A refresher on fees & fee agreements.

Prelude: Yes, I intend to post a quiz later today.

Sometimes I get stuck not blogging because I try to make every post edgy & interesting. Alas, most of the time, legal ethics & professional responsibility is neither.  That said, the less-than-enthralling basics are important and as likely, if not more so, to lead to disciplinary complaints than issues associated with the “exciting” topics.

Which brings me to today’s post: the basics of the rules that apply to legal fees. This post addresses:

1. Fee Disputes.
2. Standard Hourly Fee Agreements
3. Contingent Fees
4. Referral Fees/Fee Sharing
5. Flat Fees, Fees Paid in Advance, and fees labeled “non-refundable” or “earned upon receipt.”

Fee Disputes

Before I address the various types of fees, here’s a reminder about fee disputes.

V.R.Pr.C. 1.5(a) sets out the general rule: “a lawyer shall not make an agreement for, charge, or collect and unreasonable fee or an unreasonable amount for expenses.” Comment [9] to Rule 1.5 reminds lawyers that:

• “If a procedure for resolution of fee disputes, such as arbitration or mediation, has been established in the representation agreement, the lawyer must comply with the procedure when it is mandatory, and, even when it is voluntary, the lawyer should submit to it if the client requests. Law may prescribe a procedure for determining a lawyer’s fee, for example, in representation of an executor or administrator, a class or a person entitled to a reasonable fee as part of the measure of damages. The lawyer entitled to such a fee and a lawyer representing another party concerned with the fee should comply with the prescribed procedure.”

Indeed, the Vermont Bar Association offers a Committee for the Arbitration of Fee Disputes.  For more information, contact the current chair, and regular member of the Five for Friday Honor Roll, Jeff Messina.

General Rule – All Fees

Again, V.R.Pr.C. 1.5(a) sets out the general rule: “a lawyer shall not make an agreement for, charge, or collect and unreasonable fee or an unreasonable amount for expenses.”

Critical to remember is that it’s a violation to agree to an unreasonable fee.  Indeed, the mere fact that a client agrees to a fee does not render it reasonable.  Indeed, the Vermont Supreme Court has rejected that exact argument, stating that “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.”[1]  Rather, the reasonableness of a fee is judged by applying the criteria set out in V.R.Pr.C. 15(a).[2]

Standard Hourly Fee Agreements

Rule 1.5(a) states that “the scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation.”  While the rule does not require an hourly fee agreement to be in a writing, I don’t know why a lawyer wouldn’t want to reduce the agreement to a writing that is signed by the client.

Contingent Fees

Rule 1.5(c) governs contingent fees.

Like any fee, a contingent fee shall not be unreasonable.  Further, a contingent fee agreement must:

• be in a writing that is signed by the client;[3]
• state the method by which the fee is to be determined;[4] and,
• 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.

Rule 1.5(c) prohibits charging a contingent fee while representing the defendant in a criminal case. It also prohibits fees that are “contingent upon on the securing of a divorce or upon the payment of spousal maintenance or support, or property settlement in lieu thereof.”  However, the rule permits the use of contingent fees in certain post-judgment family matters.[5]

Referral Fees & Fee Sharing

I’ve blogged about referral fees before.  The most recent post is here.  Check it out. If you don’t want, remember this: Vermont does not allow straight referral fees.

Flat Fees Paid in Advance

Vermont allows fees to be paid in advance of any services being performed.  We also allow flat fees and flat fees that are paid in advance of any services being performed. 

The general rule is this: if a client advances a fee that you will bill against as you provide legal services, the fee must remain in trust until the services are provided and the fee is earned. However, in very specified situations, we permit lawyers to treat fees that are paid in advance as “earned upon receipt.”

A prior post on the rule that governs fees labeled as “non-refundable” and “earned upon receipt” is here.  Sometimes I worry that lawyers are charging “non-refundable” fees without complying with the rule that permits them to do so.  Therefore, I’m going to cut and past from the prior post.

