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.

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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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An Improper Contingent Fee

I’ve used the past few Tuesdays to post on trust accounting.  I’m going off script today to call attention to a disciplinary case that strikes me as important.

Alberto Bernabe is a professor of law at the John Marshall Law School. Regular readers will recognize Professor Bernabe as a frequent member of this blog’s #fiveforfriday Honor Roll.  His Professional Responsibility Blog is a fantastic source of information on legal ethics & professional responsibility.

Yesterday, Professor Bernabe posted Tennessee Supreme Court imposes sanctions for improper contingency fee.  The opinion issued on May 13 and is here. The issue: whether a lawyer violated the rules by attempting to collect a fee that was based on a percentage of a settlement offer that the client rejected.

Before I get into the details, let’s review the rules that would apply if the issue arose in Vermont.

  • Rule 1.2(a) requires a lawyer to “abide by a client’s decision to settle a matter.”
  • Rule 1.5(a) prohibits a lawyer from agreeing to, charging, or collecting an unreasonable fee;
  • Rule 1.5(c) allows a fee that is contingent upon the outcome of a matter; and,
  • Rule 1.8(i) prohibits a lawyer from acquiring a proprietary interest in a client’s cause of action but allows (1) liens authorized by law to secure fees & expenses; and (2) contracts for reasonable contingent fees.

The facts of the Tennessee case:

Client filed a pro se complaint alleging that she’d been injured by the defendant’s negligence. Soon thereafter, Client retained Law Firm.  Client & Law Firm entered into a written fee agreement. Per the agreement, Client would pay Law Firm a contingent fee, plus expenses.  The amount: 40% if recovery were made before an appeal, 45% if recovery made after an appeal.  The fee agreement did not include any language that provided for an hourly fee.  It did, however, include 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.”

Following discovery, the defendant offered $12,500.  Attorney and another at Law Firm advised Client to accept. Client did not.

Attorney moved to withdraw.  In the motion, Attorney also requested a lien in the amount of $13,605 for fees, plus $2,4528.52 for expenses.  The motion asserted that Law Firm had put in 45.35 hours of work at $300 per hour.  The court granted the motion to withdraw but did not rule on the request for a lien.

Eventually, Client filed a disciplinary complaint.  By then, Attorney had filed two additional motions requesting a lien on any recovery.  The final request referenced the fee agreement and sought 40% of the settlement offer that Client had rejected.

At the trial level, a court concluded that Attorney violated Tennessee Rules 1.5(a), 1.5(c), 1.8(i).  The Tennessee Supreme Court affirmed and publicly reprimanded Attorney.

Some key points from the Tennessee Supreme Court’s opinion:

  • the “Settlement Offer Provision” created a fee that was contingent on Attorney recommending that Client accept a settlement offer, but not, as required by the rule, on the outcome of the matter;
  • the so-called “Settlement Offer Provision” was unreasonable in that had an impermissible “chilling effect” on Client’s decision whether to settle;
  • The “Settlement Offer Provision” impermissibly provided Attorney with a proprietary interest in any settlement offer that Attorney recommended Client accept; and,
  • The “Settlement Offer Provision” was unreasonable in that it by recommending that Client accept an offer, “Attorney thereby became entitled to a fee, regardless of whether [Client] accepted the offer and regardless of whether she obtained any recovery whatsoever.”

As noted by Professor Bernabe, Faughnan on Ethics blogged on the opinion here.  Like Bernabe, Faughnan is a terrific resources on professional responsibility.  The post notes:

  • “At its core, this case explains the limits on the ability of a plaintiff’s attorney to try to guard against what happens if their client rejects the attorney’s advice on whether to accept a settlement offer. There do, in fact, have to be limits on the ability to hedge against that because the ethics rules establish explicitly that the decision whether to settle a civil case or not is the client’s decision.”

The post goes on to remind us that, generally, the rules allow lawyers who withdraw “to assert a lien as authorized by statute and pursuant to either the terms of their contract or, perhaps, depending on how things turn out for payment in the form of quantum meruit.”

Again, this is a Tennessee opinion.  It’s worth noting, however, that the rules involved are identical to Vermont’s.

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(Un)Reasonable Fees

Quick:  which is correct?

Vermont’s Rules of Professional Conduct specifically

  • A.   require reasonable fees;
  • B.   prohibit unreasonable fees.

It might be a distinction without a difference, but when crafting the #fiveforfriday quiz or trivia-style CLE events, there are only so many ways to ask the same questions over and over again.  So, it’s a question to which I’ve resorted often.

