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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. If real money was spent on this study, what a shame. And if some air-head professor tries to use this to advance a career, pity the poor student. I am approaching a time that i (and others around me) should be vigilant. I don't think I'm anywhere near there yet, but seeing the subject I was looking forward to something I might use to look for some benchmarks. When finally finding my way to the hidden questionnaire all I could say to myself was...what a joke. Those are open and obvious signs of any impaired lawyer (or non-lawyer, for that matter), And if one needs a checklist to discern those tell-tale signs of impairment at any age, one shouldn't be practicing law. Another reason I don't regret dropping my ABA membership some number of years ago.

  2. The case should have been spiked. Give the kid a break. He can serve and maybe die for Uncle Sam and can't have a drink? Wow. And they won't even let him defend himself. What a gross lack of prosecutorial oversight and judgment. WOW

  3. I work with some older lawyers in the 70s, 80s, and they are sharp as tacks compared to the foggy minded, undisciplined, inexperienced, listless & aimless "youths" being churned out by the diploma mill law schools by the tens of thousands. A client is generally lucky to land a lawyer who has decided to stay in practice a long time. Young people shouldn't kid themselves. Experience is golden especially in something like law. When you start out as a new lawyer you are about as powerful as a babe in the cradle. Whereas the silver halo of age usually crowns someone who can strike like thunder.

  4. YES I WENT THROUGH THIS BEFORE IN A DIFFERENT SITUATION WITH MY YOUNGEST SON PEOPLE NEED TO LEAVE US ALONE WITH DCS IF WE ARE NOT HURTING OR NEGLECT OUR CHILDREN WHY ARE THEY EVEN CALLED OUT AND THE PEOPLE MAKING FALSE REPORTS NEED TO GO TO JAIL AND HAVE A CLASS D FELONY ON THERE RECORD TO SEE HOW IT FEELS. I WENT THREW ALOT WHEN HE WAS TAKEN WHAT ELSE DOES THESE SCHOOL WANT ME TO SERVE 25 YEARS TO LIFE ON LIES THERE TELLING OR EVEN LE SAME THING LIED TO THE COUNTY PROSECUTOR JUST SO I WOULD GET ARRESTED AND GET TIME HE THOUGHT AND IT TURNED OUT I DID WHAT I HAD TO DO NOT PROUD OF WHAT HAPPEN AND SHOULD KNOW ABOUT SEEKING MEDICAL ATTENTION FOR MY CHILD I AM DISABLED AND SICK OF GETTING TREATED BADLY HOW WOULD THEY LIKE IT IF I CALLED APS ON THEM FOR A CHANGE THEN THEY CAN COME AND ARREST THEM RIGHT OUT OF THE SCHOOL. NOW WE ARE HOMELESS AND THE CHILDREN ARE STAYING WITH A RELATIVE AND GUARDIAN AND THE SCHOOL WON'T LET THEM GO TO SCHOOL THERE BUT WANT THEM TO GO TO SCHOOL WHERE BULLYING IS ALLOWED REAL SMART THINKING ON A SCHOOL STAFF.

  5. Family court judges never fail to surprise me with their irrational thinking. First of all any man who abuses his wife is not fit to be a parent. A man who can't control his anger should not be allowed around his child unsupervised period. Just because he's never been convicted of abusing his child doesn't mean he won't and maybe he hasn't but a man that has such poor judgement and control is not fit to parent without oversight - only a moron would think otherwise. Secondly, why should the mother have to pay? He's the one who made the poor decisions to abuse and he should be the one to pay the price - monetarily and otherwise. Yes it's sad that the little girl may be deprived of her father, but really what kind of father is he - the one that abuses her mother the one that can't even step up and do what's necessary on his own instead the abused mother is to pay for him???? What is this Judge thinking? Another example of how this world rewards bad behavior and punishes those who do right. Way to go Judge - NOT.

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