The Essential Malpractice & Ethics Issues of Fee Agreements · 2020-07-10 · furnish the client...

The Essential Malpractice & Ethics Issues of Fee Agreements

Christian A. Stiegemeyer | Director of Risk Management Whittney A. Dunn| Risk Manager

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The Importance of Your Fee Agreement

•Perspective • Review the agreement from perspective of a strange

new client

•Would you sign your agreement •Overreaching? •Not Rule compliant?

•Rate the tone of the agreement •Common English/legalese; •Cooperative/hectoring; •Trust-building/threatening; •Contract/engagement letter?

•Set client expectations before introducing the agreement

•Create a meeting agenda

•When do you introduce the agreement •Beginning, middle or end?


Fee Agreement Building Blocks Client Identity The Scope of the Representation The Rate and Basis of Your Fee Issues of Withdrawal from the Representation Resolving Disputes Completing the Representation


•Goal: Clearly identify who is/are your client/s, and who is/are not.

•Risks: Failure to properly identify the client increases risks of:

• Unintended clients; • Malpractice exposure; • Future conflicts of interest misidentification.

Fee Agreement Building Blocks Client Identity


•Common Issues

• Personal Representative/Heir/other Beneficiaries • Incorporator/Officer/Director/Shareholder/Investor/Corporation • Parent Corp./Subsidiaries • Immigrant employee/employer • What do you do with Non-clients? • Who Pays You - When representing a representative (executor,

trustee, limited partner, board director, etc.) to whom you render individual services, get that person's written agreement to be personally responsible.

•Multiple Clients Issues • Confidentiality – Shared? Or Not? Consent to share revoked? • Affect of a Potential/Actual Adversity Between the Clients

(You and your firm are DQ) – Explain the consequences of that (More time, More fee).



Missouri Informal Opinion 980139 QUESTION: Attorney represents several individuals in a pending probate matter. The personal representative has offered an aggregate settlement to all of the clients. It is Attorney´s opinion that the clients should settle the matter. Approximately one half of the clients want to settle, while the others do not. Attorney has told the clients that it is Attorney´s belief that if they go to trial, they may not get anything. Does Attorney have a conflict of interest? ANSWER: Based on the information Attorney has provided, Attorney does have a conflict of interest. Attorney must withdraw from representing all of the plaintiffs, unless the individuals in one group of plaintiffs will consent to Attorney´s continued representation of the individuals in the other group of plaintiffs. Unless these individuals have formally formed some type of entity to make decisions in the case, Attorney represents individuals. Each individual decides for himself or herself whether he or she will settle.



•RULE 4-1.13: ORGANIZATION AS CLIENT • (e) A lawyer representing an organization may also

represent any of its directors, officers, employees, members, shareholders, or other constituents, subject to the provisions of Rule 4-1.7. If the organization's consent to the dual representation is required by Rule 4-1.7, the consent shall be given by an appropriate official of the organization other than the individual who is to be represented or by the shareholders

•Serving on a Board •Conflict under M.R.P.C. 4-1.8(a) and 4-1.7(b); •Can be waived with appropriate consultation; •See Informal Opinions 970050 & 940022.



Missouri Informal Opinion 2013-03 Question: May Attorney for a three-member Limited Liability Company (LLC) disclose to one member information related to the representation, where a majority of the members have instructed Attorney not to disclose the information to the member unless that member signs a non-disclosure agreement? Answer: Pursuant to Rule 4-1.13, Attorney represents the LLC acting through its duly authorized constituents. Attorney may not disclose to a constituent of the organization information protected by Rule 4-1.6 unless the disclosure is explicitly or impliedly authorized by the LLC in order to carry out the representation, as permitted by Rule 4-1.6. If a majority of the members of the LLC is required to take action on behalf of the organization, Attorney may not disclose confidential information to one member unless instructed by the majority to do so, as explained in Comment [2] to Rule 4-1.13. Pursuant to Rule 4-1.13(e), Attorney may represent the LLC and also represent one of its members, subject to Rule 4-1.7. If consent to the dual representation is required by Rule 4-1.7, consent must be given by an appropriate official of the LLC other than the individual seeking representation.



•RULE 4-1.8: CONFLICT OF INTEREST

• (f) A lawyer shall not accept compensation for representing a client from one other than the client unless: (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) information relating to representation of a client is protected as required by Rule 4-1.6.

Who receives unearned fee or unused costs Separate Agreement with payer



•MRPC 4-1.5 COMMENT [2], “Generally it is desirable to furnish the client with at least a simple memorandum or copy of the lawyer's customary fee arrangements that states the general nature of the legal services to be provided…”

•Goal: To establish the purpose of the representation, or the legal matter that the lawyer agrees to handle for the client, and those services that the lawyer agrees to undertake.

