Thinking about a referral fee? Think “fee sharing” instead.

Every now and then lawyers make comments that remind me that there are common misconceptions about some of the Vermont Rules of Professional Conduct.  In turn, the reminders remind me to send out reminders. 

Here’s a reminder on referral fees: as I read Vermont’s rules, straight referral fees are prohibited.

First, V.R.Pr.C. 7.2(b) prohibits a lawyer from “giving anything of value to a person for recommending the lawyer’s services.”  While paragraph (b)(4) authorizes lawyers to make referrals and enter into reciprocal referral arrangements, Comment [8] states that:

  • “[e]xcept as provided in Rule 1.5(e), a lawyer who receives referrals from a lawyer or nonlawyer must not pay anything solely for the referral . . .” (emphasis added).

That’s not necessarily the end.

V.R.Pr.C. 1.5(e) authorizes lawyers who are not in the same firm to share fees if certain requirements are met.  Two requirements are simple:

  • The overall fee must be reasonable; and,
  • The client must agree in writing to the division of the fee.

The final requirement is a bit trickier, but not too difficult.  Fee sharing is only allowed:

  • in proportion to the services that each lawyer performs, OR,
  • each lawyer assumes joint responsibility for the representation.

With respect to the latter, here’s Comment [7] is instructive and includes this statement:

  • “Joint responsibility for the representation entails financial and ethical responsibility for the representation as if the lawyers were associated in a partnership.”

In April 2016, the ABA Standing Committee on Ethics and Professional Responsibility issued Formal Opinion 474.  The opinion reaches the same conclusion about the Model Rule as I have about Vermont’s and also endeavors to shed some light on “joint responsibility for the representation.”  The ABA Journal summarized Formal Opinion 474 here.

Finally, Comment [8] clarifies that the rule “does not prohibit or regulate division of fees to be received in the future for work done when lawyers were previously associated in a law firm.”

As always, let’s be careful out there.

Related Posts:

Bartering for Legal Fees

This post might not be relevant to many readers. However, I’m writing because my sense is that it is not uncommon for attorneys in Vermont’s smaller firms and towns to barter with clients.

Last week, in a case involving a lawyer who bartered a fee for legal services, a disciplinary panel in Maine reprimanded the lawyer for violating the rule that governs business transactions with clients.  The Legal Profession Blog reported the decision, which is here:

So I’m clear, nothing in the Vermont Rules of Professional Conduct prohibits bartering for a legal fee. However, the Maine decision is a good reminder that bartering often equates to a different type of transaction than does negotiating a standard fee agreement.  TA type of business transaction that invokes one of the conflicts rules.

In the Maine case, the client was not able to pay the lawyer’s hourly fee. So, the lawyer and client agreed that the client would pay for legal services by transferring title to a car to the lawyer, giving the lawyer a note and mortgage interest in real estate, and doing some excavation work for the lawyer.  The lawyer was sanctioned for (admittedly) failing to comply with Maine’s rule that governs business transactions with a client.

In Vermont, Rule 1.8 applies to such situations.  Here’s paragraph (a):

“A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless

(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing in a manner that can be reasonably understood by the client;

(2) the client is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel on the transaction; and

(3) the client gives informed consent, in a writing signed by the client, to the essential terms of the transaction and the lawyer’s role in the transaction, including whether the lawyer is representing the client in the transaction.”

Comment [1] indicates that the rule is meant to address “the possibility of overreaching when the lawyer participates in a business, property or financial transaction with a client, for example, a loan or sales transactions or a lawyer investment on behalf of the client.”  It adds that the rule “does not apply to ordinary fee arrangements between lawyer and client, which are governed by Rule 1.5[1], although its requirements must be met when the lawyer accepts an interest in the client’s business or other nonmonetary property as payment of all or part of the fee.”

Now, some might be wondering “why isn’t this in the rule on fees?”  It is — kind of.  Again, Rule 1.5 prohibits unreasonable fees. Comment [4] allows a lawyer to “accept property in payment for services.”  However, the Comment goes on to caution that “a fee paid in property may be subject to the requirements of Rule 1.8(a) because such fees often have the essential qualities of a business transaction with the client.”

