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Legal Fees

20 important questions on Legal Fees

1.5(a)(8). Who Bears the Financial Risk: L or C - In plain English

A contingent fee arrangement places the risk of an adverse result on the L. Ls can charge a premium for carrying that risk.

1.5(a) "Reasonableness" - In plain English

If the [1] C had a free + informed choice before entering into the fee agreement, and [2] the fee is within the range customarily charged by Ls in similar representations, it is almost certainly reasonable.

Note - Although 1.5(a) does not require "informed consent," courts will often inquire into [1] the quality of the disclosure which L gave to C AND [2] C's sophistication and his experience in dealing with Ls.

But Note - the type of C Matters: Sophisticated Entity-Cs v Individuals

Courts are more likely to permit innovative fee arrangements where C is a sophisticated entity and the L + C freely negotiated the arrangement.

IF individual-Cs are involved--particularly people who do not have much experience with the legal system (i.e., typical personal injury, probate, and criminal clients), THEN courts are more likely to scrutinize fees more carefully for reasonableness.

Analyzing Trust Accounts

As long as L complies w/ 1.15(c) [the trust account rule] and refunds any unearned money, this is permissible.

Contingent Fee: Main Rules

1.5(c). The contingent fee formula must be clearly disclosed in a writing signed by the C.
1.5(a). The contingent fee cannot be unreasonable.
1.5(d). Contingent fees prohibited in criminal cases and certain domestic matters.

Under 1.5(d), when are contingent fee arrangements prohibited in domestic matters

The L's fee cannot be contingent upon: [1] obtaining a divorce, AND [2] upon the amount of alimony, support, or a property settlement.

Under 1.5(c) contingent fee disclosure requirement, what MUST the agreement include as to terms (3 things)

1. The % of total recovery that will go to the L.
2. Whether the % is calculated on gross recovery or net recovery (recovery after expenses are deducted).But note that NY (and other states') rules require contingent fees be calculated on net recovery, not gross recovery (so net recovery only option).
3. Whether C will be responsible for expenses if he does not prevail.

Purpose of contingent fees

Designed to provide an incentive for L to accept a risk of non-recovery (and receive no payment at all).

Analyze: Mid-stream Modifications of Fee Agreements.

ABA Op. 11-458 is guiding. Deriving from 1.5(a), the opinion emphasized that any modification of the original fee agreement must be reasonable.

Added that a midstream modification is unlikely to be reasonable, absent some material change in circumstances that could not have been anticipated by the parties when they executed the original fee agreement.

RLE governing business transactions w/ Cs

1.8(a).

ISS Spot: Business transactions w/ Cs.

Common denominator is that L requires some property/security interest that is at least potentially adverse to C (i.e., L agrees to take an interest in C's property--second mortgage on C's house--to secure fee payment.

4 stringent conditions for business transactions w/ Cs - 1.8(a)(1)-(3)

Disclosure. 1.8(a)(1).
Independent counsel. 1.8(a)(2).
Written consent. 1.8(a)(3).
Substantive fairness. 1.8(a)(1).

Elaborate on condition #2). Independent Counsel. 1.8(a)(2)

L must give C an opportunity to seek advice of independent counsel, and confirm this advice in writing.

Elaborate on condition #3) Written Consent. 1.8(a)(3)

After receiving all this information and advice [required by 1.8(a)(1) + (2], C must consent to the transaction in writing.

Elaborate on condition #4) Substantive Fairness

The terms of the transaction itself must be substantively fair and reasonable. 1.8(a)(1).

**Because of the fiduciary nature of the AC-R, this is a much lower threshold than analogous rule for an arm's length transaction, such as unconscionability.

ABA R on Fee Divisions Amongst Ls not in the same firm (finder's fees, forwarding fees, referral fees)

1.5(e)

1.5(e) is not implicated unless...

1.5(e) is not implicated unless a single billing statement covers the work of Ls in different firms.

Name 2 situations in which 1.5(e) is not triggered

If the Ls belong to the same firm
If bills are sent separately, 1.5(e) doesn't apply. See 1.5, CMT 7.

1.5(e) - Fee Divisions Between L's in different firms.

L cannot be paid for assuming an entirely passive role
C must agree to the fee division in writing
The total fee must be reasonable.
If it is a joint representation, the LS must agree to be responsible for malpractice, professional discipline, and CT sanctions.
If the Ls send separate bills to C, then 1.5(e) doesn't apply. See 1.5, CMT 7.
If L does not agree to assume responsibility for the rep, and does do any work on the case, then he cannot receive a referral fee, finder's fee, etc

The 2 typical scenarios implicating the trust account rule

1) C deposits $10K retained to cover the expected cost of a matter. L must deposit the money in his trust account and transfer funds to his personal account only as the fees are earned. 1.15(c).

2) L receives settlement proceeds (i.e., personal injury settlement). The check must be deposited in L's trust account, not L's personal account. 1.15(D).

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5) Legal Fees

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Legal Fees

20 important questions on Legal Fees

1.5(a)(8). Who Bears the Financial Risk: L or C - In plain English

1.5(a) "Reasonableness" - In plain English

But Note - the type of C Matters: Sophisticated Entity-Cs v Individuals

Analyzing Trust Accounts

Contingent Fee: Main Rules

Under 1.5(d), when are contingent fee arrangements prohibited in domestic matters

Under 1.5(c) contingent fee disclosure requirement, what MUST the agreement include as to terms (3 things)

Purpose of contingent fees

Analyze: Mid-stream Modifications of Fee Agreements.

RLE governing business transactions w/ Cs

ISS Spot: Business transactions w/ Cs.

4 stringent conditions for business transactions w/ Cs - 1.8(a)(1)-(3)

Elaborate on condition #2). Independent Counsel. 1.8(a)(2)

Elaborate on condition #3) Written Consent. 1.8(a)(3)

Elaborate on condition #4) Substantive Fairness

ABA R on Fee Divisions Amongst Ls not in the same firm (finder's fees, forwarding fees, referral fees)

1.5(e) is not implicated unless...

Name 2 situations in which 1.5(e) is not triggered

1.5(e) - Fee Divisions Between L's in different firms.

The 2 typical scenarios implicating the trust account rule

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