15th Annual Professional Responsibility Seminar

Business Transactions with Clients & Duties to Prospective Clients

presented by Chris WeberKegler, Brown, Hill & Ritter

2012 Professional Responsibility SeminarSeptember 21, 2012

Prospective Clients

• Tattoogate + RPC 1.18 = Urban Meyer

• ODC v. Cicero

• Board recommended 6-month suspension!!

Issue #1: “Prospective Client”

• “A person who discusses with lawyer possibility of forming A/C relation.”

• Rife or Epling

• Rife – tattoo parlor/drug dealer/memorabilia collector

• OSU Players exchanged memorabilia for tats


• April 1, 2010 – FBI raid

• April 2 – Rife meeting with Cicero?

• April 2 – e-mail to Tressel

• Warns Tressel / Rife’s felony record – stay away

• April 2 – Rife meets another attorney


• April 15 – Rife meeting with Cicero• April 16 e-mails to Tressel – “Pryor & Rife Update”• “I had Rife in my office for 1 ½ hours last night”• “If he retains me, and he may, . . .” • “He wanted my opinion yesterday on his situation”• “I have to sit tight and wait to see if he retains me, but at

least he came in last night to do a face to face with me.”


• Board Finding: Rife = prospective client

• E-mails

• Rife testimony

• Other attorney testimony

• Cicero’s credibility

Issue #2: Information Revealed

• RPC 1.18(b) – “shall not use or reveal information learned in consultation”

• E-mails to Tressel:

• Revealed what discussed at April 15 mtg.


• “Terrell gave him some type of MVP trophy”

• Has cleats, jerseys, game ball, rings

• “He is in really big trouble”

• Feds offered 10-year prison term

• “He wanted my opinion”


• Board Finding: revealed information learned in consultation

• Cicero argument: “public knowledge”

• But, tells Tressel “keep confidential”

Issue #3: Sanction

• Board – 6 month actual suspension

• Aggravation

Issue #3: Sanction

• Prior discipline

• Selfish – “primary purpose in sending e-mails to Tressel was to protect OSU players and program”

• “Self-aggrandizement”

Issue #3: Sanction

• ODC Brief – “respondent’s desire to be eyes and ears of OSU football program”

• “Loyalty to OSU football program trumped loyalty to prospective client”

Other Issues

• RPC 1.18(c)

• DQ’d from representing other side

• Learn “significantly harmful” info

• Unless consent from both

• Or

Other Issues

• RPC 1.18(d)(2)

• Limit info received

• Screened – no fee

• Notice to prospective client

Business Transactions with Clients

• Rule 1.8(a) - permissible IF:– Terms fair/reasonable for client– Explain in writing– Terms– Risks/disadvantages to client– Any reasonable alternatives– Lawyer’s role– Advisable to consult with another lawyer– Client consent in writing signed by client

What IS Covered

• Ownership interest in client

• Joint ventures

• Loan/sales transaction

• Stock in lieu of fee – ABA Opinion 00-418

• 1.5(a) – reasonable fee

What IS Covered

• Ancillary services (title; real estate)

• Mortgage to secure fee

• Opinion 2004-8

What IS NOT Covered

• Standard fee agreements

• Transactions offered to general public

Client Identity

• Identify client

• Corporate client (not affiliates)

• Transactions with affiliates not covered

Disciplinary Cases

• Strict compliance required

• Even if no harm

• Even if sophisticated client

Disciplinary Cases

• Loans from client• ODC v. Wickerham, 2012 Ohio 2580 • ODC v. Squire, 2011 Ohio 5578• Col. Bar v. Keisling, 2010 Ohio 1555

• Non-legal services for client (painting work)• Akron Bar v. Gibson, 2011 Ohio 628

Insurance Coverage

• American Guarantee and Liability v. Flangas McMillan Law Group, 2012 WL 628511 (D. Nev. 2012)

• 2 Partners – controlling interest in Oak Park

• Sued for malpractice

Insurance Coverage

• Policy - “Business enterprise exclusion”

• Claim relating to business which insured has controlling interest

• Carrier avoids shifting lawyer’s business loss

Firm Policy

• Firm may prohibit transactions

• Require management approval

Thank You!

Chris Weber, [email protected]

(614) 462-5415

Alternative Fee Structures

presented by Rasheeda KhanKegler, Brown, Hill & Ritter

2012 Professional Responsibility SeminarSeptember 21, 2012

Alternative Fee Arrangements: The Flavors

• Fixed or Flat Fee – Most popular form of alternative billing

• Blended Hourly Rate – Client pays the same rate regardless of who within the firm performs a task

• Monthly Retainer – Client pays regardless of how many hours the firm actually works on that client’s matters each month


• Retainer Plus – Flat fee is supplemented with an hourly rate if a specified number of hours per month of the firm’s time for the client is exceeded– Can be used as an internal marketing opportunity to do other work if

the maximum number of hours are not met in a month.