•Risks: Failure to properly define the scope of the representation increases risks of:

• Responsibility for more work than bargained for; • Ongoing attorney-client relationship; • Malpractice exposure from ambiguity; • Future conflicts of interest misidentification; • Failure to protect an interest as expected by the client or as

discernible from the scope language.

Fee Agreement Building Blocks The Scope of the Representation

The single most important thing a lawyer does with a fee agreement


•Common Issues • What will you do (limited, clear and unambiguous); • When will you do it (duty to act triggered only upon occurrence of specific

event); • Who will do it (if specific lawyers are identified they’d better do the work; if

using co-counsel get specific consent); • What you aren’t doing (e.g. appeals; NB: lawyers ALWAYS have duty to

warn a client of alternative claims, recoveries or actions outside the scope and advise the client to obtain separate counsel);

• When you’re finished - The fee agreement should specify the milestone that will mark the “natural” end of the representation.

•Recite representations that prospective clients make during initial consultations.

•“Evidence that [Client] told [Attorney] the bank had received signed documents, if believed, was also relevant to whether [Attorney] had a duty to check the documents for signatures when he returned from his vacation. It is true that upon the termination of a legal representation, a lawyer should take steps to the extent reasonably practicable to protect a client's interests. But if the jury believed [Attorney] testimony that [Client] told him the documents were signed, then [Attorney] was entitled to assume the truth of this statement. As explained, a client cannot recover for legal malpractice when the attorney has relied on the client's misrepresentations.” •Balames v. Robert Ginn & Brashear, LLP, 861 N.W.2d 684 (2015).




•Risky Business: Angino & Rovner v. Lessin, 2016 BL 1069, Pa. Super. Ct., 1/5/16:

•Fee on Discharge

•“If for any reason I take my case to another attorney or law firm including a former [firm] attorney or handle it myself I recognize that [firm] has, in good faith, expended money and time for my benefit and I therefore agree…when the case is successfully concluded, to pay or direct my new attorney to pay as a fee 20% of the gross recovery to [firm].”




•Risky Business: Angino & Rovner v. Lessin, 2016 BL 1069, Pa. Super. Ct., 1/5/16:

• Pennsylvania requires quantum meruit recovery for discharged contingent fee attorney (RE: MO, see, Plaza Shoe; 636 S.W.2d 53 (Mo. 1982));

• Any other recovery is a penalty for severing the relationship.

• Firm argued contract was arm's length agreement between two adults, and the termination provision was included to protect from quantum meruit limitation;

• Court responded that was why the provision was unenforceable even though the client did not claim it was unconscionable or unethical.




•Risky Business cont’d: Iowa Supreme Court Attorney Disciplinary Bd. v. Powell, 726 N.W.2d 397, Iowa 2007:

•Billing Questions:

•“If you have any questions concerning the…invoice, you agree to contact the finance manager…within ten (10) days…If you do not…you will be deemed to have agreed that the invoice is accurate and valid, and to have waived any claims as to the accuracy or sufficiency of the work performed on your behalf.”

•“You agree to pay all…fees, including those of [firm] proceeding pro se, relating to collection of amounts due under this agreement … [including] any complaints caused by client relating to the services performed by [firm] before any agency, department, court or branch of any government, or any bar association which renders a decision favorable to [firm].”

•Court held these clauses were an attempt by [firm] to limit liability (4-1.8(h)).




•Risky Business cont’d: In re Coleman, 295 S.W.3d 857 (Mo. 2009) .

• “Because I am taking a risk with you on this case, and because I am more familiar with the legal trends relative to judgments, settlements, and summary disposition, you agree I shall have the exclusive right to determine when and for how much to settle this case. That way, I am not held hostage to an agreement I disagree with.”




•MRPC 4-1.5 COMMENT [2], “In a new client-lawyer relationship, however, an understanding as to fees and expenses must be promptly established.” •“…basis, rate or total amount of the fee, and whether and to what extent the client will be responsible for any costs, expenses or disbursements in the course of the representation.”

•Goal – Clearly communicate the “basis”, “rate”, or “total”

• “‘Rate' connotes a numerical calculation, such as time multiplied by hourly rate, or the percentage in a contingent fee agreement. ‘Basis or' connotes a method of fee determination other than a ‘rate,' such as a flat fee, or a retrospective value-based bill, or fee in a customary amount.” William J. Wernz, Minnesota Legal Ethics, 235-36 (4th ed. 2014).

