Don’t Buy Off the Rack

March 22, 2008

By Deanna S. Brocker and Douglas J. Brocker

This article is the second in a series examining fee agreements and the kinds of legal fees charged. The first article emphasized the importance of a writing and the items that should be included in fee agreements at a bare minimum to avoid fee disputes. This article first discusses the pitfalls associated with a “universal” fee agreement and then explores a few client-attorney relationships that need tailored fee agreements to address them.

The Universal Fee Agreement

On the one hand, attorneys should strive to draft all fee contracts in plain language that can be understood readily by clients. The client fee contract is not the place for legalese. On the other hand, a fee agreement cannot be all things to all people. The idea of a single “one-size-fits-all” fee agreement, while it sounds enticing, is neither practical nor prudent. Consider first your clientele. A lengthy formal contract with all the bells and whistles may be suitable for a large multi-national corporate client. But if your client is a small town farmer, a letter confirming the terms of representation probably will be sufficient.

More is not necessarily better. Trying to include a provision in your fee agreement for every possible contingency may not make sense and is not necessarily more protective. Take, for example, the advance conflict waiver. Some attorneys include generic language such as, “I agree to waive any conflicts that may arise during the course of the representation” in every fee agreement, thinking that this will constitute informed consent pursuant to Rule 1.7(b)(4). This language is not only meaningless to a client at the beginning of the representation, but it is likely unenforceable in court.

If you believe there may be a potential conflict of interest involving a contemplated representation, discuss the potential conflict with each affected client or potential client, and have them sign a separate advance waiver that is tailored to the particular facts and circumstances of the case, references the risks and advantages of continued representation, and discusses confidentiality obligations. The more specific the advance waiver is with respect to the type of conflicts which may arise, the more likely the waiver will be truly “informed” and therefore enforceable.

Another “one-size-fits-all” provision commonly found in fee agreements may not have its intended effect. Some fee agreements contain language permitting the lawyer to withdraw if the client fails to pay the attorney according to the terms of the fee agreement. This language derives from Rule 1.16(b)(6):

[A] lawyer may withdraw from representing a client if . . . the client fails to substantially fulfill an obligation to the lawyer regarding the lawyer’s services and has been given reasonable warning that the lawyer will withdraw unless the obligation is fulfilled[.]

A notice or warning that is embedded in a fee agreement and that may predate the payment default by months or longer, likely will not be perceived as reasonable by the State Bar. The warning that the attorney will withdraw must occur at the time of the default. While including such language in a fee agreement is useful in setting forth the obligations of the client and expectations of the attorney, it cannot be relied upon as sufficient notice for withdrawal under Rule 1.16(b)(6).

The bottom line is that fee contracts should be easily understood, should take into account the particular client’s situation, and should not be too ambitious an undertaking. The following are two examples of situations that call for a tailored fee agreement.

1. Limited Scope Representation

An attorney may limit the scope of or services associated with representation so long as the limitation is reasonable and the client agrees to it. Rule 1.2(c). The fee agreement serves as proof that the client agreed to the limited scope of the representation as well as the associated fees. Limited scope arrangements can be client-driven, as in the case where the client asks the attorney merely for a preliminary opinion or consultation before deciding whether to proceed with representation. The client’s objective also may be limited to resolving a matter only through negotiation, not litigation.

The arrangements can also be attorney-driven, as in the case where an attorney discloses at the outset that he can only handle the client’s case through the trial court level, but will not be able to assist if the case is appealed. Or, an attorney who represents multiple clients whose interests are generally aligned, may agree to represent the clients up until the point at which an actual conflict of interest arises. Instead of seeking separate waivers to proceed with the representation of some of the clients, the attorney elects to bow out altogether. In either case, the fee agreement should reflect that the clients were fully informed of and consented to the limited representation.

Limited scope arrangements can also be cost-driven. For example, a client of limited means and her attorney may agree to exclude certain actions that the client believes are too costly and that the attorney does not believe are crucial to appropriate and conscientious representation. The client also may decide to handle the case herself but consult with the attorney behind the scenes. These are examples of attorneys offering “unbundled” legal services. See 2005 Formal Ethics Opinion 10. Often times, these services are presented in a fee agreement as a menu or list of discrete task services with associated fees. In other cases, the agreements are structured to correspond to different logical procedural phases of the representation, such as investigation, negotiation, litigation and an appeal, with corresponding staged fees for each. If a matter resolves prior to litigation, for example, then the client is only responsible for the fees associated with investigation and negotiation.

Whatever the reason for limiting the scope of representation, the written fee agreement should reflect the arrangement agreed upon between the client and attorney. See Rule 1.2, comment [8]. The amount of the fee charged should likewise take into account the limited representation or limited objectives of the client. Rule 1.5.

2. Payment of Fees by Third-Party

The State Bar issued a fairly extensive opinion in January 2006 on an attorney’s obligations when a third party pays the client’s legal fees. 2005 Formal Ethics Opinion 12. This opinion, however, does not delve into corresponding protections that should be included in the fee agreement under these circumstances.

An attorney may accept payment from someone other than the client if (1) the client gives informed consent, (2) there is no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship, and (3) confidential information related to the representation is protected. If a third party is paying the legal fees for your client, your fee agreement should address this issue. At a minimum, the agreement should state that the client agrees the third party is paying for the legal fees, decisions concerning the representation will not be affected by this fact, and information relating to the representation will remain confidential.

Problems usually arise when there is a falling out between the payor and the client. In the fee agreement, an attorney can short-circuit questions about who gets the money if there is money left over after the representation or if the payor demands payment back midway through representation. First, the third party should be part of discussions regarding fees. The attorney has an obligation to inform the third party that the attorney represents only the client’s interests and information relating to the representation remains confidential. In the case of an advance fee, the attorney should explain to both the client and payor at the outset that the funds belong to the payor until earned. If the payor and client part ways and the payor demands the funds back midway through the representation, the attorney has an obligation to return any unearned fees in trust to the payor. The attorney would then seek additional fees directly from the client to continue representation. Second, the consequences of the third party withdrawing financial support should be put in writing as part of the fee agreement with the client. Specifically, if the client is unable to pay, the attorney may withdraw from the representation.

These are just two examples of how fee agreements can give notice to clients, provide boundaries for representation and possibly prevent disputes or problems later on. The third, and final, installment in this series will discuss the different types of fees that attorneys charge and where to deposit funds received.