In short, when bartering for a legal fee, remember that the rule on business transactions with a client might apply.

As always, let’s be careful out there.


[1] V.R.Pr.C. 1.5 prohibits unreasonable fees.

Some basics related to the duties that apply when a lawyer or law firm handles cryptocurrency.

Blogger’s Note:  many thanks to Tom Little for sending me the Ohio advisory opinion that is referenced below and that served as the impetus for this post.

Cryptocurrency

My sense is that not many Vermont lawyers or law firms often handle cryptocurrency.  Doing so is likely to become more common, especially for lawyers and firms whose clients regularly use cryptocurrency to conduct transactions. Thus, it makes sense to highlight the professional responsibility issues most likely to arise.

Caveat: I don’t understand even the basics of cryptocurrency. So, here, I’m not going to try to explain what it is or how it works. Rather, I will limit this post to sharing guidance that others have provided.  Namely, via the following advisory ethics opinions:

The opinions discuss three distinct situations in which a client or third party might ask to transfer cryptocurrency to a lawyer or law firm:

  1. to pay for legal services that have already been rendered.
  2. as an advance against legal services that will be provided in the future.
  3. to hold in escrow pending future use by the client.[i]

For me, the opinions lend themselves to a single overarching takeaway.[ii]

On this blog and at CLEs, I’ve long argued that new things don’t necessarily require us to rewrite the Rules of Professional Conduct. 

  • No matter the mode of communication, the duty is to employ reasonable precautions against unauthorized access to or inadvertent disclosure of client information
  • Whether using a file cabinet, the storage facility on Town Line Road, or the cloud, the duty is to take reasonable precautions to safeguard client property.
  • Yes, social media has provided new ways for lawyers to get caught. It has not, however, created or caused the underlying misconduct that has always been a violation of the rules, but is more readily apparent when done in a public medium.

That’s why a section of the D.C. opinion resonates with me:

“We do not perceive any basis in the Rules of Professional Conduct for treating cryptocurrency as a uniquely unethical form of payment. Cryptocurrency is, ultimately, simply a relatively new means of transferring economic value, and the Rules are flexible enough to provide for the protection of clients’ interests and property without rejecting advances in technologies.”

In other words, just because something is new doesn’t mean it’s unethical.

Rather, take the “tech” out of it and look to fundamental principles that have long been part of the foundation upon which the Rules were constructed:

  • legal fees must not be unreasonable,
  • client property must be safeguarded,
  • risks associated with the representation must be explained to the client,
  • no matter who pays, a client’s confidences must be protected, and a lawyer’s independent judgment must not be compromised, and,
  • business transactions with a client must be transparent and fair.[iii]

With these principles in mind, I should stop.  If I don’t, my second post in 2 months would go on so long that readers would wish I’d taken a permanent vacation from blogging.

Alas, I’d be remiss not to mention the following points, each of which is made in both the Nebraska and D.C. opinions.

  • Cryptocurrency is not fiat currency. It is property and must be treated as such. 
  • Before a lawyer or firm agrees to accept cryptocurrency as an advance fee, the lawyer or firm better know how to hold it safely.
  • V.R.Pr.C. 1.5 prohibits unreasonable fees. Comment [4] states that while a lawyer may accept property as payment of a fee, “a fee paid in property instead of money may be subject to the requirements of Rule 1.8(a),” the rule that governs business transactions with a client. 
  • Indeed, the D.C. opinion concludes that Rule 1.8(a), which governs business transactions with a client, applies when (a) a client transfers cryptocurrency against which the lawyer will bill for legal services in the future; and (b) a client and lawyer agree to an ongoing relationship in which the lawyer will provide legal services in exchange for X amount of cryptocurrency per month.

Now I’ll stop.  For real.  For more, check out the opinions or give me a call.

As always, let’s be careful out there.

Related Posts

[i] The Nebraska and D.C. opinions focus on the first two, while the Ohio opinion addresses the third. 

[ii] My takeaway is not a substitute for reading the opinions themselves and may not be the same takeaway made by Disciplinary Counsel’s, a PRB hearing panel, or the Vermont Supreme Court.

