DUTY OF FINANCIAL INTEGRITY (FEES AND PROPERTY) Flashcards
FEE AMOUNT
A lawyer must not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses.
Various factors are considered in determining whether a fee is reasonable (time and labor; difficulty of the work; customary fee within the locality; reputation of the attorney; etc.).
CA: The California rule instead prohibits illegal or unconscionable fees. As under the ABA rule, various factors are considered in determining whether a fee is unconscionable.
COMMUNICATION OF FEE AGREEMENT
A lawyer generally must, before or within a reasonably time after beginning the representation, communicate the BASIS OR RATE of the fee and the expenses for which the client will be responsible.
BUT, this communication is not required if the L regularly represents the C and will be charging the same basis or rate as in the other matters.
As a general rule, fee agreements need NOT be in writing (except for contingent fee agreements), although a writing is preferable.
CA: Under CA law, if it is reasonably foreseeable that the total expense to the client (including legal fees) will exceed $1,000, the fee agreement must be in **writing to be enforceable. **
However, even if the bill will exceed $1,000, a writing is not required in the following situations:
* The C is a corporation.
* The C states in writing that they do not want a fee agreement.
* The legal services are the same kind that the C has previously received and paid for.
* The L acted in an emergency to protect the client’s rights.
* A writing is otherwise impractical.
ADVANCE PAYMENTS AND REFUNDABILITY
A lawyer may require an advance payment (including a flat fee), but the lawyer must refund the unearned portion of the fee if the client fires the lawyer or the lawyer does not perform the services. However, the lawyer is not required to refund a true retainer fee (that is, a fee that is paid solely to ensure the lawyer’s availability).
CA: generally the same, but it also specifically prohibits a lawyer from denominating any fee as “nonrefundable,” “earned on receipt,” etc., unless:
(1) the fee is a true retainer, and
(2) the client agrees in writing after disclosure that they will not be entitled to any refund.
PROPERTY FOR
SERVICES
A lawyer may accept property in return for services (ownership interest in a business). Under the ABA rules, this must not involve a proprietary interest in the cause of action or subject of litigation (which is prohibited by the conflict of interest rules).
Under BOTH the ABA and California Rules, the lawyer’s acceptance of property in return for services is also subject to scrutiny as a conflict of interest because it may be a business transaction between the lawyer and the client.
CA: L may accept property for services. CA does not have a counterpart rule prohibiting a lawyer from holding a proprietary interest in the cause of action or subject of litigation. However, a lawyer’s acceptance of property as payment for legal services should still be analyzed under the conflict rule for business transactions and other pecuniary interests adverse to a client.
CONTINGENT FEES: AMOUNT
ABA: A contingent fee must be reasonable, and a lawyer must not use a contingent fee when the facts make it unreasonable to do so.
CA: Additionally, California imposes specific caps on contingent fees in medical malpractice cases.
CONTINGENT FEES: WRITING & DISCLOSURE REQS
Contingent fee agreement must be in WRITING and SIGNED by the client, and must disclose:
* How the fee will be calculated.
* What expenses will be deducted from the recovery.
* Whether expenses will be deducted before or after the contingent fee is calculated.
* What expenses the client must pay regardless of the outcome.
At the end of the matter, the L must also give the client a written statement showing the outcome, the remittance to the client, and how the remittance was calculated.
CA: Same, but two additional items in the disclosure:
* The agreement must state that the lawyer’s percentage is not set by law and can be negotiated between the lawyer and client.
* The agreement must state how the client will be charged for work not covered by the contingency.
DISCHARGE OF
LAWYER ON
CONTINGENCY
A client can discharge a lawyer hired on a contingency basis at any time.
Usually, the discharged lawyer can recover in quantum meruit for the reasonable value of their services performed up to the time of the discharge.
However, the L’s claim does not arise until the contingency comes to pass (for example, the case is settled).
And note that if the lawyer was discharged for egregious ethical misconduct, the court may find that the lawyer forfeited their fee.
CONTINGENT FEES: WHEN PROHIBITED
- Defending a client in a criminal case.