Fee Agreement Building Blocks The Rate and Basis of Your Fee


•Common Issues • What type of fee will you charge;

• Flat, hourly, contingent, hybrid, reverse contingent

• Do you require an advance fee; • IOLTA of other Trust Account, evergreen or minimum balance

• Flat fee availability during pendency of representation; • Formal Opinion 128 – What are the services EXACTLY

• Contingent fee notification requirements; • MRPC 4-1.5(c) – Writing signed by the client; method by which fees is determined

including % in event of settlement, trial or appeal; expenses to be deducted and whether deduction is pre/post fee calculation; clearly notify client of expenses client liable for regardless of whether client prevails; written statement stating outcome of matter, recovery, remittance to client and how determined.

• Division of fee; • MRPC 4-1.5(e) Division is in proportion to services OR each lawyer assumes joint

responsibility, client agree to association in writing; the total fee is reasonable.

•Risks • Co-counsel/contract lawyers – specific notification to client; • “Of Counsel” – Missouri Informal Opinion 2020-11; Defines Of Counsel

Relationship & Opinion 2020-12; No 4-1.5(e) requirement IF relationship passes 2020-11 test

• Trying to charge an unreasonable fee – MRPC 1.5(a) “A lawyer shall not make an agreement for, charge, or collect an unreasonable fee…” – In re Lober, 241 P.3d 81 (Kan. 2010) – ATTEMPTED to charge $40,000 to file motion to set aside guilty plea.


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•Risks cont’d: Trying to charge a non-refundable fee •Meyer, Suozzi, English & Klein PC v. Vista Maro LLC, N.Y. Sup. Ct. Nassau Cnty., No. 11455/10, 1/12/11

•“Client has the right to change counsel at any time; provided, however, that [Law Firm] shall be entitled to the entire $300,000 fee regardless of any change of counsel.”

•“That the agreement does not specifically state that the fee is ‘nonrefundable’ is irrelevant. The Retainer Agreement requires full payment of the $300,000 fee regardless of whether any work is done and whether its services are terminated. It clearly constitutes a nonrefundable retainer agreement.”


•Risks cont’d: Trying to charge a non-refundable fee – Missouri Formal Opinion 128 – Cannot charge a “non-refundable” or “minimum” fee


•Risks cont’d: Trying to charge a non-refundable fee – Missouri Formal Opinion 128 – Cannot charge a “non-refundable” or “minimum” fee

•Risks cont’d: Trying to charge a non-refundable fee • In re O’Farrell, 942 N.E.2d 799 (Ind. 2011). • Attorney’s law firm used an “Hourly Fee Contract” or a “Flat Fee Contract” in

most cases when it represented a party in a family law matter. Both types of contract contain a provision for a nonrefundable “engagement fee.”

• “The Law Firm's fee agreements…provide that the engagement fee would be credited against either Respondent's hourly fee or her flat fee. Thus, if Respondent completed the work called for in the contracts, the entire engagement fee would have been used to purchase the services Respondent rendered. This is evidence that the engagement fees were intended to buy the legal services she agreed to perform rather than simply her availability at the outset.” (Emphasis added.)



•ABA Formal Opinion 93-379 • Double billing multiple clients for same court appearance; • Charging travel time to one client while working on a another

client’s matter and charging for that also; • Billing client at original rate for document or work product previously

produced for prior client; • Billing in-house costs at more than actual expense incurred by

lawyer without client consultation;

•Expenses to consider including: •charges for expert witnesses, investigators and stenographers; • transcriptions, photocopying costs and messenger services; • employee overtime; • travel expenses and meals; • computer-assisted research; and typing/printing charges. • ABA Section of Business Law Task Force on Lawyer Business Ethics, Statement of Principles in Billing for Disbursements and Other Charges, 51 Bus. Law 1303 (1996). •BUT…if you charge for special file folders, those are client property.



•Billing • Provide a sample bill to the client?;

• Do NOT charge minimum times

• It is unethical to put into your agreement “The

Firm charges for attorney services in intervals of one-tenth of an hour, or 6–minute intervals rounded up to the nearest one-tenth. For example, a six minute telephone call is billed as .1 hour; a seven minute telephone call is billed as .2 hour.”

• In re Dellet, 299 Kan. 69, 324 P.3d 1033 (Kan. 2014).



•Structured Settlements

•Include how fee will be paid from a structured settlement; (“present value”? Get an expert to determine?)

•Informal Opinion 950230- QUESTION: Attorney has represented the client in negotiating a structured settlement. Attorney would like to have the attorney fee, which is based on a contingency fee contract, paid up front. Attorney would apply the contingent fee percentage to the present value of the settlement. Would this violate the rules?

