Bell: 3 things to know about ethics and ‘getting paid’

I never think about money except when my children ask for something — which happens every morning. That usually triggers me to think about money for the rest of the day. So I guess if you take away mid-morning, afternoon, evening and nighttime, I never think about money (and how expensive children are).

The Disciplinary Commission must think about money as well (at least every now and then) or they would not have drafted their latest advisory opinion entitled, “Ethical Considerations about Getting Paid.” See Disciplinary Commission Opinion #2-23. In that opinion, the Disciplinary Commission stated that “[t]he Rules of Professional Conduct require lawyers to be fair and transparent in dealing with clients, which dictates that lawyer fee agreements be fair to the client and that the basis for the fee be clearly communicated to the client.” Disc. Commission Opinion #2-23, at p. 1. The opinion then goes on to address nonrefundable fee provisions, funds that should be placed in a trust account, considerations for a reasonable fee and other topics. Id. at p. 2.

The purpose of this article is to supplement the information that was provided by the commission in their advisory opinion. Here are three more things to know about the ethics of getting paid.

1. Be cautious when you change the fee in the middle of a representation

Did you charge too much? Too little? Whatever happened, you need to change the fee agreement in the middle of the case. If your client agrees in writing to change the fee to your advantage in the middle of a representation, is that OK?

In most circumstances, the answer will be yes, BUT only if the lawyer follows Rule 1.8(a), which requires “fair and reasonable” terms in writing and written advice of the “desirability of seeking” the advice of independent counsel. Comment [1] to Prof. Cond. R. 1.8(a) makes clear that Rule 1.8(a) applies “when a lawyer seeks to renegotiate the terms of the fee arrangement with the client after representation begins in order to reach a new agreement that is more advantageous to the lawyer than the initial fee arrangement.”

Keep in mind that a fee modification that looks to be to the client’s advantage when the modification is made can turn out in hindsight to be to the lawyer’s advantage. Therefore, to be careful, make sure that you follow 1.8(a) whenever you change a fee.

2. Contingency fees require lots of writing

There is so much to say about contingency fees. Here are just a few things.

Obviously, your contingency fee must be in writing and signed by the client. The commission made clear in its advisory opinion that the basis of any fee must be clearly communicated, and Rule 1.5(c) of the Indiana Rules of Professional Conduct provides guidance on what needs to be stated in a contingency fee agreement. The written fee agreement should include “percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal; litigation and other expenses to be deducted from the recovery; and whether such expenses are to be deducted before or after the contingent fee is calculated.” Prof. Cond. R. 1.5(c).

3. When charging a flat fee, have a clear agreement with the client as to the ownership of fees

If you have any questions about flat fees, I recommend reviewing ISBA Legal Ethics Committee Opinion No. 3 (2015). It is available on the Indiana State Bar Association’s website, and it is a wonderful resource.

This opinion makes clear that a “true” flat fee is treated as earned upon receipt and, therefore, should be placed in the attorney’s operating account. Nevertheless, that does not mean that the fee is “nonrefundable,” and that point should be made clear to the client in an engagement letter or elsewhere. Specifically, the Ethics Committee stated that a “client must be notified” that a flat fee “might result in a refund if the agreed upon legal services are not completed by the lawyer.” Id. at p. 5.

In addition, any fee agreement should be clear on how the lawyer intends to handle expenses. Lawyers can recoup expenses for services performed in the office. For example, lawyers can pass on out-of-pocket costs for copying and legal research. However, these expenses cannot exceed the actual costs to the client. In addition, a lawyer “may not charge a client more than her disbursements for services provided by third parties.” ABA Committee on Ethics and Professional Responsibility, Formal Opinion 93-379.

Conclusion

If an attorney wanted to, I am sure he or she could write volumes on the ethics of getting paid. I am sure that such a book would be so riveting and full of adventure that it would quickly reach the coveted New York Times Worst-Seller List. Until that book comes out, you will need to rely on the Disciplinary Commission’s advisory opinion, bar association opinions and articles like these for guidance.•

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James J. Bell is a partner at Hoover Hull Turner LLP. Opinions expressed are those of the author.