The answer?

B. prohibit unreasonable fees.

It’s Rule 1.5(a):

“A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses.”

The rule goes on to list “[t]he factors to be considered in determining the reasonableness of a fee.”  Notably, those factors DO NOT include “whether the client agreed to it.”

Ultimately, the Vermont Supreme Court determines whether an attorney’s fee violates Rule 1.5.  As the Court explained in paragraph 16 of this decision, a lawyer charged with violating Rule 1.5 will not find safety in the harbor named “but the client signed a contract agreeing to my fee.”

  • “This argument demonstrates [the lawyer’s] failure to comprehend the effect of Vermont Rules of Professional Conduct 1.5(a);  lawyers, unlike some other service professionals, cannot charge unreasonable fees even if they are able to find clients who will pay whatever a lawyer’s contract demands.”

I found myself thinking of the Court’s statement earlier today when I read about the law firm that sought a $9.75 million “bonus fee” in a divorce case.  The Chicago Tribune and the ABA Journal reported the story.

Per the Chicago Tribune, the firm “sought the bonus fee under a 2015 retainer agreement with [the client], which allowed for additional fees beyond the hourly bill to cover such things as ‘time and labor required, the novelty and difficulty of the questions involved, the skills requisite to perform the legal services properly.’ ”

The judge denied the request.  She also referred the matter to Illinois disciplinary authorities after concluding that the fee was unreasonable.

I’ve not seen the court’s decision or the firm’s contract with its former client.  However, I was struck by the report that the fee agreement “allowed for additional fees beyond the hourly bill to cover such things as ‘time and labor required, the novelty and difficulty of the questions involved, the skills requisite to perform the legal services properly.’ ” (emphasis added).

In Vermont, the first factors listed among those to be considered in determining the reasonable of a fee appear in Rule 1.5(a)(1).  They are:

  • “‘time and labor required, the novelty and difficulty of the questions involved, the skills requisite to perform the legal services properly.”

It’s not clear to me that quoting the rule creates any safer of a harbor than the client’s signature on the fee agreement.  That is, a court will decide whether the amount billed is justifed by the time and labor, the novelty & difficulty, the skills required to perform the services, or any of the other factors listed in Rule 1.5(a).

For now, I think it’s important for Vermont lawyers to remember that, even when the client agrees to a fee, the fee remains subject to review for reasonableness.

Errrrrr, I mean, for unreasonableness.

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Fee Agreements

The rules treat various types of fee agreements differently.  I thought I’d run through them.

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Hourly Fee

The rule: Rule 1.5(b).

An agreement to charge an hourly fee need not be in writing.  That being said, I can’t imagine NOT putting the agreement in writing.  As I’ve blogged, a well-written fee agreement provides a perfect opportunity to avoid complaints by setting reasonable expectations.  The Oregon State Bar has also written on the importance of managing client expectations.

While there’s no requirement to reduce an hourly fee agreement to writing, a lawyer must communicate to the client the scope of the representation and the basis or rate of the fee within a reasonable time after commencing the representation.  Per the rule, it’s preferable that the communication be in writing.

Contingent Fee

The rule: Rule 1.5(c).

A contingent fee MUST:

  • be in a writing that is signed by the client;
  • state the method by which the fee is to be determined, including the percentage that the lawyer will take if the case resolves by settlement, trial or appeal;
  • notify the client of the expenses for which the client will be responsible, including expenses for which the client will be responsible even if the client does not prevail;
  • specify the litigation & other expenses that will deducted from any recovery; and,
  • state whether those expenses will be deducted before or after the contingent fee is calculated.

In Vermont, the failure to reduce a contingent fee in writing has resulted in lawyers being reprimanded and admonished.

Discipline aside, as we learned from Captain Jack Sparrow, the lack of a written contingent fee agreement might cost a lawyer a heckuva lot of coin.

Fee Divided Among Lawyers in Different Firms

The rule:  Rule 1.5(e).

Vermont does not allow straight referral fees. I’ve written on that here, here, and here.

If lawyers in different firms want to share any portion of a fee:

  • the division must be in proportion to the services performed by each, or, both must assume joint responsibility for the representation;
  • the client must agree to the arrangement, including the share that each lawyer will receive;
  • the agreement must be confirmed in writing; and
  • the total fee must be reasonable.

Advance Fees that are Earned upon Receipt

The rules: 1.5(f), 1.5(g), 1.15(c).

