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Bell/Gaerte: 3 things to know about fixed fees arrangements

July 31, 2013
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By James J. Bell and K. Michael Gaerte

Recently, businesses have been seeking “alternative fee arrangements” from the law firms they hire. Many of these alternative fee arrangements involve the use of “fixed fees,” which is a fee “an attorney charges for all legal services in a particular matter, or for a particular discrete component of legal services” Matter of Kendall, 804 N.E.2d 1152 at 1157 (Ind. 2004). While a fixed fee has many advantages, including predictability, a fixed fee carries some disciplinary risks. Before you enter into a fixed-fee agreement, here are three things you need to know.

1. A reasonable fee can become unreasonable over the course of a representation

Rule 1.5(a) of the Indiana Rules of Professional Conduct states that a fee must be “reasonable.” This subjective term guides a lawyer’s fee. Often, a fee that seems “reasonable” at the beginning of the case can take less work than what the lawyer and the client originally anticipated. In such a circumstance, can the attorney receive a windfall? Not necessarily.

In the Matter of Gerard, 634 N.E.2d 51 (Ind. 1994), an attorney contracted with an elderly woman to recover assets thought by the client to be lost or stolen. The attorney agreed to receive one-third of the recovered amount. There was no evidence that the attorney knew that the collection of his client’s assets would be a simple task when he entered into the fee agreement. However, as it turned out, the attorney easily located approximately $450,000 worth of assets and kept approximately $160,000 as a fee. Id. at 52.

The Indiana Supreme Court held that the attorney should not have retained such a fee “beyond the point in time when it should have been apparent to him that it was in excess of a reasonable fee.” Id. 52. Specifically, the court concluded that the attorney:

“did not renegotiate his fee after realizing his client’s entitlement to the certificates was not seriously in doubt, but instead … accepted the inflated contingency fee. Such action is fraudulent. … Implicit in [the] retention of the excessive fee was the false representation that the service he provided to [the client] roughly corresponded with the amount of compensation.” Gerard, 634 N.E.2d at 53.

Based on this, when an attorney enters into a fixed fee, the attorney should continue to evaluate the fee relative to the amount of work involved during and after the case to determine whether the fee is reasonable.

2. Don’t change the fee in the middle of the case without consulting Rule 1.8(a)

What if the fixed fee turns out to be unfair to the attorney? Can the attorney change the fee in the middle of the case? Yes, provided the attorney follows the guidance in Rule 1.8(a) and its comment.

Rule 1.8(a) pertains to business transactions with a client and never specifically mentions the modification of a fee agreement. The language regarding fee modification is reserved for the comment, which states that 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.” Comment to 1.8[1]. To be clear, Rule 1.8(a) “does not apply to ordinary initial fee arrangements between client and lawyer” because there is no established attorney-client relationship. Id. However, once a trusting relationship is established, the comment to 1.8(a) serves to curb the “possibility of overreaching” by sophisticated lawyers. Id.

An attorney who wishes to change a fee to one that is more advantageous to the lawyer must “advis[e] the client in writing of the desirability of seeking … the advice of independent legal counsel” and give the client “informed consent, in a writing signed by the client.” See Rule 1.8(a)(2) and (3) of the Indiana Rules of Professional Conduct. “Informed consent” is a term of art, and it is defined in Rule 1.0(e).

What if the attorney believes the new deal is not more “advantageous” to the lawyer? The attorney may want to follow 1.8(a) anyway. The practice of law is unpredictable. For example, cases that are certain to go to trial often settle on the courthouse steps. When the unexpected happens, it is difficult to look backward and assess whether a new fee was more advantageous to the attorney. If the attorney follows 1.8(a) before the unexpected happens, that attorney will not have to quibble about who got the better deal.

3. Fixed fees are almost always refundable

What if the attorney-client relationship terminates before the end of the case? What does the attorney do for a refund? When the attorney bills hourly, the refund calculation is easy. Just calculate your hours and refund the unearned advanced fees. However, in a fixed-fee scenario, the calculation can be tricky.

If the attorney has agreed to take a client from point A to point B and the attorney has not yet arrived at point B, then the attorney likely owes a refund. A more complicated question is how much of a refund should the attorney give? The answer lies largely in the “reasonableness” analysis contained in Rule 1.5. The refund amount may also be determined by how close the representation was to coming to a conclusion.