Rules 1.5(f) & (g) took effect in May 2016.

As amended, Rule 1.15(f) states that a lawyer may characterize a fee as “nonrefundable” and accept such a fee in advance of services being rendered only if:

• “(1) The lawyer confirms to the client in writing before or within a reasonable time after commencing representation (i) that the funds will not be refundable, and (ii) the scope of availability and/or services the client is entitled to receive in exchange for the nonrefundable fee.”

In addition,

• “(2) A lawyer shall not solicit or make any agreement with a client that prospectively waives the client’s right to challenge the reasonableness of a nonrefundable fee, except that a lawyer can enter into an agreement with a client that resolves an existing dispute over the 2reasonableness of a nonrefundable fee, if the client is separately represented or if the lawyer advises the client in writing of the desirability of seeking independent counsel and the client is given a reasonable opportunity to seek such independent counsel.”

It is only under these specific conditions that a fee may be characterized as “nonrefundable” or other similar term.  Indeed, here’s the next paragraph:

• “(3) Where it accurately reflects the terms of the parties’ agreement, and where such an arrangement is reasonable under all of the relevant circumstances and otherwise complies with this rule, a fee agreement may describe a fee as “nonrefundable,” “earned on receipt,” a “guaranteed minimum,” “payable in guaranteed installments,” or other similar description indicating that the funds will be deemed earned regardless of whether the client terminates the representation.”

Finally, paragraph (g) directs the way fees will be handled:

• “(g) A nonrefundable fee that complies with the requirements of (f)(l)-(2) above constitutes property of the lawyer that should not be commingled with client funds in the lawyer’s trust account. Any funds received in advance of rendering services that do not meet the requirements of (f)(1)-(3) constitute an advance that must be deposited in the lawyer’s trust account in accordance with Rule 1.15(c) until such funds are earned by rendering services.”

Again, I must stress that, no matter how designated, a fee that paragraphs (f) and (g) authorize a lawyer to treat as earned upon receipt remains subject to the reasonableness standard in paragraph (a). The rule and the 2016 Reporter’s Note make this clear. In my view, an unreasonable fee must be refunded even if labeled “non-refundable.”

As always, let’s be careful out there.

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[1] In re Sinnott, 2004 VT 16, §16.

[2] In re Sinnott, 2004 VT 16, §14

[3] The agreement must be signed “up-front.” See, In re Fink, 2011 VT 42, ¶17 (“The purposes of the rule is to set forth the parties’ obligations up-front to avoid later confusion or disagreement about the terms of the representation or the fee due.”) See also, In re Anonymous Attorney, 2015 VT 101 (lawyer admonished for failure to reduce contingent fee agreement to writing.)

[4] 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.

[5] V.R.Pr.C. 1.15(d) states that “contingent fees are not forbidden in domestic relations matters which involve the collection of (i) spousal maintenance or property division after a judgement is entered; or (ii) child support and maintenance supplement arrearages due after final judgment, provided that the court approves the reasonableness of the fee agreement.”

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:

• Referral Fee?  Think Thrice!
• Think twice before agreeing to a referral fee.
• Referral Fees

Monday Morning Answers

Friday’s questions are here.

Before I get to the Honor Roll & answers, don’t forget to submit your Mt. Rushmore of U.S. Supreme Court justices.  I’ll reveal the results Wednesday.

Finally, if you missed it this weekend, the latest Was That Wrong? serves as a reminder that it’s never a good sign for a lawyer when the Supreme Court’s discussion of the appropriate sanction begins with “There is, quite thankfully, scant precedent in our disciplinary annals for misconduct such as this.”  