My post on the distinction between advance fees that must remain in trust and fees that may be considered earned upon receipt is here.

When a fee is paid in advance, a lawyer may treat it as earned, even though no work has yet to be performed, only if:

  • before or within a reasonable time after the representation begins, a lawyer confirms to the client in writing:
    • the scope of availability & services that the client will receive; and,
    • that the fee is not refundable.

FINAL POINT

The rule: Rule 1.5(a).

No matter the type of fee, it must be reasonable.

 

 

Monday Morning Answers – #129

Happy Labor Day!

Is it hot & humid?  Yes!  But, you have a choice how you respond to the weather.  One choice is to bemoan it & sit on the couch all day.  Another is to smile at the thought of one more day to wear shorts, flip-flops, and to be outdoors!  Maybe even by the grill with a cold beverage . . . on a Monday!

I choose the latter.

Friday’s questions are here.  The answers follow the honor roll.  Also, you’ll recall that I asked readers to share the events seared into their memories.  I did so in the context of Friday being the anniversary of Princess Diana’s passing.  As always with my readers, the response was fantastic and significantly outnumbered entries into the quiz.

The most-cited events were to be expected:

  • 9/11
  • the space shuttle Challenger tragedy

A few others mentioned by at least 3 people:

  • JFK assassination
  • Sandy Hook
  • MLK assassination
  • the moon landing
  • Princess Diana
  • Boston Marathon bombings
  • Barack Obama elected

Interestingly, but perhaps not surprisingly given the frequent musical references on this blog, many of you will never forget where you were & what you were doing when you learned that a musician died.  Among the musicians whose deaths were mentioned more than once:

  • Kurt Cobain
  • Jerry Garcia
  • John Lennon
  • Jim Morrison
  • Elvis Presley
  • Prince
  • Tupac Shakur

Anyhow, thank you again for sharing. I love your stories.  Alas, to make the honor roll, you’ve got to answer the questions!

Honor Roll

(responses had to include quiz answers to make the honor roll)

Answers

Question 1

Lawyer called me with an inquiry.  My response included the following words and phrases:  “knowledge,” “violation,”  “substantial question,”  and “honesty, trustworthiness, fitness.”

What did Lawyer call to discuss?

  • A.  Informing a court that a client had testified falsely in a civil matter.
  • B.  Informing a court that a criminal defense client had testified falsely.
  • C.  Reporting another lawyer’s misconduct.  See, Rule 8.3(a).
  • D.  Whether reciprocal discipline would be imposed in Vermont as a result of Lawyer being sanctioned in another state.

Question 2

The conflicts rules are NOT relaxed for:

  • A.  Lawyers who transfer from one private firm to another.
  • B.  Lawyers who move from government practice to private practice.
  • C.  Lawyers who provide short-term pro bono services under the auspices of a program sponsored by a nonprofit or court.
  • D.  All of the above.

Vermont’s rules do not allow for the automatic screening of lateral transfers.  I’ve blogged on that issue here & here.  Later this month, the PRB will consider a rule change that I’ve recommended that would allow a new firm to screen a lateral transfer from another firm.

Our rules allow for screening when a lawyer moves from government practice to private practice.  In addition, Rule 6.5 relaxes the conflicts rules for lawyers who provide short-term pro bono services under the auspices of a program sponsored by a nonprofit or court.

Question 3

You’re at a CLE.   You hear me say:  “yes, it’s okay as long as  (1) your 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 the representation of your client is protected as required by Rule 1.6.”

What did someone ask if it was okay to do?

  • A.  Accept compensation for representing a client from someone other than the client.  See, Rule 1.8(f).
  • B.  Request that guardian be appointed for the client.
  • C.  Represent co-defendants in a criminal matter.
  • D.  Talk to the media in a client’s case.

Question 4

Client provides Lawyer with an advance payment of $2,000.  Lawyer has yet to do any work for Client.

Which is most accurate?

  • A.  The fee agreement must be confirmed in writing.
  • B.  The fee agreement must be confirmed in a writing that is signed by Client.
  • C.  The $2,000 must go into Lawyer’s pooled interest-bearing trust account (“IOLTA”).
  • D.  Lawyer may treat the money as Lawyer’s own if Lawyer confirms in writing (i) that the fee is not refundable; and (ii) the scope of availability or services that Client will receive.    See, Rule 1.5(f) & (g).

Here, A & B are not correct.  The rules do not require standard fee agreements to be reduced to writing.  That being said, I think it’s a bad idea not to.

