By Alara Chilton
California’s new Rules of Professional Conduct went into effect November 1, 2018. This article will examine some of the ethical considerations of Rule 1.5 (Fees for Legal Services) and discuss some of the best practices for compliance.
Rule 1.5 determines what a lawyer may ethically charge for legal fees.
Rule 1.5 determines the amount a lawyer may ethically charge for legal fees. Under this rule, an “unconscionable fee” continues to be the standard that exposes a lawyer to State Bar discipline. Specifically, this rule states a “lawyer shall not make an agreement for, charge, or collect an unconscionable or illegal fee.” (Rules of Prof. Conduct, Rule 1.5(a).)
Rule 1.5 provides thirteen factors to determine if a fee is unconscionable, including two that are new. First, “whether the lawyer engaged in fraud or overreaching in negotiating or setting the fee.” (Rules of Prof. Conduct, Rule 1.5(b).)[1] Second, “whether the lawyer has failed to disclose material facts.” (Id.) Other factors include but are not limited to: “the amount of the fee in proportion to the value of the services performed”; “the amount involved and the results obtained”; and “the time and labor required.” (Id.)
Another important factor to determine if a fee is unconscionable is “whether the client gave informed consent to the fee.” (Rules of Prof. Conduct, Rule 1.5(b)(13).)[2] In order to meet this criterion, it is crucial that a lawyer discloses the terms of the fee agreement, explains the risks associated therewith, and do these tasks in a manner that can be reasonably understood by the client. Creating a signed writing– by both the lawyer and client– will help establish informed consent to the fee.
Rule 1.5 bars lawyers from describing a fee as “earned on receipt” or “nonrefundable” absent a true retainer fee.
Rule 1.5 makes clear that absent the existence of a true retainer fee, lawyers may not earn a fee unless the services have been provided to the client. The rule provides that only in cases where the fee is a true retainer, “[a] lawyer may make an agreement for, charge, or collect a fee that is denominated as ‘earned on receipt’ or ‘non-refundable,’ or in [other] similar terms . . . .” (Rules of Prof. Conduct, Rule 1.5(d).) The rule characterizes a true retainer fee as one “that a client pays to a lawyer to ensure the lawyer’s availability to the client during a specified period or on a specified matter,” and does not include “compensation for legal services performed or to be performed.” (Id.) If a lawyer finds him or herself charging a true retainer fee, the client must agree in “writing after disclosure that the client will not be entitled to a refund of all or part of the fee charged.” (Id.)[3] Absent the latter scenario, it is best practice to describe the agreement as a “Fee Agreement” and not a “Retainer Agreement.”
Rule 1.5 expressly provides for flat fees as long as the lawyer provides the agreed upon services.
Rule 1.5 expressly provides a flat fee may be charged by stating that “[a] lawyer may make an agreement for, charge, or collect a flat fee for specified legal services.” (Rules of Prof. Conduct, Rule 1.5(e).) The rule describes a flat fee as “a fixed amount that constitutes complete payment for the performance of described services . . . .” (emphasis added.) Thus, the rule makes clear that charging a flat fee is permissible only if the lawyer provides the agreed upon services. And although a flat fee “may be paid in whole or in part in advance of the lawyer providing those services” (See Rule 1.5(e)), an advance fee “is never earned unless and until a lawyer provides the agreed upon services for which the lawyer was retained.” (Executive Summary for New Rule of Professional Conduct 1.5, State Bar of California Commission for the Revision of the Rules of Professional Conduct.)[4]
So then what are a lawyer’s duties in the event he or she did not provide the work because the lawyer-client relationship terminated? The answer lies in comment 3 discussed below.
Comment 3 of Rule 1.5 references Rule 1.16 (Declining or Terminating Representation).
Under Rule 1.16, once a lawyer-client relationship terminates, advanced fees and expenses must be refunded if they were not earned or incurred. Under this rule, absent a true retainer fee, a “lawyer promptly shall refund any part of a fee or expense paid in advance that the lawyer has not earned or incurred.” (Rules of Prof. Conduct, Rule 1.16(e)(2).)
Above are just a few of the ethical considerations of Rule 1.5. Other rules also govern the manner in which lawyers structure their fees, including Rule 1.15(a) and (b), which dictates when a lawyer must deposit in a trust account a fee paid in advance, as well as Business and Professions Code section 6147 which states specific requirements for contingency fee agreements.
Alara Chilton is an attorney at law.
This article was originally published on the SDCBA blog. Click here to view.
[1] Rule 1.0.1, entitled “Terminology” defines “fraud” as “conduct that is fraudulent under the law of the applicable jurisdiction and has a purpose to deceive.” (Rules of Prof. Conduct, Rule 1.0.1(d).)
[2] Rule 1.0.1 defines “informed consent” as a person’s “agreement to a proposed course of conduct after the lawyer has communicated and explained (i) the relevant circumstances and (ii) the material risks, including any actual and reasonably foreseeable adverse consequences of the proposed course of conduct.” (Rules of Prof. Conduct, Rule 1.0.1(e).)
[3] Rule 1.0.1 defines “writing” as having the “meaning stated in Evidence Code section 250.” (Rules of Prof. Conduct, Rule 1.0.1(n).)
[4] The exception to this rule is where the advance fee is a true retainer. (Executive Summary for New Rule of Professional Conduct 1.5, State Bar of California Commission for the Revision of the Rules of Professional Conduct.)
**No portion of this summary is intended to constitute legal advice. Be sure to perform independent research and analysis. Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**