Honor Roll

• Matthew Anderson, Pratt Vreeland Kennelly & White
• Penny Benelli, Dakin & Benelli
• Alberto Bernabe, Professor, John Marshall Law School
• Andrew Delaney, Martin & Associates
• Mike Donofrio, Striss Maher
• Laura Gorsky, Esq, Law Office of David Sunshine
• Bob Grundstein, Esq.
• Glenn Jarrett, Jarrett & Luitjens
• Keith Kasper, McCormick, Fitzpatrick, Kasper & Burchard
• Patrick Kennedy, First Brother, My Web Grocer
• Kevin Lumpkin, Sheehey Furlong & Behm
• Lon McClintock, McClintock Law Offices
• Jeffrey Messina, Bergeron Paradis Fitzpatrick
• Hal Miller, First American

ANSWERS

Question 1

There is a rule that links an attorney’s duty of diligence to:

• A.  Promptness
• B.  Thoroughness
• C.  Preparation
• D.  Skill

Rule 1.3 requires a lawyer to act with reasonable diligence & promptness while representing a client.  Comment [3] begins with “perhaps no professional shortcoming is more widely resented than procrastination.”  Choice B, C, D are not linked to diligence, but to Rule 1.1’s duty of competence.

Question 2

For the purposes of Vermont’s rules, which is different from the others:

• A.  A check drawn on the IORTA of a realtor licensed in Vermont
• B.  A check drawn on the IOLTA of a lawyer licensed in Vermont
• C.  A check in the amount of $2,500 drawn on a client’s personal checking account.  See, Rule 1.15.  
• D.  A check in the amount of $500,001 issued by an insurance company that is licensed to do business in Vermont.

Per Rule 1.15(f), a lawyer shall not disburse from trust absent “collected funds.”  However, Rule 1.15(g) lists instruments that will be presumed to constitute collected funds upon deposit.  Choices A, B, and D are among those types of instruments.  Choice  “C” is not because the amount exceeds $1,000.

Question 3

Attorney called me with an inquiry.  I listened, then replied:

“For it to be okay, 3 things have to happen.  (1) It has to be in proportion to services you render, or, if not, you have to agree to assume joint responsiblity for the representation; (2) the client has to agree and confirm the agreement in writing; and, (3) the total has to be reasonable.”

What did Attorney call to discuss?   Fee Sharing.  See, Rule 1.5(e).

Question 4

There is a rule that prohibits a lawyer from stating a personal opinion as to the justness of a cause, the credibility of a witness, the culpability of a civil litigant, or the guilt or innocence of an accused.  It applies:

• A.   In trial.  Rule 3.4(e). 
• B.   Only during closing arguments
• C.   Only during opening statements
• D.   During closing arguments AND to statements made to the press.

There is not enough information in the question to determine whether Rule 3.6 (“Trial Publicity’) applies. The specific prohibitions listed in the question do not appear in Rule 3.6 and, further, that rule only applies to extrajudicial statements that a lawyer knows will be disseminated by public methods of communication and will have a substantial likelihood of materially prejudicing a proceeding.

Question 5 – Two parts:

In real life, O.J.’s attorney, Johnny Cochran, argued “if it doesn’t fit, you must acquit.”  He was referring to the so-called “bloody gloves.”

Part 1:

Jackie Chiles is a fictional attorney who regularly appeared on Seinfeld.  The character is a parody of Johnnie Cochran.  In the episode “The Caddy,” Chiles represented Kramer in a suit against Sue Ellen Mischke.  Kramer alleged that Mischke’s attire, while walking down the street, so distracted him as to cause him to get into an accident.  Chiles’ skillful and eminently competent cross-examination of Jerry Seinfeld delivered Kramer to the brink of a courtroom victory, only to have Kramer ruin it.  Against Chiles’ advice, Kramer took his golf caddy’s advice and asked Mischke to try on the piece of clothing that, allegedly, had distracted Kramer and caused the accident.  She tried it on, and it didn’t fit.  So, Kramer lost.

What was the piece of clothing?  A bra.  The scene is here.