C is not correct. There’s not enough information in the question to know.  For instance, if the lawyer has complied with Rule 1.5(f) and (g), then the money cannot go into trust.

Many lawyers charge “flat fees” that are “earned upon receipt” and treat the funds as their own upon receipt.  This is ok ONLY IF THE LAWYER COMPLIES WITH RULE 1.5(f) and RULE 1.5(g).  Otherwise, the money must go in trust until earned.

Question 5

Speaking of the JFK assassination . .  .

. . . Jules Mayer was a lawyer in Dallas.  In 1950, Mayer drew up a will for a client.  The will named Mayer as the executor the client’s estate.

The client died in 1967.  A dispute quickly arose, as the client’s family contended that the client had changed his will on his deathbed to remove Mayer as executor.  Mayer refused to make the change and kept the original will.

In 1991, after a lengthy legal battle, a probate court granted the family’s petition to remove Mayer as executor after concluding that he had mismanaged the estate.

Central to the dispute was gun associated with the JFK assassination.  Mayer’s client bought the gun for $62.50.   After winning their legal battle with Mayer, the client’s family sold the gun for $220,000.  Fortunately for the family, Mayer had safeguarded the gun, holding it in trust for 24 years.

Two-part question:

  1. Who was Mayer’s famous client?
  2. Who was the famous victim of the client’s gun?

Mayer’s client was Jack Ruby.  The gun was used on Lee Harvey Oswald.  A story of the gun is in this article in the Las Vegas Sun.

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Of Counsel: Compensation & Fees

Week before last, I started a 3-part series on ethics issues related to lawyers who work “of counsel” to a firm.  The first part is here.  To summarize: “of counsel” and its variants are misleading if the lawyer does not have:

  • “a close, regular and personal relationship that is more than a mere forwarder or receive of legal business, more than an occasional consultant relationship, and more than a relationship for the purposes of one case.”

I promised two more posts. One on conflicts, another on the relationship between the fee rules and “of counsel” attorneys.  I’m finally getting around to it.  (Let’s be honest – it’s not the most thrilling of topics and, anyway, the weather has been fantastic the past few weeks. Summer is short in this neck of the woods!)

Anyhow, let’s pretend we’re at one of my seminars.  I’ll throw the question to the audience – what’s the ethics issue that comes up when it comes to fees & the manner in which a firm compensates a lawyer who is “of counsel?”

Anyone?  Anyone?  Bueller?

Wait, did someone say “fee sharing??”  We have a winner!

Remember – Vermont does not allow straight referral fees.  I’ve blogged on that issue here, here, and here.  Rather, whenever lawyers not in the same firm want to share a fee, Rule 1.5(e) allows the division only if:

  1. it’s in proportion to work performed, or, each attorney assumes joint responsibility for the representation; and,
  2. the client agrees to the arrangement and the arrangement is confirmed in writing; and,
  3. the total fee is reasonable.

Scenario 1:  A former partner in a law firm is “of counsel” to the firm. The attorney has scaled back her practice, but will continue to practice through the firm. The attorney will not practice law at any other firm.  Former partner works on a client matter for firm.  Firm wants to pay former partner.  Does Rule 1.5(e) apply?

This one is clear: no, Rule 1.5(e) does not apply.  Here, though now “of counsel,” the rules treat former partner as being part of the same firm as, well, firm.

Scenario 2: Firm focuses on commercial litigation.  Firm’s clients often have related tax law issues.  Lawyer focuses on tax law.  Firm wants to take on Lawyer as “of counsel.”  Firm lawyers will consult with Lawyer on all client matters involving tax issues.  Firm will disclose the relationship to clients and Lawyer’s rate will be set forth in engagement letters.  Lawyer will also maintain a personal injury practice that is separate and independent from firm.   Does Rule 1.5(e) apply when Firm pays Lawyer?

The Illinois State Bar Association addressed this issue in Opinion 16-04:  The ISBA concluded that the answer is “no,” stating:

  • “The question then becomes how the ‘of counsel’ lawyer can be compensated for his or her services. We have never addressed whether an ‘of counsel’ lawyer is in the same firm or in a separate firm for the purposes of fee division, but conclude that given the close nature of the ‘of counsel’ relationship, the lawyers should be viewed as being in the same firm. Accordingly, while the lawyers may choose to disclose the nature of the fee distribution between the attorneys withthe client, the lawyers should not be subject to the restrictions set forth in Rule 1.5(e). However, fee agreements with ‘of counsel’ attorneys must always meet the general requirements of Rule 1.5 that a lawyer may not charge or collect an illegal fee or an unreasonable fee.”