[iii] In order, Rule 1.5, Rule 1.15, Rule 1.4, 1.6, and Rule 1.8.

Vermont’s Rules on Handling Flat Fees Paid in Advance of Services Being Provided. With some wellness thrown in.

This post will eventually address Vermont’s rules on handling flat fees that are paid in advance of any legal services being provided.  First, however, I’ll share some thoughts on billing and wellness.

I’ll say again what I’ve said before: I’m a fan of the recommendations made by the Legal Employers Committee in the State Action Plan that the Vermont Commission on the Well-Being of the Legal Profession issued in 2018.  Outlined on page 11 and beginning in full on page 68, the committee’s recommendations provide fantastic and prescient tips for legal employers, both public and private, interested in improving the profession’s wellness.  A few months ago, I posted this endorsement of the committee’s recommendation that employers allow staff to set communication boundaries with clients and opposing counsel.

Another of the committee’s recommendations addressed billable hours.

  • “In firms that impose billable hour quotas on attorneys, assess whether and how that quota system may be contributing to unproductive competition, excessive stress, and unhealthy work habits. In large firms, an anonymous survey may be the best way to assess this issue. In smaller firms, it can be done through simple observation. If a quota system appears to be encouraging unhealthy behavior and excessive stress, modify it, eliminate it, or consider alternatives.”

That the billable hour impacts wellness is not news. In 2011, the State Bar of Michigan posted The Billable Hour and Lawyer Wellness.  Responding to the argument that the billable hour is unhealthy in and of itself, the author wrote:

  • “It is not. At its root, the problem is one of wellness. Unhealthy lawyers create and perpetuate unhealthy systems. Put simply, the way a healthy lawyer relates to billable hours is much different from the way an unhealthy lawyer does.”

More recently, Law.Com addressed the billable hour’s impact on associates’ health, Above The Law highlighted one large law firm’s attempt to improve work-life balance by reducing the billable hour requirement, and Attorney At Law warned that encouraging/providing vacations means nothing absent a reduction in billable hours.

One alternative to hourly billing is a flat fee.

Again, today’s focus is on how to handle flat fees.  Still, for anyone considering the model, Clio has 5 Ways Flat Fee Attorneys More and How To Determine The Price Of Flat Fee Legal Services.  Meanwhile, Attorney at Work has Flat Fee or Hourly? Pros and Cons of Lawyer Billing Options.

So, you’ve decided to use flat fees.  Consider:

  • Mike Kennedy retains you. You agree to handle Mike’s matter for $ X. Prior to you doing any work, Mike advances $ X.

Now what?

At the beginning of this post, I promised eventually to address Vermont’s rule. Well, since then I got distracted and am only now back to fulfill my promise.  Alas, in the interests of time and needing to run to the store to get some half & half for this morning’s coffee[1], I’ll resort to an old blogger’s trick:  here’s my post on how to handle flat fees that are paid in advance of services being provided.

As always, be careful out there.

Dollar Sign

[1] Jennifer & Laura: the carton says “October 27.”  You know how I am.

Overbilling, fraudulent billing, and well-being: a lesson from Massachusetts.

The Supreme Judicial Court of Massachusetts issued an interesting disciplinary opinion this week.  The opinion is here.  I’m posting about it for two reasons:

  1. There is a critical difference between unreasonable fees and fraudulent billing.
  2. Stress, anxiety, and the pressures associated with practicing law do not excuse misconduct.

Excessive Fees & Fraudulent Billing

Rule 1.5 prohibits lawyers from charging unreasonable fees.  We don’t often receive fee complaints. When we do, many are referred for resolution by the VBA’s Committee for the Arbitration of Fee Disputes.  In my view, the Committee provides an appropriate forum for the review of bona fide fee disputes.  It is not the appropriate forum to review or resolve fraudulent billing practices.

Why?

Because fraudulent billing invokes another rule: Rule 8.4(c), the rule that prohibits lawyers from engaging in conduct involving misrepresentation, dishonesty, deceit, or fraud.  The Massachusetts opinion is an example of what happens when charging an unreasonable fee morphs into fraudulent billing.