•ANSWER: Attorney may take attorney’s contingency fee up front if it is based on the present value of the structured settlement and Attorney has the consent of the client in the original contract or otherwise…



•Common Issues • Clearly stated reasons for withdrawal; • Cf. “Good Cause” and “Ethical” withdrawal; • Agreement language that creates a financial

penalty; • Detriment to the client.

•Risks •Withdrawal appears to be abandonment •Timing issues •Fee disgorgement

Fee Agreement Building Blocks Issues of Withdrawal & Termination

from the Representation


RULE 4-1.16: DECLINING OR TERMINATING REPRESENTATION (a) Except as stated in Rule 4-1.16(c), a lawyer shall not represent a client or, where representation has commenced, shall withdraw from the representation of a client if: (1) the representation will result in violation of the rules of professional conduct or other law; (2) the lawyer's physical or mental condition materially impairs the lawyer's ability to represent the client; or (3) the lawyer is discharged. (b) Except as stated in Rule 4-1.16(c), a lawyer may withdraw from representing a client if: (1) withdrawal can be accomplished without material adverse effect on the interests of the client; (2) the client persists in a course of action involving the lawyer's services that the lawyer reasonably believes is criminal or fraudulent; (3) the client has used the lawyer's services to perpetrate a crime or fraud; (4) the client insists upon taking action that the lawyer considers repugnant or with which the lawyer has a fundamental disagreement; (5) the client fails substantially to 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; (6) the representation will result in an unreasonable financial burden on the lawyer or has been rendered unreasonably difficult by the client; or (7) other good cause for withdrawal exists. (c) A lawyer must comply with applicable law requiring notice to or permission of a tribunal when terminating a representation unless the lawyer has filed a notice of termination of limited appearance. Except when such notice is filed, a lawyer shall continue representation when ordered to do so by a tribunal notwithstanding good cause for terminating the representation. (d) Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client's interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee or expense that has not been earned or incurred. The lawyer may retain papers relating to the client to the extent permitted by other law.

Fee Agreement Building Blocks Issues of Withdrawal & Termination from the

Representation


•Just Cause/Good Cause •Ethical/Court Granted •Forthright Explanation of Client’s rights/options




•Just Cause - International Materials Corp. v. Sun Corp., 824 S.W.2d 890 (Mo. 1992)

•Courts have found just cause:

• when a client threatens to commit perjury; • when a client accuses the attorney of dishonesty; • when the client reports the attorney to a bar disciplinary board; • refusal to pay fees that are rightly owed to the attorney; • refusal to communicate or a total breakdown in communication

between the attorney and client caused by the client; • or employment of other counsel by the client with whom the first

attorney cannot cordially cooperate;




•Conversion Clauses • Must result in a reasonable fee • Can’t simply substitute hrs. x rate for quantum meruit; • Can’t act as a financial penalty; • Can’t inhibit client’s right to discharge the lawyer;

•Withdrawal Clause Risks - EXAMPLE •Attorney - “WITHDRAWAL OF ATTORNEY: Client understands and expressly agrees that Attorney may withdraw from representation of Client at any time if Client fails to honor the fee arrangement herein set forth including, but not limited to, payment of fees and expenses on a timely basis; fails to cooperate in the preparation of the case; or otherwise takes any action which impedes the ability of Attorney to provide adequate and ethical representation.”

•Court - “A provision in a retainer purporting to give the attorney the right of withdrawal and nonappearance is at best misleading, intimidating, and it works to prevent a [client’s] objection to a motion to withdraw or to a failure to appear.”




•Withdrawal Clause Risks – Court Re-Write •Court - “WITHDRAWAL OF ATTORNEY. Attorney reserves the right, upon nonpayment by Client of any fees or costs incurred pursuant to this agreement, to request that Client obtain alternative counsel and, if Client fails to do so within a reasonable time, to apply to the Bankruptcy Court for permission to withdraw. Until substitute counsel or Bankruptcy Court permission to withdraw is obtained, Attorney will continue to provide legal services to Client in connection with Client's bankruptcy case to the extent required by Local Bankruptcy Rules…”

•In re Bulen, 375 B.R. 858 (Bankr. D. Minn. 2007).





from the Representation See, Clark v. General Motors, 161 F.Supp3d 752 (W.D.Mo. 2015). For quantum meruit analysis. Under Missouri law, as predicted by the district court: Fee agreement charging 40% contingency fee was unreasonable at its inception, and thus, fee violated Missouri's Rules of Professional Conduct; Proposed $1,527,728 fee pursuant to fee agreement was unreasonable in operation under Missouri's Rules of Professional Conduct, and thus, agreement was void and unenforceable; and Quantum meruit award of $945,000 in fees was reasonable for services rendered to widow.


