Fees

Bartering for Legal Fees

Michael 1 Comment

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:

21-301-stipulated-report-of-findings-orderDownload

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.

Michael

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.

How not to sue for fees.

Michael 1 Comment

I don’t speak or blog on legal fees often.  When I do, I’ve been clear: nothing in the Rules of Professional Conduct prohibits a lawyer from charging and collecting a reasonable fee. Then, if asked for guidance on suing a former client to collect a fee, I’ve added caveats:

  1. Do you want to be known as the lawyer who sues clients?
  2. If you sue, they might file a counterclaim. Carriers warn about this all the time.

I never imagined having to add a third: be careful that you don’t end up in jail.

As reported by the ABA Journal and Law360, that’s exactly what happened to a Georgia attorney who sued for his fee.  Per the reports,

  • Lawyer represented Relatives (yes, the lawyer’s own) in a wrongful death action against multiple defendants.
  • Relatives fired Lawyer after he settled with a defendant without their authority.
  • Lawyer received over $100,000 in fees from the settlement.
  • Relatives hired New Attorneys to pursue their claim against the remaining defendant.
  • Lawyer put a lien on any recovery.
  • A jury awarded Relatives $11.2 million.
  • A trial court rejected the lien, finding that Lawyer’s “efforts weren’t instrumental to the verdict, and his unethical behavior in the co-defendant settlement barred additional compensation.”
  • Lawyer lost his appeal and the trial court awarded attorney’s fees and costs against Lawyer.

If you’re thinking that’s the end of the story, you’ve probably never read my blog.  Regular readers are likely asking “oh no, how could it possible have gotten any worse for Lawyer?”

Here’s how.

  • Lawyer sued New Attorneys.
  • New Attorneys’ counterclaims included an allegation that Lawyer’s claim was meritless.
  • Lawyer failed to appear for several depositions, including some for which the court had ordered him to appear after he didn’t show up for the first.
  • New Attorneys moved for sanctions.
  • A trial judge found Lawyer in contempt, ordered him jailed for 5 days, and ordered him to sit for the deposition while in jail. The judge also ordered that Lawyer would be released immediately if he “responds to all questions and produces all documents as previously directed.”

Okay then.

In closing, the Rules of Professional Conduct do not prohibit lawyers from suing a former client to collect a fee.  As today’s story shows, if that’s the route you choose, the devil will be in the details.

no fees

Thursday’s Tidbits

Michael

 

Tidbits

I’ve scoured the interwebs to bring you the latest news that may or may not be related to legal ethics & professional responsibility.

  1. I often blog on the duty of competence.  Remember the LSAT?  For many years, critics have argued that the LSAT makes no effort to measure, and does not predict, professional competence.  Well, someday soon, you might be working with a lawyer who never took it.  As reported by The Wall Street Journal, an increasing number of law schools are dropping the LSAT requirement.
  2. My posts on the duty of competence usually relate to tech competence.  A post on SLAW, argues that laptops should be banned in law school classrooms and, perhaps, courtrooms.
  3. If you use your laptop, you might remember my blog on the Legal Keyboard. On his LawSitesBlog, Robert Ambrogi updates us on the mini version for travel.
  4. Rule 1.5 prohibits unreasonable fees.  It’s okay to accept a fee in something other than money.  For instance, property.  But, as this suspension order from the Ohio Supreme Court reminds us, the value of the property must reasonably approximate the value of the services provided —  and, of course, the property transfer must not violate the criminal law.
  5. Next year is an election year in Vermont.  Professor Alberto Bernabe, a frequent member of the #fiveforfriday Honor Roll, blogged on whether defense lawyers should be allowed to contribute to prosecutors’ campaigns.
  6. Is your firm set up as a partnership or, perhaps, an LLC? The TaxProfBlog links to a Wall Street Journal article For Pass-Through Businesses, Let The (Tax) Games Begin.
  7. Related, yesterday, the ABA Journal reported that the ABA asks Congress to include law firms in pass-through tax relief.
  8. Last week I blogged on paralegal licensing.  A post on Law Times argues that it is Time for graduated licensing for lawyers.
  9. From the ABA Journal, apparently there’s a ” ‘baffling phenomenon’ of lawyers who shoplift.”    It might make you ask yourself “self, was that wrong?”
  10. Regarding judicial ethics, can a judge use the internet for independent legal research?  This advisory opinion from the ABA has the answer.  For a synopsis, the ABA Journal article on the opinion is here.