Disciplinary prosecutors alleged that the lawyer “intentionally inflated the amount of attorney time billed to her four largest clients by approximately 450 hours, falsely ascribing to herself and other attorneys work that was not actually performed.”  A hearing committee recommended a one-year suspension after concluding that lawyer had “intentionally added to her bills time for work that was not performed.”  On appeal, the Board of Bar Overseers recommended that the suspension be increased to two years.

A single justice of the Supreme Judicial Court held a hearing and took additional evidence.  The lawyer conceded that she sent bills reflecting work done by partners and associate that, in fact, she had done herself.  Crediting her testimony, the single justice acknowledged that the bills were false in that they attributed work to people who had not done it, but concluded that the evidence failed to establish that the work had not been done at all.  Coupled with the clients’ satisfaction with the work performed, the single justice concluded that a 6-month suspension was appropriate.

On review, the full court disagreed.  For one, the court concluded that there was no evidence that the lawyer had done the work herself.  In fact, there was substantial evidence that she had not.  Further, the court stressed that it did not matter whether the lawyer had done some of the work, stating:

  • “Our focus, however, is not on the quantum of excessive fees that were billed, but on the fundamental dishonesty inherent in the respondent’s client billings themselves.  It is not the sheer number of unworked hours that establishes the misconduct but, rather, the dishonesty manifested by billing for them at all.”

Then, citing precedent holding that fraudulent billing will be dealt with more severely than charging an unreasonable fee, the Court suspended the lawyer’s law license for two years.

Fraudulent billing has another name: lying.

Well-Being & Mitigation

Throughout the disciplinary case, the lawyer argued that several factors mitigated in her favor.  Like the hearing committee, the Supreme Judicial Court concluded that mitigation was not appropriate.  However, the Court went on:

  • “That said, we recognize that — by all accounts — the respondent performed an extraordinary volume of work in 2015.  She testified that, to carry that workload, ‘[s]he neglected her physical health and was often sleep-deprived’ due to ‘routinely work[ing] over 12 hours a day, and regularly . . . on holidays, weekends and even when nominally on vacation.’  By all accounts, her legal work was of high quality.  Her clients, who were in constant contact with her and aware of the work she was doing for them, did not complain about the amount of time she billed to their matters.  In addition, the respondent’s sister was diagnosed with a serious illness.”

Still, the Court concluded that the lawyer had failed to establish a causal connection between her health (both behavioral and physical) and her misconduct.

Nevertheless, the Court devoted several paragraphs to reinforcing the importance of lawyer well-being.  The Court began with:

  • “Attorney well-being.  As stated, the evidence offered in mitigation in this case does not demonstrate a causal connection between the respondent’s workload and familial pressures, and her misconduct.  Although the evidence is dispositive here, we take the opportunity to acknowledge the role that lawyer well-being plays in the context of both fitness to practice and administration of justice.”

Then, citing to the work done by National Task Force on Lawyer Well-Being, the court made clear that there is no debate that, unaddressed, the stress of practice exacts a toll on lawyers’ health & lives. In addition, the court noted the connection between well-being & professional competence and stated:

  • “Recognizing that connection, taking steps to promote lawyer well-being, and supporting the lawyers who avail themselves of those measures will surely enhance the physical and mental health of individual lawyers and improve the quality and ethical standing of the profession as a whole.”

Still, the court made equally clear that “the pressures faced by lawyers in practice, including those described in the well-being report, do not excuse professional misconduct.”  As such, while behavioral health issues will serve to mitigate a sanction if they cause misconduct, they will not if they don’t.

With Vermont less than a week from the launch of the new Bar Assistance Program, the Massachusetts opinion serves as an important reminder.

Yes – stress, anxiety, and the pressures of practice can be harmful and destructive.  We must do more to assist and to encourage lawyers to address their well-being proactively.  However, stress, anxiety, and the pressures of practice do not necessarily cause us to lie or to engage in fraud.  And, if we go too far and use behavioral health issues that have no bearing on conduct to excuse misconduct, we will risk the privilege to self-regulate.