•Binding Arbitration

•Missouri Informal Opinion 990130 •QUESTION: Attorney would like to put a binding arbitration provision in Attorney´s fee agreement providing that all disputes between Attorney and Attorney´s client would be arbitrated. Is this prohibited?

• ANSWER: Attorney may include a binding arbitration agreement in Attorney´s fee agreements without violating Supreme Court Rule 4. However, under Rules 4-1.4(b) and 4-1.7(b), Attorney has an obligation to orally point out this provision and to explain it, to the extent necessary for the individual client.

Fee Agreement Building Blocks Resolving Disputes

(Or Not)


•Agreement - “ARBITRATION CLAUSE: Should any dispute arise, Client and Attorney agree to submit their dispute to arbitration.”

•Court - “At a minimum, the attorney should inform his client that arbitration will constitute a waiver of important rights, including, the right to a jury trial, potentially the right to broad discovery, and the right to an appeal on the merits.”

•In affidavits describing the circumstances surrounding negotiation of the fee agreement [lawyer] claimed each paragraph was reviewed with and explained to [client]. [Client] said the defendants never discussed anything about arbitration with him.

•Castillo v Arrieta, 2016 BL 28927, N.M. Ct. App., No. 34,108, (2/2/16).


(Or Not)


•Missouri Informal Opinion Number 960203 • QUESTION: Attorney would like to use a collection agency to collect past due fees against former clients. Will Attorney violate the confidentiality rule by providing the necessary information to the collection agency?

•ANSWER: Attorney may disclose the client´s identity and other information about the representation to the collection agency without violating Rule 4-1.6. However, the information provided must be limited to the minimum amount of information that is necessary in order to carry out the collection effort.


(Or Not)

4-1.6 COMMENT [9] A lawyer entitled to a fee is permitted…to prove the services rendered in an action to collect it. This aspect of the rule expresses the principle that the beneficiary of a fiduciary relationship may not exploit it to the detriment of the fiduciary.


•Suing for Fees (Sigh?!?)

•Perspective – Review file as client advocate attempting to defeat your fee claim:

• Is your file in order; • Did you file every pleading, hire every expert, depose every

witness, lodge every objection, and otherwise zealously represent the client within the full bounds of professional advocacy, and if not, do you have a communication explaining why not and receive client consent;

• Is your fee agreement clear; • Is your correspondence in order (paper & electronic); • Have all client questions/objections been timely resolved; • Do time records support work performed and no “gotchas”;

•Are you suing for the correct and reasonable fee (See. e.g. Moore v. BPR, 576 S.W.3d 341 (Tenn. 2019).

•Is there a source from which to collect the judgment.


(Or Not)


•Common Issues

• Review fee for reasonableness; • If money held in trust, balance and remit; • Contingent Fee – Written Statement per Rule 4-1.5(c); • Determine if client has objected to any aspect of the

representation and how the objections were resolved – LPL reporting?

• Review Scope of Representation and confirm work performed on matter met scope;

• Determine whether any other recoveries or client actions became apparent during the representation or during client consultations, confirm that client was properly advised about them and that firm responsibility was disclaimed;

• Confirm Closing letter has been sent; • Store file for period of time set out in Agreement or per

MRPC 4-1.22.

Fee Agreement Building Blocks Completing the Representation

Log-in on your own email address – Because of system requirements, we are unable to confirm attendance if multiple lawyers use the same log-in email address.

What you need to do to qualify for Kansas Ethics CLE Credit

Remain log’ed-in for the full 50 minutes of seminar presentation time

Promptly reply to the poll questions presented during the program

At the conclusion of the program, e-mail your request for submission of your attendance information to the Kansas CLE Commission to: [email protected] Use “Subject” Line: Kansas CLE DATE INCLUDE: 1) Full Name 2) KANSAS Bar Number 3) City, State of practice 4) Number of credit hours you are claiming *NB: We DO NOT submit a name w/o a request*

We will review your attendance statistics. Based on the review, we will report to the CLE Commission the CLE hours you attended.

The Bar Plan Mutual Insurance Company Christian A. Stiegemeyer Director of Risk Management Whittney A. Dunn Risk Manager

Thank You

The Essential Malpractice & Ethics Issues of Fee Agreements · 2020-07-10 · furnish the client...

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Transcript of The Essential Malpractice & Ethics Issues of Fee Agreements · 2020-07-10 · furnish the client...