firm will provide the highest quality representation based on our well-deserved reputation for creative and effective business solutions.” Express or implied promises may unreasonably raise the client’s expectations or risk putting your firm in the position of assuming a contractual obligation to perform services at a standard higher than the standard of ordinary care. Better to achieve the client’s trust and confidence through performance and personal interaction, not engagement agreement puffery.
Structuring the Fee and Advance Payments
The Rules of Professional Conduct prohibit charging or collecting a contingency fee in a dissolution matter, and most family law practitioners use traditional hourly billing. There are, however, variations in how the payment of the fee may be structured, and the engagement agreement should explain how the client will be billed and what the firm’s expectations are for payment. Law firms generally request that bills be paid monthly and may properly seek interest on the unpaid portion of a bill, provided that the engagement agreement identifies the rate of interest and when it will begin to accrue.
Flat Fees
Flat fees are permissible but are subject to certain constraints. All fee agreements are governed by the dictate that a lawyer may not charge or collect a fee that is unreasonable. As this assessment requires consideration of all the circumstances of the representation, viewed at the end of the representation, a large flat fee for a representation that turns out to be a limited one (the couple reconciles; the case settles without the expected trial) may require that the attorney refund some portion of the flat fee so that the overall fee is deemed reasonable.
On the flip side, a flat fee may turn out to be insufficiently commensurate with the amount of time the lawyer must devote to the matter. That will not, however, excuse the lawyer from his or her obligation of diligent representation. A flat fee will not excuse cutting corners, lack of communication with the client (a leading source of the kind of client dissatisfaction that leads to disciplinary complaints), inadequate discovery, or advising the client to settle in order to avoid the expense (for the lawyer) of trial.
Retainer Deposits
The fee agreement also should explain how advance payments will be handled. Advance payments may be structured as straight retainers, with fees deducted as they are earned, or as “evergreen” retainers, a deposit payment that the client must regularly replenish to keep at a certain level as fees and costs are paid. The fee agreement may indicate that failure to pay invoices when due or failure to replenish the evergreen retainer may be grounds for terminating the representation. But keep in mind that if the matter is in litigation, withdrawal will require permission from the tribunal. And it would be misleading to suggest otherwise in your engagement agreement.
In family matters, it will rarely be possible for an attorney to ethically characterize a deposit payment as nonrefundable. As one Professional Ethics Committee has opined: “[T]he concept of ‘nonrefundability’ is slippery as a watermelon seed.” Standing Comm. on Prof’l Ethics, Conn. Bar Ass’n, Informal Op. 00-12, “Nonrefundability” of Retainers (June 19, 2000) (disapproving “nonrefundable” fees in matrimonial matters).
The Rules of Professional Conduct do not use or address the term “nonrefundable.” All that the Rules require is that the fee be reasonable under all the circumstances. Accordingly, while there is no hard-and-fast Rule prohibiting a “nonrefundable” fee, the amount of such a fee may be deemed unreasonable if the lawyer ends up providing services with little or no value. A lawyer who charges and collects a fee under such circumstance’s risks being in violation of Rule 1.5. “If the services have not been rendered properly, calling the fee ‘nonrefundable’ will not protect the attorney from having to refund all or part of the fee.” Standing Comm. on Prof’l Ethics, Conn. Bar Ass’n, Informal Op. 04-11, Advance Payment of Legal Fees (Sept. 23, 2004).
Fee-Related Disclaimers
You should expressly advise the client in the fee letter that the deposit payment is not an estimate of the total fee, nor is it a cap on the fee to be charged. As a general rule, lawyers should resist giving a prediction of what the total fee will be. If you do provide an estimate, be careful to emphasize that given the uncertainties of litigation, and the many factors that are outside your control, the amount is an estimate, and only an estimate.
Securing the Client’s Payment Obligations
If you are taking a mortgage or other security interest in connection with a fee, be aware that this may trigger duties under RPC Rule 1.8(a), the provision that governs business transactions with a client. If in doubt about whether that provision applies, the safer route is to follow the prescriptions of Rule 1.8, which require that (1) the transaction be fair and the terms transmitted in writing, (2) the lawyer advise the client to seek independent legal advice about the transaction, and (3) the client give written and informed consent to the essential terms, which includes explanation of the lawyer’s role in the transaction and whether the lawyer is representing the client in the transaction.