Yes.  Once the Bar Assistance Program begins, I will devote myself to proactive wellness & well-being. It’ll be no different than the proactive nature of the current inquiry process, one that provides ethics guidance to lawyers before they act.  Moreover, the system isn’t binary.  That is, help will be available even to lawyers facing disciplinary charges.  However, while the Bar Assistance Program will assist lawyers to address health issues that can cause misconduct, I do not envision it operating as a tool to excuse misconduct that has caused harm to clients and to the profession.

wellness

Lawyer’s incivility factors in substantially reduced fee award.

It’s rare that I post twice in the same day.

Earlier today, I posted a blog with “quick tips” to reduce stress. In it, I mentioned what I’ve mentioned often over the past few months: in my opinion, incivility by lawyers contributes to stress and negatively impacts lawyer well-being.

If not being a jerk for its own sake isn’t enough, here, perhaps, is motivation to be more civil: a California appellate court recently affirmed a trial court’s decision to use a lawyer’s incivility as part of the basis to award a lower fee than the lawyer had requested.

The opinion is here.  Thank you to Geoffrey Bok for sending it me.  Geoff is admitted in Vermont and Massachusetts, is the former chair of the Massachusetts Board of Bar Examiners, and is an excellent resource on matters related to legal ethics and professional responsibility.

Per the opinion, a lawyer hired a contractor to work on the lawyer’s home. After paying the contractor more than $92,651, the lawyer instructed the contractor to stop.  The lawyer was not satisfied with the work and claimed that the contractor owed him $35,096.  The contractor agreed that he owed the lawyer a refund, but only $13,000.  The lawyer sued.

The lawyer prevailed.  Under California law, the lawyer was entitled to judgment in the entire amount he had paid to the contractor – $92, 651 – even though he’d received the benefit of work that not a single witness had “impugned.”  The trial court also awarded the lawyer just over $30,000 in other damages and costs.  By law, the lawyer was entitled to attorney’s fees.

If you don’t believe the next line, please refer to pages 5 and 6 of the opinion.  The lawyer requested “$271,530 in attorney fees, $52,021 in discovery sanctions, and $203,646 for proving matters at trial that had been denied in discovery.” The trial court determined that the lawyer had not provided sufficient evidence to assess whether the fee request was reasonable and gave the lawyer additional time to make the argument.  The trial court instructed the lawyer to limit additional argument to 10 pages of text, plus any exhibits.

The lawyer submitted additional evidence – 11 pages of text, over 400 pages of exhibits – and requested an additional $16,000 in fees.

In the end, the trial court awarded $90,000 in fees.  Among the factors that the court cited in declining to award the full amount requested was the lawyer’s incivility and over-litigation of the matter.

The appellate court affirmed the trial court’s decision that the lawyer was not entitled to the full amount requested.  In so doing, the appellate court commented on the lawyer’s incivility.  The comments begin on page 15.  Here are excerpts, with citations omitted:

Fifth, the court correctly noted the incivility in (the lawyer’s) briefing. Attorney skill is a traditional touchstone for deciding whether to adjust a lodestar. Civility is an aspect of skill.

Excellent lawyers deserve higher fees, and excellent lawyers are civil. Sound logic and bitter experience support these points.

Civility is an ethical component of professionalism. Civility is desirable in litigation, not only because it is ethically required for its own sake, but also because it is socially advantageous: it lowers the costs of dispute resolution. The American legal profession exists to help people resolve disputes cheaply, swiftly, fairly, and justly. Incivility between counsel is sand in the gears.

Incivility can rankle relations and thereby increase the friction, extent, and cost of litigation. Calling opposing counsel a liar, for instance, can invite destructive reciprocity and generate needless controversies. Seasoning a disagreement with avoidable irritants can turn a minor conflict into a costly and protracted war. All those human hours, which could have been put to socially productive uses, instead are devoted to the unnecessary war and are lost forever. All sides lose, as does the justice system, which must supervise the hostilities.

By contrast, civility in litigation tends to be efficient by allowing disputants to focus on core disagreements and to minimize tangential distractions. It is a salutary incentive for counsel in fee-shifting cases to know their own low blows may return to hit them in the pocketbook.”