Part 2:

In an episode of South Park, Chef sued a record company for harassment.  The record company hired a cartoon version of Johnnie Cochran.  During his closing argument, cartoon Cochran inexplicably asked the jury to consider why a character from a famous series of movies would live on the planet Endor.  He argued: “ladies and gentlemen, it has nothing to with this case, it does not make sense! If _____________ lives on Endor, you must acquit!! The defense rests.”

The movie character is 8 feet tall and has a one-word name.  His co-pilot and other friends associated with the rebellion often use a shortened-version of the name. Fill in the blank with the movie character’s name.

Chewbacca.  The clip to the Chewbacca defense is here.

 

 

Monday Morning Answers #81

Nothing like a little Jay-Z to get people to enter the quiz!

Friday’s questions are HERE.  Today, the answers are below the Honor Roll.

Honor Roll

• 99 Problems but a Conviction Ain’t 1
  • Jordana Levine, Audrey Smith, Rachel Thompson
• Karen Allen
• Matt Anderson
• Evan Barquist
• Alberto Bernabe
• Andrew Costello
• Robert Grundstein
• Keith Kasper
• Deb Kirchwey
• Lon McClintock
• Hal Miller
• Herb Ogden
• Brendan Scherer

Answers

Question 1

Not all rules were created equal.  If an attorney’s duties under the rules conflict, which duty is usually viewed as trumping all others?

• A.   Duty of zealous advocacy to clients
• B.   Duty of fairness to opposing counsel & opposing parties
• C.   Duty to provide competent, conflict-free representation
• D.   Duty of candor to the courts; See generally, V.R.Pr.C. 3.4.  Per the Reporter’s Notes, “if the interests of client and tribunal conflict with regard to candor, the interest of the tribunal prevail.”  Also, Comment 11 makes it clear that the duty of candor to the court prevails even in the face of causing “grave consequences” to a client by disclosing the client’s false testimony.

Question 2

Competence.  Conflicts.  Candor.  There’s another word that begins with “C” that is a serious violation of the rules.  However, the word doesn’t appear in any of the rules, notable in its absence from the trust accounting rules and the rule on safekeeping client property.

What’s the word?

Commingling

Question 3

This comes up in approximately 30% of the inquiries I receive. So, about 330 times per year.

Imagine I’m speaking at CLE.  You hear me say “the idea is that we’re not going to put a client to the ‘Hobson’s Choice’ of having to disclose a confidence in order to protect it.”

What general topic am I discussing?

Conflicts/Withdrawal

It is not uncommon for lawyers who encounter former client conflicts to tell me “but Mike, I don’t remember anything about the prior case.”  That may be true, but it’s not the standard under Rule 1.9(a).  As the Vermont Supreme Court has explained, if the new client’s matter is the same as or substantially related to the former client’s matter, the Court will presume that the former client shared confidential information with the attorney.  Why? 

• “[t]he purpose of the presumption is to avoid “ ‘putting theformer client to the Hobson’s choice of either having to disclose his privileged information in order to disqualify his former attorney or having to refrain from the disqualification motion altogether.’ ” In re Crepault, 167 Vt. 209, 216-17 (citations omitted).

Question 4

Lawyer called me with an inquiry. I listened, then said,

• “Okay.  Since you and Attorney don’t work in the same firm, it is only allowed if  you  do one of two things.  And, since it sounds like Attorney doesn’t want to do any work on Client’s matter, that means that the first option is out. So, your only option is that you each assume joint responsibility for the representation of Client. Otherwise, the rule prohibits it.“

What is “it” that Lawyer called to discuss, and that Lawyer and Attorney propose to do.

Fee Sharing.   See, this post.

Question 5

As another school year approaches, imagine an aspiring 1L heading to law school.  Law student is cruising down the highway with the tunes blaring.  All of sudden, there are blue lights in the rear view. In the ensuing encounter with police, the law student says to the officer:

• “Well my glove compartment is locked, so is the trunk in the back
  And I know my rights, so you gon’ need a warrant for that.”

Problem 1:  The situation at hand for our erstwhile law student.

