ILNews

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

July 31, 2013
Back to TopCommentsE-mailPrintBookmark and Share

 

gaerte Gaerte
bell Bell

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.

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. Hi there I really need help with getting my old divorce case back into court - I am still paying support on a 24 year old who has not been in school since age 16 - now living independent. My visitation with my 14 year old has never been modified; however, when convenient for her I can have him... I am paying past balance from over due support, yet earn several thousand dollars less. I would contact my original attorney but he basically molest me multiple times in Indy when I would visit.. Todd Woodmansee - I had just came out and had know idea what to do... I have heard he no longer practices. Please help1

  2. Yes diversity is so very important. With justice Rucker off ... the court is too white. Still too male. No Hispanic justice. No LGBT justice. And there are other checkboxes missing as well. This will not do. I say hold the seat until a physically handicapped Black Lesbian of Hispanic heritage and eastern religious creed with bipolar issues can be located. Perhaps an international search, with a preference for third world candidates, is indicated. A non English speaker would surely increase our diversity quotient!!!

  3. First, I want to thank Justice Rucker for his many years of public service, not just at the appellate court level for over 25 years, but also when he served the people of Lake County as a Deputy Prosecutor, City Attorney for Gary, IN, and in private practice in a smaller, highly diverse community with a history of serious economic challenges, ethnic tensions, and recently publicized but apparently long-standing environmental health risks to some of its poorest residents. Congratulations for having the dedication & courage to practice law in areas many in our state might have considered too dangerous or too poor at different points in time. It was also courageous to step into a prominent and highly visible position of public service & respect in the early 1990's, remaining in a position that left you open to state-wide public scrutiny (without any glitches) for over 25 years. Yes, Hoosiers of all backgrounds can take pride in your many years of public service. But people of color who watched your ascent to the highest levels of state government no doubt felt even more as you transcended some real & perhaps some perceived social, economic, academic and professional barriers. You were living proof that, with hard work, dedication & a spirit of public service, a person who shared their same skin tone or came from the same county they grew up in could achieve great success. At the same time, perhaps unknowingly, you helped fellow members of the judiciary, court staff, litigants and the public better understand that differences that are only skin-deep neither define nor limit a person's character, abilities or prospects in life. You also helped others appreciate that people of different races & backgrounds can live and work together peacefully & productively for the greater good of all. Those are truths that didn't have to be written down in court opinions. Anyone paying attention could see that truth lived out every day you devoted to public service. I believe you have been a "trailblazer" in Indiana's legal community and its judiciary. I also embrace your belief that society's needs can be better served when people in positions of governmental power reflect the many complexions of the population that they serve. Whether through greater understanding across the existing racial spectrum or through the removal of some real and some perceived color-based, hope-crushing barriers to life opportunities & success, movement toward a more reflective representation of the population being governed will lead to greater and uninterrupted respect for laws designed to protect all peoples' rights to life, liberty & the pursuit of happiness. Thanks again for a job well-done & for the inevitable positive impact your service has had - and will continue to have - on countless Hoosiers of all backgrounds & colors.

  4. Diversity is important, but with some limitations. For instance, diversity of experience is a great thing that can be very helpful in certain jobs or roles. Diversity of skin color is never important, ever, under any circumstance. To think that skin color changes one single thing about a person is patently racist and offensive. Likewise, diversity of values is useless. Some values are better than others. In the case of a supreme court justice, I actually think diversity is unimportant. The justices are not to impose their own beliefs on rulings, but need to apply the law to the facts in an objective manner.

  5. Have been seeing this wonderful physician for a few years and was one of his patients who told him about what we were being told at CVS. Multiple ones. This was a witch hunt and they shold be ashamed of how patients were treated. Most of all, CVS should be ashamed for what they put this physician through. So thankful he fought back. His office is no "pill mill'. He does drug testing multiple times a year and sees patients a minimum of four times a year.

ADVERTISEMENT