Here, here.

Don't Be a Jerk

Contingent Fee: $18,500 per hour?

I continue to struggle to find the motivation to blog.  My malaise bugs me.  Rather than dwell on it, this morning I decided to rid myself of it.  My plan is simple: find an interesting story and figure out a way to tie it Vermont legal ethics and write about them.  Then, do it again a few days later. So, here goes.

Earlier this week, the ABA Journal posted Quinn Emanuel seeks fee amounting to $18,500 per hour; will judge approve it?  Quinn Emanuel is a law firm.  The firm represented a class of health care insurers that sued the federal government.  Bloomberg Law posted the firm’s motion to have its fee approved.  The motion’s introductory paragraph sets the stage better than I can:

  • “In February 2016, Quinn Emanuel became the first firm in the nation to file a lawsuit on behalf of a Qualified Health Plan issuer against the federal government alleging that the government improperly failed to make risk corridor payments in violation of Section 1342 of the Affordable Care Act. Four years later, following round after round of fierce litigation and a loss at the Federal Circuit, eight justices of the Supreme Court adopted the exact legal theory Quinn Emanuel set forth in the initial Health Republic complaint and which it advocated at every step, including in the parallel cases that eventually made their way to the Supreme Court. The result? An entire industry was able to collect three years’ worth of unpaid risk corridors amounts they had previously been forced to write off as a total loss—approximately $12 billion. Nearly $4 billion of that recovery will go to the class members in these class actions.”

Cutting to the chase, years ago, the firm notified class members that it would ask a court to approve a fee equal to 5% of any recovery.  Here, 5% of $3.7 billion is $185 million. Per the ABA Journal, that “translates to a whopping hourly fee of about $18,500.”

It’s not my point today to comment on the Quinn Emanuel case.  Rather, I’m using it as click bait to provide a refresher on contingent fee agreements.

Rule 1.5(a) prohibits lawyers from agreeing to, charging, or collecting unreasonable fees and expenses.  Contingent fees, and expenses in contingent fee cases, are subject to the rule.

A contingent fee agreement MUST be in a writing that is signed by the client.  In Vermont, the failure to reduce a contingent fee in writing has resulted in lawyers being reprimanded and admonished.  Tip: do this at the outset of the representation.

In addition, Rule 1.5(c) states that a contingent fee agreement MUST:

  • state the method by which the fee is to be determined, including:
    • the percentage that will accrue to the lawyer in the event of settlement, trial, or appeal;
    • the litigation & other expenses that will be deducted from any recovery; and,
    • whether such expenses will be deducted before or after the contingent fee is calculated.
  • clearly notify the client of any expenses for which the client will be liable whether or not the client is the prevailing party.

Upon the conclusion of a contingent fee matter, a lawyer:

  • MUST provide the client with a written statement showing the outcome of the matter and, if there is a recovery, the remittance to the client and the method by which it was determined.

Lawyers are NOT allowed to agree to, charge, or collect:

  • a contingent fee in a criminal case;
  • a fee that is contingent upon the securing of a divorce; or,
  • a fee that is contingent upon the amount of spousal maintenance or support, or property settlement in lieu thereof, in a domestic relations matter.

However, lawyers may use contingent fees in domestic relations matters that involve the collection of:

  • spousal maintenance or support due AFTER a final judgment has been entered; or,
  • child support and maintenance arrearages due AFTER a final judgment has been entered, provided that the court approves the reasonableness of the fee agreement.

In other words, contingent fees are okay in some POST-JUDGMENT divorce & custody matters.

Finally, two cautionary tales.

First, in this post, I referenced a case in which a contingent fee agreement called for a firm to receive 40% of any recovery.  It also included this provision:

  • “Should [Client] refuse to make any settlement which my attorneys advise me is reasonable and should be taken, then I understand that I am responsible for their fee on the basis of that offer, unless they waive this provision.”

Sure enough, the client rejected a settlement offer that the firm advised the client to accept. The firm withdrew and, pursuant to the clause, sought its fee. The Tennessee Supreme Court publicly reprimanded the lawyers, concluding that the settlement provision chilled the client’s right to decide whether to settle.