Family practitioners should keep in mind that a number of states impose automatic or other orders in family relations matters, and such orders may prohibit or limit the client’s ability, during the proceeding, to grant a security interest in property that is potentially part of the marital estate.
It is not uncommon in family matters that a third party will pay or guarantee payment of the attorney fees. Pursuant to Rule 1.8(f), such third-party payment of fees is permissible, but only if (1) the client gives informed consent, (2) such payments do not interfere with the lawyer’s independent professional judgment or with the relationship with the client, and (3) the client’s confidential information remains protected by Rule 1.6.
If a third party agrees to pay or guarantee the fees, that should be recited in the engagement letter, which should be signed by the third party as well as the client. The engagement agreement should contain a provision expressly stating that the payor/guarantor is not the client; the payment arrangement does not create an attorney-client relationship with the payor/guarantor; and the lawyer’s duties, including the duty of confidentiality, are owed to the client, and only to the client.
Never Forget That a Retainer Deposit Is the Client’s Money
Advance payments from clients are considered property of the client until earned by the lawyer, and any unearned portion of the fee must be returned to the client at the end of the representation.
In nearly every jurisdiction, such funds must be held in a law firm’s trust account for client funds, but a handful of states have no such requirement in their Rules of Professional Conduct. Two states (Maryland and Connecticut) have the requirement but include a provision in their versions of Rule 1.15 permitting a lawyer and client to agree to deposit the funds elsewhere than in a client funds account.
Lawyers may not commingle client funds with their own funds and may not dip into or otherwise “borrow” client funds, even temporarily and even if the lawyer thinks no harm will come to the client. Lawyers and law firms must be able to account to clients (and sometimes to disciplinary authorities) for all expenditures of client funds. Intentional misuse of client funds usually will result in disbarment. Even negligent handling of client funds may lead to discipline.
Some Particulars About Timekeeping and Billing
Few lawyers enjoy the administrative task of filling out timesheets. But keeping up with recording your time is essential to ethical billing. It is the best way to ensure that your bills accurately and completely reflect the time you have devoted to the client matter. Failure to record your time accurately means that you are either (1) overcharging the client, which is, of course, unethical, or (2) depriving yourself and your firm of fees you have, in fact, earned. Simply put, there are no advantages to putting off recording your time until the next day or the next day or the next day.
Block billing (listing all the tasks under a single time entry) may be easier for the lawyer, but task billing (identifying the amount of time devoted to each task) gives the client a much better understanding of the services the lawyer has provided. Block billing is not prohibited. But where, as is common in family cases, the court is asked to make an award of fees, block billing may make it hard for a court to determine whether the fee charged for any given task is reasonable. If the block billing entries do not contain enough information to permit a court to determine whether the fees sought are reasonable, block billing may result in reduced award of attorney fees, or worse, denial of a fee award.
While your billing entries should be detailed enough to reflect the value provided to the client, they should not be so detailed that you risk inadvertently waiving attorney-client privilege. On the assumption that your invoices may someday be presented to a court, your billing entries should not disclose strategy, the content of attorney-client communications, or other information that should be maintained as confidential.
Bonus Fees: Probably Permissible So Long as They Aren’t Disguised Contingency Fees
As noted, contingency fees in family matters are generally prohibited under the Rules of Professional Conduct. But sometimes a divorce lawyer achieves a good result for a client and then wonders whether she may ask for or accept a success fee (sometimes called a bonus fee). The answer appears to be yes, but only to the extent that the success fee is not a contingency fee in disguise. In most states that have considered the issue, a success fee will not cross the line into impermissibility so long as it supplements a reasonable hourly fee, the amount is neither pegged to achieving any specific result nor calculated as a percentage of a favorable award in a divorce action, and is not a fixed amount unilaterally imposed on the client.
A lawyer who wants to preserve the option of asking for a success fee should include a provision in the engagement letter about it. The terms of any such provision should include advising the client that approval of both the payment and the amount of the additional fee will be for the client to decide after the case has concluded. And, as in every case in which a lawyer charges a fee, the total fee must be reasonable under all the circumstances.