Problem 2:  Future issues with the Character & Fitness committee upon applying for admission?

Problem 3: If law student’s statement is based on advice from a lawyer, the lawyer didn’t exactly provide competent & ethical advice.

Your problem: Name the artist & song that was blaring just before law student was pulled over.

Jay-Z, 99 Problems.

 

Referral Fee? Think twice.

Vermont’s Rules of Professional Conduct do not allow straight referral fees.

If you didn’t know that, don’t worry, you’re not alone.

About a year ago, I blogged on referral fees.  The post is HERE.  A quick summary:

• Scenario: Client asks Lawyer for help in an area that Lawyer doesn’t practice.  Lawyer refers Client to Attorney.  Lawyer and Attorney do not work in the same firm. Lawyer wants to be paid for the referral.  Under what circumstances, if any, can Attorney ethically pay Lawyer for the referral?
• Conclusion: Rule 1.5(e) is Vermont’s rule on dividing fees between lawyers who do not work together. The rule authorizes a division of fees Lawyer and Attorney if:
  1. the division is in proportion to the services performed by both Lawyer & Attorney, or, both Lawyer & Attorney assume joint responsibility for the representation;
  2. Client agrees to the arrangement, including the share that both Lawyer and Attorney will receive, and the agreement is confirmed in writing; and
  3. the total fee is reasonable.

The original post goes into much more detail.

The question that often arises is “what does joint responsibility for the representation mean?”  Comment [7] to Rule 1.5(e) makes it clear that lawyers can divide fees based on “the proportion of services they render or if each lawyer assumes responsibility for the representation as a whole.”  It goes on to indicate that “[j]oint responsibility for the representation entails financial and ethical responsibility for the representation as if the lawyers were associated in a partnership.” (emphasis added).

In April, the ABA Standing Committee on Ethics and Professional Responsibility issued Formal Opinion 474.  The opinion reaches the same conclusion as my original post. It also endeavors to shed some light on “joint responsibility for the representation.”  Finally, the ABA opinion reminds us that the referring lawyer is subject to the conflict rules and must avoid conflicts of interest as if representing the client.

The ABA Journal summarized Formal Opinion 474 here.

 

Fixed Fee Legal Services: a Conversation Starter

This post is about referral fees, fee-sharing, and Avvo.  Before you read it, you should review my primer on referral fees.  (Don’t be shocked when you learn that straight referral fees are not allowed in Vermont.)

No time to read the primer? A few quick reminders before we proceed:

• V.R.Pr.C. 7.2(b) prohibits lawyers from giving “anything of value to a person for recommending the lawyer’s services.”
• V.R.Pr.C. 5.4 imposes a general prohibition on sharing fees with non-lawyers.

The website for Avvo Legal Services is here.  Avvo provides fixed-fee legal services. For example, as you can see here,

• $39 gets a consumer a 15 minute phone call for questions and advice from a local, experienced lawyer about estate planning needs;
• $149 gets a consumer a 30 minute phone call with a local, experienced lawyer plus review of a last will and testament; and,
• $249 gets a consumer a 30 minute phone call plus start-to-finish help for a last will and testament drafted by a local, experienced attorney.

In February, the ABA Journal reported on the launch of Avvo Legal Services, describing the service as follows:

• “Avvo sets the menu of services and fees. Clients choose a service and an attorney and make full payment up front through Avvo’s website. Avvo notifies the attorney, who then contacts the client directly and completes the service.”Once a month, Avvo deposits earned fees into the attorney’s operating account. As a separate transaction, it withdraws from the account a per-service marketing fee. The fee varies in amount according to the service provided.”

In its report, the ABA Journal quoted Gregory W. Coleman.