Second, the failure to reduce to a fee agreement to writing can result in more than a disciplinary sanction.  As the ABA Journal reported here – in a case in which the client was Johnny Depp – a contract for attorney’s fees can be voided if not reduced to writing.

I’ve blogged.  With that weight lifted, off to do what I never lack the motivation to do: get some miles in on a sunny day.  Enjoy the weekend!

Dollar Sign

Mobile Payment & Legal Fees

I’m not what anyone would call “young.”  But you know what I don’t use anymore?

Checks.

I write one per month: to my homeowner’s association.  I pay my other bills via online payments options tied to my bank account or credit card.  If I owe anyone money, I either (a) buy them a beer and say, “let’s call it even;” or (b) send it via Venmo or PayPal after they question my definition of “even.”

I expect that this will be controversial:  I hope that the conduct rules are never interpreted or applied to prohibit lawyers and law firms from accepting payment – including retainers – via services like Venmo and PayPal.

As alluded to in the opening paragraph, it’s a question we need to resolve.  An ever-growing number of consumers of legal services do not use cash or checks. I think lawyers need to consider whether not having, say, a firm Venmo account will cost the firm a potential client who asks “to Venmo” the retainer.

I’m aware of only one advisory opinion directly on point.  It’s the South Carolina Bar’s Ethics Advisory Opinion 18-05.   (Note: this post is NOT about credit card payments or the numerous advisory opinions on credit card payments.)

Cutting to the chase, here’s the conclusion reached by the SC Bar:

  • “Accordingly, Lawyer may elect to establish a dedicated trust account via an online payment service provider, but funds received into that account are likely to be nominal or short-term, thus requiring in turn a transfer of those funds to an IOLTA account. Lawyer should be aware of an elevated risk of non-collection under these circumstances in making the individual determination as to whether he is willing to receive funds belonging to third parties via an online payment service
    provider, PayPal or otherwise.”

Makes sense to me.

Remember: “trust account” is a term that gets thrown loosely.  There’s a difference between a “trust account” and a “pooled interest-bearing trust account.”

If a lawyer represents me and is holding money in connection with the representation, there’s no question that the money must be held in trust.  The only question is this: are the funds reasonably expected to earn net dividends or interest?

If the answer is “yes,” the money must be held in a trust account.

If the answer is “no,” which it most often is, then the funds must be held in a “pooled interest-bearing trust account in a financial institution in Vermont that has been approved by the Professional Responsibility Board.”   This latter scenario involves what all of us refer to as “IOLTA accounts.” The interest generated by the “pooling” of my funds with funds that belong to my lawyer’s other clients is paid to the Vermont Bar Foundation.

With both this and the South Carolina opinion in my mind, I see no reason why a lawyer or firm can’t create a Venmo account to accept fees that are paid in advance.  Of course, all the other rules apply.  For instance,

  • the account must include a record-keeping system that complies with Rule 1.15A(a);
  • records of funds held in the account must be maintained for 6 years following the termination of a representation;
  • the account is subject to the compliance reviews and audits authorized by Rules 1.15A(b) and 1.15A(c) or audit; and,
  • the lawyer or firm cannot deposit its own fees into the account, except in an amount necessary to pay service charges or fees on the account.

Then, on a regular basis, the lawyer or firm must (1) transfer earned fees to the operating account; and (2) transfer to a pooled-interest bearing trust account (“IOLTA”) at an approved institution funds that otherwise would be deposited into the IOLTA if received by check, cash, or credit card.

In short, I’m on board with the SC opinion and think that the existing rules allow lawyers to accept advance payments via methods like PayPal and Venmo.  Of course, others might disagree with me. That’s fine.  If I’m wrong, we should change the rules and expressly allow lawyers and their clients to transact business in a way that society has deemed commercially reasonable.

One final note: if you or your firm has a Venmo account, you might want to suggest to clients who use it that they change their privacy settings.  I can imagine a few friends of mine reacting uncomfortably when confronted by spouses who saw a payment to a law firm on their Venmo feeds.