Moving forward: Evaluation is key

Fixed fees have many advantages. However, cases are unpredictable, and it is difficult to predict what a “reasonable” fee will be at the outset of a representation. Throughout a representation, an attorney should continue to evaluate whether a fee is reasonable. If the fee turns out to be unreasonable, a refund or a modification of the fee may be appropriate. However, if the agreement is to be modified, the attorney should pay close attention to the requirements of Rule 1.8.•

__________

James J. Bell and K. Michael Gaerte are attorneys with Bingham Greenebaum Doll LLP. They assist lawyers and judges with professional liability and legal ethics issues. They also practice in criminal defense and are regular speakers on criminal defense and ethics topics. They can be reached via email at jbell@bgdlegal.com or mgaerte@bgdlegal.com. The opinions expressed are those of the authors.

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  1. He TIL team,please zap this comment too since it was merely marking a scammer and not reflecting on the story. Thanks, happy Monday, keep up the fine work.

  2. You just need my social security number sent to your Gmail account to process then loan, right? Beware scammers indeed.

  3. The appellate court just said doctors can be sued for reporting child abuse. The most dangerous form of child abuse with the highest mortality rate of any form of child abuse (between 6% and 9% according to the below listed studies). Now doctors will be far less likely to report this form of dangerous child abuse in Indiana. If you want to know what this is, google the names Lacey Spears, Julie Conley (and look at what happened when uninformed judges returned that child against medical advice), Hope Ybarra, and Dixie Blanchard. Here is some really good reporting on what this allegation was: http://media.star-telegram.com/Munchausenmoms/ Here are the two research papers: http://www.sciencedirect.com/science/article/pii/0145213487900810 http://www.sciencedirect.com/science/article/pii/S0145213403000309 25% of sibling are dead in that second study. 25%!!! Unbelievable ruling. Chilling. Wrong.

  4. Mr. Levin says that the BMV engaged in misconduct--that the BMV (or, rather, someone in the BMV) knew Indiana motorists were being overcharged fees but did nothing to correct the situation. Such misconduct, whether engaged in by one individual or by a group, is called theft (defined as knowingly or intentionally exerting unauthorized control over the property of another person with the intent to deprive the other person of the property's value or use). Theft is a crime in Indiana (as it still is in most of the civilized world). One wonders, then, why there have been no criminal prosecutions of BMV officials for this theft? Government misconduct doesn't occur in a vacuum. An individual who works for or oversees a government agency is responsible for the misconduct. In this instance, somebody (or somebodies) with the BMV, at some time, knew Indiana motorists were being overcharged. What's more, this person (or these people), even after having the error of their ways pointed out to them, did nothing to fix the problem. Instead, the overcharges continued. Thus, the taxpayers of Indiana are also on the hook for the millions of dollars in attorneys fees (for both sides; the BMV didn't see fit to avail itself of the services of a lawyer employed by the state government) that had to be spent in order to finally convince the BMV that stealing money from Indiana motorists was a bad thing. Given that the BMV official(s) responsible for this crime continued their misconduct, covered it up, and never did anything until the agency reached an agreeable settlement, it seems the statute of limitations for prosecuting these folks has not yet run. I hope our Attorney General is paying attention to this fiasco and is seriously considering prosecution. Indiana, the state that works . . . for thieves.

  5. I'm glad that attorney Carl Hayes, who represented the BMV in this case, is able to say that his client "is pleased to have resolved the issue". Everyone makes mistakes, even bureaucratic behemoths like Indiana's BMV. So to some extent we need to be forgiving of such mistakes. But when those mistakes are going to cost Indiana taxpayers millions of dollars to rectify (because neither plaintiff's counsel nor Mr. Hayes gave freely of their services, and the BMV, being a state-funded agency, relies on taxpayer dollars to pay these attorneys their fees), the agency doesn't have a right to feel "pleased to have resolved the issue". One is left wondering why the BMV feels so pleased with this resolution? The magnitude of the agency's overcharges might suggest to some that, perhaps, these errors were more than mere oversight. Could this be why the agency is so "pleased" with this resolution? Will Indiana motorists ever be assured that the culture of incompetence (if not worse) that the BMV seems to have fostered is no longer the status quo? Or will even more "overcharges" and lawsuits result? It's fairly obvious who is really "pleased to have resolved the issue", and it's not Indiana's taxpayers who are on the hook for the legal fees generated in these cases.

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