• Task-Based Fees – Assign a dollar amount to each stage of a representation, transaction as well as litigation. – Charge $A for negotiation services– Charge $B for handling interrogatories– Charge $C for other discovery work


• Contingent Fees – Can include allowing for a discounted rate in exchange for allowing the firm to recover more if legal services produce a desired result

• Floor and Ceiling – Tells the client what the minimum and maximum fee will be for a certain set of services.

• Fair Fee – For regular clients. Charging a flat fee or discounted hourly rate and then working out with the client at the end of the representation how much more the firm should receive as a “fair fee” using the factors listed in RPC 1.5.

Tips to Make it Work

• Research your historical data• Continue to track your time and tasks performed• Start with established clients and a clear idea of what

the representation will involve• Carefully draft the fee agreement – if you can,

address what happens if the representation ends early.

Recent Flat Fee Case: Kasowitz, Benson Torres & Friedman, LLP v. Duane Reade, 2012

N.Y. App. Div. LEXIS 5824

Kasowitz, Benson Torres & Friedman, LLP v. Duane Reade

The underlying case:• Duane Reade is in a contract dispute with Cardtronics

regarding surcharge fees generated from ATM machines located in Duane Reade drug stores.


• Under an agreement between JP Morgan Chase and Cardtronics, all of the ATM machines located in Duane Reade stores have a Chase insignia. Chase customers did not pay a surcharge fee.


• Dispute between Duane Reade and Cardtronics focused on amount of money Cardtronics would pay Duane Reade for the Chase customers.


• Duane Reade retains Kasowitz firm – Daniel Goldberg – in anticipation of litigation with Cardtronics.

• Kasowitz Firm: 375 lawyers – 7 offices

The Fee Agreement

• $1M Flat Fee for the Cardtronics litigation – plus – “success fee”

The Fee Agreement: 3 E-mails

• “Success Fee” = contingency fee equal to 20% of whatever new value from the damages over the life of the Cardtronics contract in excess of $4 million Duane Reade recovers after asserting its breach of contract claim against Cardtronics.

Goldberg’s September 8, 2006 E-mail

• Well, the upshot is that I came up with something that I believe will be very attractive. We can do the Cardtronics case for a flat $1 million, payable over 10 months as you suggested (exclusive of disbursements), plus 20% of amounts recovered above some number, as opposed to a percentage payable from dollar one.


• Based on the numbers we have, which obviously are approximations, we actually think the damages could be between $10 and $11 million over the life of the contract. So, I’m thinking of 20% of everything above $4 million as the success fee portion. Thus, if we get $10 million, the total fee would be $2.2 million (with you keeping $7.8 million obviously). That’s $1 million in flat fee, plus $1.2 million in success fee.


• That’s actually a bit lower than what I had previously suggested of a discount off of time plus 20% …. What do I need to do to put you in a new lawsuit today?

September 19, 2006 E-mails

Goldberg sends a follow up e-mail to Duane Reade’s GC: • “I would love to have our fee arrangement in place

by then so I can just tear into these guys.”

Client responds by e-mail the same day: • “Go”


• Duane Reade and Cardtronics negotiate a settlement of the litigation without Kasowitz. – Duane Reade gets $1M– Dismissal of any and all claims– Termination of contract– Removal of all ATM machines

• Kasowitz is asked to prepare the settlement agreement.


• May 8, 2009 – Settlement Agreement Signed • Same Day – Duane Reade and Chase enter into

placement agreement by which Chase would place ATM machines in all Duane Reade stores. Over ten years, Duane Reade would receive approximately $18M.


• December 15, 2009 – Kasowitz submits its invoice to Duane Reade for $7.1M

• Duane Reade refuses to pay over the $1M flat fee• Kasowitz sues for BOK

Issue for Court

• Whether the success fee encompassed all the benefits Duane Reade received from the contract termination including revenues received from Duane Reade’s new ATM placement contract with Chase.

• Answer: No.

NY Supreme Court Holding

• “If Kasowitz wanted to ensure that it would be receiving a contingency fee based on any developments with any other ATM machine provides, Kasowitz should have explicitly written such in its contingency fee. An omission or even a mistake in a contract does not constitute an ambiguity.”

• Lesson: Memorializing fee agreements in casual emails is risky business!

JD Journal Headline

• “Kasowitz flattened by Flat-Fee Arrangement with Duane Reade.”