For more, here’s an Above The Law post that’s a primer of sorts on different methods of digital payments.  Finally, a related post: Bitcoin as Payment for Legal Fees.

Dollar Sign

 

 

Quality Work Won’t Excuse An Excessive Fee

Last week, the New Jersey Supreme Court disbarred an attorney who charged an excessive fee and engaged in fraudulent and deceptive billing practices.  The ABA Journal reported the story here.  The Court’s disbarment order is here.

The Court’s order adopted this recommendation from the New Jersey Disciplinary Review Board.  In my view, the Board’s recommendation includes valuable tips.

Rule 1.5(a) of the Vermont Rules of Professional Conduct states that “a lawyer shall not make an arrangement for, charge, or collect an unreasonable fee or an unreasonable amount of expenses.”  We do not have many reported disciplinary decisions involving unreasonable or excessive fees.  The most recent is this one.

Indeed, we do not receive many fee complaints.  And, when we do, most of them are garden variety fee disputes that, as authorized by the rules that govern the Professional Responsibility Program, we refer to the Vermont Bar Association’s Committee for the Arbitration of Fee Complaints.

The New Jersey case was far more serious than a “garden variety fee dispute.”

The client hired the respondent to represent her in her capacity as the executrix of her husband’s estate.  Three initial points:

  1. Respondent billed the client “674 hours, for a total fee of $120,275.25, of which she paid $88,199.68.”
  2. The client fired the respondent.  New counsel began from scratch and completed the work for a total of $12,912.50.
  3. At the disciplinary hearing, an expert testified that he would have completed the work for no more than $15,500.

Some key lessons from the opinion:

  • The respondent argued that his work netted the client a significant tax savings.  The Board responded: “The bulk of respondent’s defense was that it was critical for him to eliminate the $23,243 in New Jersey estate taxes, but he ignored the fact that he billed the estate almost six times the amount of the tax savings ($120,275.25).”

I’ve not seen anything that extreme.  But, be wary: charging $X for a client to recover significantly less than $X could easily get a lawyer into hot water.

  • The respondent argued that his billing records were accurate and that the work he did was of good quality.  Nobody disagreed.  Not the disciplinary prosecutor, not the Disciplinary Review Board. However, ss the Board stated:
    • “Respondent failed or refused, at every turn, to understand the issue in this
      case. His lack of understanding is illustrated by his statement that he would have been sued for malpractice if he had not provided the services he did. Although the [disciplinary prosecutor] had stipulated that the quality of respondent’s services was not in question, when respondent was repeatedly confronted with the fact that he was not defending the actual charges, he simply replied that he was merely proving that he did the work.”

Billing for work that isn’t necessary is unethical.  It’s a violation of the rule that prohibits unreasonable fees.  In addition, as the NJ Board noted, clients are entitled to assume that their lawyers will not charge them for work that is not required and has no bearing on the objective of the representation.  When such “overreaching” demonstrates “a significant disconnect between the amount of work reasonably necessary to resolve a client’s matter and the amount billed,” it’s deceptive and fraudulent.

  • A chunk of the bill was for time spent getting up-to-speed on “ancillary probate issues” that arose, of all places, in Vermont.  The Board concluded that, in and of itself, charging to learn the law isn’t unethical per se.  But when the entire matter could’ve been done for $15,000, charging $23,000 to “educate himself at the expense of the client . . . is both unethical and fraudulent.”

Be careful how much you charge to get up to speed on a client’s matter.

In closing, anyone who has ever heard me speak on Rule 1.5 and issues related to billing has heard me clearly state that “it is not unethical to charge your clients.”  My tips:

  • at the outset, tell clients what you will charge;
  • at the outset, give clients a reasonable expectation of how much time the matter will take; and,
  • send regular invoices.

In other words, treat your clients the same way you’d want to be treated by someone you hire to do something for you.

Finally, don’t assume that “if a client complains, the worst case will be fee arbitration.” While it hasn’t happened in a long time, one of these days, the worst case will be, quite literally, the worst case.  And worst cases usually result in disciplinary sanctions.

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