 

 

Monday Morning Answers

Michael

So, in last week’s Five for Friday, I mentioned my friend  Daren, his Catch the Mania an Top Hat trivia events, and his Viva Saloon in Key West.  Daren and I went to high school together.

When I posted on Friday, little did I know that yesterday was Daren’s birthday!  (thank you Facebook).  Yesterday afternoon, my brother and I ran into Daren at The Pour House, official pub of Five for Friday, and were able to celebrate the occasion with him.  Happy Birthday Daren, godfather of this column and my trivia-style ethics seminars.

Now, on to the answers.

Honor Roll

One perfect score this week: Matt Anderson, Pratt Vreeland

Others on the  Honor Roll:

  • Bob Gensburg, Gensburg, Atwell, & Greaves
  • Robert Grundstein
  • Keith Kasper, McCormick, Fitzpatrick, Kasper & Burchard
  • Cassandra LaRae-Perez, Primmer (*special bonus for Question 5)
  • Team Liberty (ACLE of Connecticut)
  • Hal Miller, First American

The Answers

Question 1

Which doesn’t belong?

  • A.  Social Media
  • B.  Safekeeping Property
  • C.  Competence
  • D.  Advertising

Choices B, C, and D are the titles of Rules 1.15, 1.1, and 7.2 of the Rules of Professional Conduct. There is no rule entitled (or that specifically deals with) “social media.”  My outline on legal ethics of social media is HERE.

Question 2

Lawyer represents Landlord.  Lawyer mails notice of eviction to Tenant.

A few days later, Lawyer listens to his voice mail.  After the beep, a voice says:

“Hi. I’m Tenant. My friend told me you handle evictions. I just got an eviction notice and would like some legal advice. Please call me at 802-xxx-xxx.”

Which is most likely under Vermont’s Rules of Professional Conduct?

  • A.  Lawyer must withdraw from representing Landlord.
  • B.   Lawyer must call Tenant back.
  • C.  If Tenant denies receiving the notice of eviction, Lawyer may use the voice mail message.
  • D.  If Tenant denies receiving the notice of eviction, Lawyer may have a conflict.

Maybe the question was poorly phrased.  However, in this instance, Tenant attempted to consult with Lawyer.  Thus, the information conveyed by Tenant is confidential. The best answer here is “D.”  I’m not aware of any scenario, absent informed consent to disclose, in which a lawyer may use against someone information that the person conveyed in a good-faith attempt to secure legal advice.  Here, Tenant is most likely a “prospective client” for the purposes of the Rules of Professional Conduct.  See, Rule 1.18.  Lawyer may represent Landlord, provided that Lawyer did not receive from Tenant information that could be significantly harmful to Tenant. If Tenant claims not to have received the notice, Lawyer cannot disclose the voice mail and, as a result, has a conflict under Rule 1.7 in that Lawyer’s duties to Tenant conflict with Lawyer’s duties to Landlord.

Question 3

Attorney called me with an inquiry.  I listened.  Then, I asked: “did you confirm it in writing and provide your client with a written explanation of what you’d do for her?”

Attorney answered “no.”  To which I replied “Houston, we have a problem.”

What did Attorney call to discuss? (please be specific)

A non-refundable fee.  See, (new) Rule 1.5(f).  Most of you were in the ballpark, indeed with very good seats.  Only Matt, however, was on home plate.

Question 4

Attorney represents Mork.  Mork intends to sue Mindy.

Attorney is married to Lawyer.  Attorney and Lawyer do not work in the same firm.

Mindy hires Lawyer.

Which is most accurate under Vermont’s Rules of Professional Conduct?

