Pop quiz: Those of you who have never had a fee dispute with a client, raise your hands. I’m waiting. How about those of you who haven’t had a fee dispute in the past year? I suspect I’ll see only a few hands.
Unfortunately, fee disputes can be routine for many lawyers, whether they charge a flat fee, or bill hourly or on a contingent basis. While often these disputes are resolved amicably, occasionally they are not, resulting in mediation, arbitration or litigation. A fee dispute can also have more serious consequences – namely, bar sanctions, including suspension and disbarment.
I was reminded of the potential for severe consequences when I recently saw a jarring headline in a legal periodical: “Attorney Disbarred for Charging Unreasonable Fees.” “Boy,” I thought, “talk about a wake-up call!” Given the issues at stake, I decided it would be worthwhile to take a refresher on when an allegedly inflated fee might lead to sanctions, and how to avoid them.
The analysis starts with Rule 1.5(a) of the ABA Model Rules of Professional Conduct, as adopted in your state, which provides that “a lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses.” The Rule then enumerates factors that determine the reasonableness of the fee, including the time and labor required; the difficulty of the questions involved; the skill required to perform the legal services properly; the customary fees in the community; the experience, reputation and ability of the lawyer performing the services; and so forth.
Like any violation of the Rules of Professional Conduct, a breach of Rule 1.5(a) exposes the violator to potential sanctions under the disciplinary rules of the subject jurisdiction. The standard of proof under Rule 18(c) of the ABA Model Rules for Lawyer Disciplinary Enforcement and in most, if not all, states, is “clear and convincing evidence.” The unanswered question that nagged at me was – when does alleged overbilling morph from a garden-variety disagreement between the lawyer and the client into a sanctionable offense?
A random survey of 19 judicial opinions in 11 jurisdictions disclosed several patterns. In no instance were sanctions imposed where the lawyer and client had a good-faith dispute over the fee’s reasonableness; there were no aggravating factors; the client understood and accepted the terms of the retention; and the fee appeared reasonable following the Rule 1.5(a) standards. Where the fee was unreasonable, however, even if the client understood the terms and there was no related misconduct by the lawyer, sanctions might be warranted, especially where counsel refused to compromise the fee when asked to do so.
For example, in In re Levingston, the Supreme Court of Louisiana held that probate counsel’s flat fee of 5% of the value of the decedent’s estate, worth more than $1.14 million, was unreasonable and sanctionable where no administration was required, and counsel’s duties were limited to placing the heirs in possession of the estate. Similarly, in In re Gerard, the Supreme Court of Illinois suspended an attorney who gave the client a choice – an hourly rate of $175 or a 1/3 contingent fee – for legal services to “recover” $450,000 in assets belonging to the client. The client chose the contingent fee, but her entitlement to the assets was never at issue, and the negligible work necessary to secure them was purely ministerial. Likewise, in In re Guste, where the lawyer charged the client the same hourly rate for legal services and personal chores, the Supreme Court of Louisiana found the fee unreasonable. It should be noted that in this context, scienter is not necessarily an element of fraud. That is, receipt of excessive funds, even without the element of intent, and with no aggravating factors, may constitute fraud.
In most cases surveyed, however, aggravating factors were present, including conversion, dishonesty, misrepresentation, perjury (at the disciplinary hearing), conflict of interest, misuse of funds, promotion of frivolous litigation (to enhance fees), failure to follow client’s instructions, and neglect.
The obvious lesson to be learned is to charge reasonable fees in accordance with Rule 1.5(a), and behave otherwise in a professional manner. The more subtle, and equally important, message, however, is to be able to put yourself in the client’s shoes, and be ready to reconsider the reasonableness of your fee when challenged in good faith to do so.
Charles S. Fax is an associate editor for Litigation News.