Daniel Goldberg Bio

Selected Notable Representations:• Duane Reade, the largest retail drug store chain in

the New York metropolitan area, in a wide range of cases

Another Recent Case:Disciplinary Counsel v. Summers (2012), 131 Ohio St.3d 467,

2012 Ohio 1144

Disciplinary Counsel v. Summers

• Went from hourly to flat fee– Parents of client initially paid $1000 for expenses plus

$2500 retainer• *Note: Rule 1.8(f) applies when someone other than the client is

paying the fee

– Summers reduced rate from $350 to $250


• Flat Fee Agreement – “This firm agrees to represent you, through the investigation of the above referenced case, and if necessary, through the trial, and if necessary, sentencing, or other disposition of the case. The amount of the flat fee agreed upon between us is Fifteen Thousand Dollars ($15,000), in addition to any and all amounts already paid to us. That is all that you will owe, regardless of the time that we will spend on your behalf.”


• Email to Client’s Parents – “The fee will be a final flat full and total fee from August 1, 2008 on and that will cover all of the Attorney fees for the matter to the end, regardless of what time we have to spend which is a benefit to you. If you discharge us, you will however owe us for all of our time spent thus far, less the initial retainer. You will also owe us for bringing the new Lawyer up to speed.”


• No mention of what happens to the fee if the client discharges the client by withdrawing from representation.

• On January 6, 2009, Respondent withdrew from the case.


• Clients’ parents requested an account for the money received and was informed that the entire amount paid was exhausted. Without any further discussion with the Respondent, they filed a grievance.


• “The fee agreement denotes the $15,000 as a flat fee and as a nonrefundable fee without the client also being told that if the legal work is not completed the client may be entitled to a refund. RPC 1.5(d)(3) mandates this language in all flat fee contracts. As noted the panel is not impressed with Respondent’s protestations that his failure to include the language was an honest mistake.”


• GENERAL RULE: Nonrefundable fees are unethical. – RPC 1.5(d)(3): A lawyer shall not enter into an

arrangement for, charge, or other collect … a fee denominated as “earned upon receipt,” “nonrefundable,” or in any similar terms, unless the client is simultaneously advised in writing that if the lawyer does not complete the representation for any reason, the client may be entitled to a refund of all or part of the fee based upon the value of the representation pursuant to division (a) of the rule.


• Board Report – “Respondent abandoned his client and kept all his money without justifiable cause at what was, procedurally, an early stage in the criminal proceedings.”


• Losing Argument – If a lawyer can show that the hours spend on a case multiplied by his hourly rate equals or exceeds the flat fee paid, that lawyer can keep the fee even though he has not completed the work he was paid to complete.


• Respondent was wrong – RPC 1.5(a) lists multiple factors that must be considered in determining the reasonableness of a fee include the following: – The time and labor required, the novelty and difficulty of the questions involved, and the

skill requisite to perform the legal service properly;– The likelihood, if apparent to the client, that the acceptance of the particular

employment will preclude other employment by the lawyer;– The fee customarily charged in the locality for similar legal services; – The amount involved and the results obtained; – The time limitations imposed by the client or by the circumstances; – The nature and length of the professional relationship with the client;– The experience, reputation, and ability of the lawyer or lawyers performing the services; – Whether the fee is fixed or contingent.


• Supreme Court – “When a lawyer agrees to represent a client through the conclusion of the case for a flat fee, and that lawyer withdraws from representation without cause before the work is completed, he cannot retain the entire flat fee by resorting to a mathematical calculation of his billable hours. To hold otherwise would leave clients at the mercy of lawyers who charge significant flat fees to provide complete representation only to withdraw when the demands of the case become too onerous. While we recognize that Summers is entitled to be compensated for the services he has provided, the Bells are also entitled to receive a benefit for their flat-fee bargain.


• Respondent violated – RPC 1.5(a): A lawyer shall not make an agreement for, charge, or collect an illegal or clearly excessive fee…

• Also violated 1.16(e) – a lawyer who withdraws from employment shall refund promptly any part of a fee paid in advance that has not been earned.

• And the catch all: 8.4(h) – engaging in conduct that adversely reflects on the lawyer’s fitness to practice law.


• Sanction – 6 months suspension plus full refund of $15,000.

• Lessons– Look at your flat fee agreements.– Don’t dump on your client!– Whenever possible – work something out and refund at

least a portion of the fee!

Thank You!

Rasheeda Khan, [email protected]

(614) 462-5481

15th Annual Professional Responsibility Seminar

Business

Transcript of 15th Annual Professional Responsibility Seminar