  • A.  Attorney and Lawyer do not have conflicts of interest.
  • B.  At a minimum, Mork & Mindy are entitled to be informed that Attorney & Lawyer are married.  See, Rule 1.7, Comment 11.
  • C.  If Attorney withdraws due to the conflict presented by being married to Lawyer, the conflict is imputed to all others in Attorney’s firm.
  • D.  The rules specifically prohibit a lawyer from representing someone in a matter in which an adverse party is represented by a lawyer who is “closely related by blood, marriage, or civil union.”

Question 5

Jimmy received his law degree from the University of American Samoa. His natural instincts as a con artist led him to cross several ethical boundaries while practicing law in  New Mexico.  From filing fraudulent insurance claims, to advertising violations, to assisting drug clients in money laundering schemes.

You might know Jimmy better by another name he uses.  A name he concocted from the phrase “It’s all good, man.”

Name one of the two TV shows on which you might have seen Jimmy.

Jimmy McGill practiced under the name “Saul Goodman” in Breaking Bad and Better Call Saul.  Kudos to Cassandra for knowing that Jimmy’s nickname is “Slippin’ Jimmy,” a name that harkens back to the days where he’d intentionally “slip” and fall in order to make fraudulent claims.

 

 

 

Crowdfunding: The More Things Change….

Michael 6 Comments

The first post to this blog argued that a lawyer’s duty of competence includes a duty to stay abreast of developments in technology and the benefits and risk thereof.  It’s HERE.

Today, I came across a tech ethics issue I hadn’t previously considered:  is it ethical for a lawyer to use a “crowdfunding platform” to solicit donations to fund the representation of  a client who cannot afford the lawyer’s fee?

The answer, according to the Philadelphia Bar Association, is “yes, as long as the lawyer complies with the rules.” The full text of the Philly advisory opinion is HERE.

I love the opinion.  Why?  Good question.  Let me tell you why.

You’d be surprised how often lawyers tell me “we need to change the rules to keep up with technology.”

No.  We.  Don’t.

Let’s use Rule 1.6 as an example.  Comment 16 tells us that:

  • “A lawyer must act competently to safeguard information relating to the representation of a client against inadvertent or unauthorized disclosure by the lawyer or other persons who are participating in the representation of the client or who are subject to the lawyer’ supervision.”

The rule does not reference technology.  In other words, the rule draws no distinction between the lawyer who is having a conversation with a person who is standing two feet away and a lawyer who is emailing a person who is 5000 miles away.

Advances in technology that have resulted in new methods of communicating & transmitting information have not changed a lawyer’s duty to safeguard client information that is communicated & transmitted. Are the risks associated with storing client information in the cloud different than those associated with talking with a client in a crowded hallway at the county courthouse?  Of course!  But the duty not to disclose otherwise protected information remains the same in each situation.

That’s why the Philly opinion is great.  It doesn’t treat “crowdfunding platforms” as new creatures that require new rules.  Rather, it reminds lawyers that the rules that apply when using a crowdfunding platform are the same rules that apply to any other representation.  That is, if a lawyer & client use crowdfunding to raise money  to cover the lawyer’s fee, the lawyer must:

Remember: advances in technology do not change the duties lawyers owe to client, courts, and third persons.

Some of you might be muttering “what’s a ‘crowdfunding platform’ ?”  If you want to learn more, or if you think they might help your clients, the wikipedia entry is HERE.  You’ve probably heard of GoFundMe and Kickstarter.  They are crowdfunding platforms.  For a list of the top 10 by traffic, go HERE.

Are you required to learn about crowdfunding?  No.  But, if a client asks about crowdfunding your fee, “i don’t know about that &  it’s probably not allowed” might not cut it.

Finally, as Margaret Barry of Vermont Law School has mentioned to me, advances in technology will improve access to justice.  That is the case with crowdfunding platforms. As the Philadelphia Bar Association noted, “[c]rowdfunding sites can be a beneficial source of funds allowing the public to assist in the assertion of valid legal claims that might otherwise go without recourse.” So, please, don’t succumb to the knee jerk reaction that if it’s new, it must be unethical.  There’s too much at stake for that thought process to prevail.

Crowdfunding

Referral Fees

Michael

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.