- Domestic relations cases where the fee is contingent on the securing of a divorce, alimony award, etc. (but permitted in connection with the recovery of post-judgment balances due under an existing order).
SEPARATION OF LAWYER’S AND CLIENT’S FUNDS
ABA:
All money that a lawyer receives in connection with a representation (whether from the client or a third party) must promptly be placed in a client trust account, separate from the lawyer’s own personal and business accounts.
The lawyer must never place their own money or their firm’s money into the client trust account, except for the sole purpose of paying bank service charges.
CA:
The CA separation of funds rule is basically the same, but applies to all funds received or held by a lawyer for the benefit of a client, or for the benefit of a third person to whom the lawyer owes a legal duty.
The trust account must be maintained in California, or, with the client’s written consent, in a different jurisdiction with which the client has a substantial relationship.
PLACEMENT OF ADVANCE PAYMENTS
ABA:
An advance payment from a client must be put into the client trust account, to be withdrawn by the lawyer only as fees are earned or expenses incurred.
This is because a lawyer must refund to the client any unearned, prepaid legal fees at the close of the representation.
CA:
The CA rule on advance payments is generally the same. However, a flat fee may be deposited into the firm’s operating account, provided that the lawyer discloses to the client in writing that the client:
(1) has a right to require that the flat fee be placed in the client trust account instead; and
(2) is entitled to a refund of any unearned amount.
Additionally, if the flat fee exceeds $1,000, the agreement and the disclosures above must be set forth in a writing signed by the client.
SAFEKEEPING AND DELIVERY OF PROPERTY
BOTH:
* Upon receiving funds or property in which a client or third party has an interest, must promptly notify the client or third party.
* Must promptly deliver funds or property to which the client or third person is entitled.
* Must identify and label securities and properties and put them in a place of safekeeping as soon as practicable.
* Must keep records of client account funds and other property for at least five years after final distribution of the property.
DISPUTED FUNDS AND
PROPERTY
BOTH:
If a lawyer possesses property in which at least two persons claim interests, the lawyer must keep the disputed portion separate until resolution of the dispute.
However, the lawyer must promptly distribute the undisputed portion
SPLITTING LEGAL FEES WITH OUTSIDE LAWYERS
A lawyer may share legal fees with a lawyer at a different firm if (ALL must be met):
* The total fee is reasonable;
* Either:
- The split is in proportion to the services performed by each lawyer, or
- The split is in some other proportion if each lawyer assumes joint responsibility for the matter; and
* The client agrees to the split in a writing that discloses the share each lawyer will receive.
CA:
The California rule permits “true” referral fees in that it does not require that the split be proportionate to the services or that each lawyer assume joint responsibility for the matter.
Instead, it requires the following:
* The agreement between the lawyers to divide the fees must be in writing;
* The total fee must not be increased solely by reason of the agreement to divide fees (more specific than ABA); and
* The client must provide written consent to the division and its terms (same as ABA).
SPLITTING LEGAL FEES WITH NONLAWYERS
ABA:
A lawyer or law firm must not share legal fees with a nonlawyer, subject to the following limited exceptions:
* Paying a death benefit to a dead lawyer’s estate or other designated persons.
* Purchasing a law practice of a dead, disabled, or disappeared lawyer and paying the purchase price to the estate or nonlawyer representatives.
* Including nonlawyer employees in a compensation or retirement plan, even if the plan is funded by legal fees.
* Sharing court-awarded legal fees with a nonprofit organization that employed or recommended the lawyer in the matter.
CA:
The California rule adds two more exceptions:
* Sharing legal fees that were not court-awarded with a nonprofit organization that employed or recommended the lawyer in the matter, if:
(1) the organization is exempt from federal income tax;
(2) the lawyer enters into a written agreement with the organization to divide the fee;
(3) the lawyer provides written disclosure to the client of the proposed fee division and its terms and obtains written consent from the client; and
(4) the total fee charged by the lawyer is not increased solely by reason of the agreement to divide fees with the organization.
* Paying a prescribed registration, referral, or other fee to a lawyer referral service established, sponsored, and operated in accordance with the State Bar of California’s Minimum Standards for Lawyer Referral Services.