• “Gregory W. Coleman, who as 2014-15 president of the Florida Bar closely studied alternative legal providers, agrees that the program fills a consumer need.’They are reaching a market that we as a profession have been unable to serve, which is not just the indigent but the working middle class,’ says Coleman, a partner in the West Palm Beach firm of Critton, Luttier & Coleman. “They can’t afford a $250-an-hour lawyer, but they can afford a flat fee for a task they need accomplished.””But he and other lawyers are concerned that the program’s fee structure could violate ethical prohibitions against fee sharing and put lawyers who participate in the program at risk.”

Then, the ABA Journal summarized the arguments for and against Avvo Legal Services:

• “Coleman believes that because the marketing fee is tied to the amount of the legal fee, it violates Florida’s prohibition against fee sharing. For it to be acceptable, it would have to be a flat fee across all matters, he says.”New York City ethics lawyer Nicole Hyland takes a similar view, calling the arrangement ‘very, very close to the line.’

  “’Most of the ethics opinions I’m aware of say that, if the lawyer is paying a fee to be included in a directory service, that fee should not be tied to the number of clients obtained or the amount of the legal fee earned,’ Hyland says. ‘Here, Avvo’s ‘marketing fee’ appears to be tied to both.’

  But that does not mean that the service is inherently unethical or harmful to clients, she adds. ‘This is an area where I would like to see reform in the ethics rules—to give lawyers more options for marketing their services and finding new clients.’

  “Northford, Connecticut, lawyer Susan Cartier Liebel, founder and CEO of Solo Practice University, raises a different concern. The unearned fees held by Avvo each month should instead be held in the attorneys’ IOLTA accounts, she believes. By retaining this money in its own accounts, Avvo is diverting interest that would otherwise go to fund legal aid.

  “Avvo chief legal officer Josh King defends the fee arrangement as consistent with ethics rules. The critical question, he says, is whether the arrangement harms the client. ‘You can’t apply the ethics rules unless there’s consumer harm,’ he says. ‘We’ve been careful to make this product good for compliance-minded lawyers and especially good for consumers and clients.’

Last month, the South Carolina Bar issued Ethics Advisory Opinion 16-06.  The opinion does not mention Avvo by name, but opens by stating that “[a]n attorney directory website released a new fixed-fee legal referral service.”  The opinion goes on to describe a fixed-fee legal service that mirrors Avvo’s.

Here’s the summary:

• “The arrangement described herein violates the prohibition of sharing fees with a non- lawyer as described in Rule 5.4(a). In the alternative, assuming, for the purposes of this question only, that the arrangement does not violate Rule 5.4(a), the arrangement would violate the Rule 7.2(c) prohibition of paying for a referral and is not saved by the exceptions found in Rule 7.2(c)(1), (2), or (3).”

South Carolina’s rules are virtually identical to Vermont’s.

The ABA Journal called the SC Opinion “bad news for Avvo Legal Services.”  FindLaw’s Casey Sullivan noted that the SC Opinion should make lawyers “think twice about fixed fee legal services.”

Avvo’s response to the South Carolina opinion is HERE.

This is an issue we have to address. Earlier this spring, I posted a series of blogs asking whether Rule 5.4 should be amended to drop the ban on sharing fees with non-lawyers. Links to each post in the series can be found HERE.  Nobody seemed terribly interested.

I wonder, though, should we really be thinking twice about offering fixed fee legal services? Or, should we be thinking twice about what our ethics rules should & should not prohibit? To the point: assuming that services like Avvo associate with licensed & competent local counsel, what is the harm?

Last year, first-year study committees of the Vermont Joint Commission on the Future of Legal Services issued reports & recommendations.  The Commission was formed in response to Chief Justice Reiber’s call for stakeholders to “come  together to study the question of how to ensure that Vermonters can obtain quality, affordable legal representation and efficient dispute resolution . . . [and] to consider that question  in light of the stark financial realities faced by the public, new lawyers, and the courts.”