The Illinois opinion cites to opinions from several other states that reached the same conclusion.

Scenario 3:  Change the last one a bit.  Firm focuses on commercial litigation and its clients often have related tax law issues.  Lawyer’s practice areas include tax and personal injury law.  Lawyer is “of counsel” to firm for tax law issues, but maintains a separate personal injury practice.  Firm does not handle personal injury cases.  A Firm client, however, was injured in accident.  Firm referred the client to Lawyer.  Does Rule 1.5(e) if Lawyer wants to share the fee with Firm?

In this situation, I’d argue “yes,” because Firm and Lawyer are not part of the same firm.  Rather, Firm referred the client to Lawyer’s separate and independent personal injury practice.  As such, if Lawyer chooses to divide the fee with Firm, Rule 1.5(e) applies and the division may only be made:

  1. in proportion to work performed, or, if Firm and Lawyer assume joint responsibility for the representation; and,
  2. if PI client agrees to the arrangement and the arrangement is confirmed in writing; and,
  3. if the total fee is reasonable.

In sum, it strikes me that the compensation issue will be governed by whether “of counsel” is working on the very matter for which client retained firm, or, whether firm referred to the “of counsel” lawyer a matter in which firm was not retained by the client.

Others might disagree.

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When does a rounding error become an unreasonable fee?

Rule 1.5(a) prohibits a lawyers from making an agreement for, charging, or collecting an unreasonable fee.  I’ve often mentioned that the Professional Responsibility Program receives few, if any, complaints about fees.  Indeed, my quick research reveals that the last disciplinary decision involving Rule 1.5(a) issued in October 2002.

Still, it’s good to know what’s good and what isn’t.

Undoubtedly, you have at least one friend or relative who frequently announces how wonderful it would be to be a lawyer, if only to bill 6 or 15 minutes for a quick phone call. Earlier today, I stumbled across two cases that shed some light on that exact issue.

The ABA Journal and the Legal Profession Blog covered a recent decision from the Wyoming Supreme Court.  The decision involved a client’s challenge to a firm’s practice of billing in 15 minute increments.  The Court concluded that, on the record before it, the evidence supported a conclusion that the firm’s billing practice was not unreasonable.

In its decision, the Court distinguished the case from one it decided in 2014.  It’s the 2014 decision that prompted this blog.

The 2014 case is here.  The lawyer’s license was suspended 30 days for, among other things, charging an unreasonable fee.  More specifically, the Court concluded that the lawyer violated Rule 1.5(a) by billing in 15 minute increments for tasks that, quite simply, did not take even close to 15 minutes to complete.

If your typical practice is to bill in minimum increments, the decision is worth a read.  A quick summary:

  • An attorney’s use of a minimum billing increment is not, standing alone, a violation.
  • Billing for work that was not done is a violation.
  • Double-billing for the same work is a violation.

In the abstract, those 3 statements don’t (and shouldn’t) seem surprising.

What’s key is to take a look at what the lawyer did.  Remember, per the fee agreement, she billed her client in minimum 15-minute increments.  The lawyer wrote down each task as it was completed.  If the task did not take at least 15 minutes, she did not record how long it actually took.  Thus, every single task was billed as having taken at least 15 minutes.  Among other things, the lawyer:

  • “routinely billed .25 hours to sign such documents as subpoenas, stipulated orders, and pleadings.”
  • regularly billed the client .25 hours for reviewing one-page scheduling orders, one-page pleadings, and one-page letters.
  • often billed the client .25 hours to review a document and another .25 hours to sign it.

Again, it wasn’t the minimum billing increment that resulted in the sanction.  Rather, per the Wyoming Supreme Court, an attorney’s billing practices necessarily involves application of “billing judgment.”  That is, an exercise of professional judgment demonstrated by “writing off unproductive, excessive, or redundant hours.”

On this issue, the Court concluded that the lawyer’s “practice of billing 15 minutes for such tasks as signing subpoenas, stipulated orders, and one page letters demonstrated a complete failure to exercise business judgment, which would have required her to write off unproductive, excessive, or redundant hours.”

To be very clear: I am not telling you that a minimum billing increment violates Rule 1.5(a).  I am, however, telling you that at least one Supreme Court has concluded that, if abused, the practice can lead to an unreasonable fee.

 

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