Almost as if anticipating Avvo Legal Services, the Legal Technology Committee wrote:

• “Practices concentrating in the areas of criminal defense, residential real estate, moderately complex civil litigation, and retail services will remain services that cannot easily be provided by someone other than an attorney. Many other services such as business entity formation, basic contract drafting, and simple dispute resolution will likely pass from the smaller firms to larger firms or virtual practices. Due the hourly fee falling into disrepute in much of the country, some firms may also learn the benefits of non-traditional methods of setting fees to better serve the needs of specific clients. For the largest percentage of firms providing retail services to clients other than the most economically challenged, practitioners will have to determine how to provide services at a cost that the average consumer can pay.

“The question is not whether disruptors that have touched other industries and the                 practice of law in other states will impact the practice of law in Vermont, but how                   quickly the disruption will occur and how significant the impact of the disruption                   will be when it does arrive.”

I don’t know whether Avvo plans to operate in Vermont.  But LegalZoom is here.  So are other disruptors.  The disruption has arrived.

What will disciplinary counsel’s response be if & when a complaint is filed against a Vermont attorney who participates in a fixed-fee legal service, provides otherwise competent & conflict-free representation at an affordable fee, but renders a cut unto the service? Should we take it out of disciplinary counsel’s hands by changing our rules?

I wonder, are we serving our younger attorneys, many of them burdened by overwhelming debt, by enforcing rules that may prohibit participation in services similar to Avvo?  Are we serving consumers by making it unethical for lawyers to participate in such services? How is banning Avvo consistent with our oft-stated goal — and urgent need — to increase access to justice and access to legal services?

On the other hand, why should we imply that 30-minutes of legal advice, which might be over the phone, on a matter important as estate planning is sufficient?

I don’t know the answers.  But we need to raise the questions.

Consider them raised.

 

 

Referral Fees

Last week’s Five For Friday included a question on referral fees. It generated several emails and calls, so I thought I’d post on the topic.

Vermont’s rules do not authorize straight referral fees.

Here’s the scenario: Client asks Lawyer for help in an area that Lawyer doesn’t practice.  Lawyer refers Client to Attorney.  Lawyer wants to be paid for the referral.  Under what circumstances, if any, can Attorney ethically pay Lawyer for the referral?

Believe it or not, we start with the advertising rule – Rule 7.2.

Rule 7.2(b) prohibits lawyers from giving “anything of value to a person for recommending the lawyer’s services.”  There are four exceptions.

One of the exceptions allows a lawyer to:

“refer clients to another lawyer or a nonlawyer professional pursuant to an agreement not otherwise prohibited under these rules that provides for the other person to refer clients or customers to the lawyer if:

• (i) the reciprocal agreement is not exclusive; and
• (ii) the client is informed of the existence and nature of the agreement.”  Rule 7.2(b)(4).

A comment to the rule is instructive.

Comment [8] states that “[e]xcept as provided in Rule 1.5(e), a lawyer who receives referrals from a lawyer or nonlawyer professional must not pay anything solely for the referral,” but may enter into reciprocal referral agreements that comply with Rule 7.2(b)(4).

So, then, what does Rule 1.5(e) provide?

Rule 1.5(e) is Vermont’s rule on dividing fees between lawyers who do not work together. The rule authorizes a division of fees between lawyers who are not in the same firm only if:

1. the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation;
2. the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and
3. the total fee is reasonable.

I’m most often asked about paragraph 1.  Again, the Comment is helpful.

Comment [7] makes it clear that lawyers can divide fees based on “the proportion of services they render or if each lawyer assumes responsibility for the representation as a whole.”  It goes on to indicate that “[j]oint responsibility for the representation entails financial and ethical responsibility for the representation as if the lawyers were associated in a partnership.”

Back to our scenario: it seems to me that Attorney cannot pay Lawyer solely for the referral.  Attorney and Lawyer may divide the fee if:

• the total fee is reasonable
• Client confirms the agreement in writing, AND,
• the division is either
• in proportion to the services each performs, OR,
• Lawyer accepts ethical and financial responsibility for Attorney’s representation of Client.