1

Fees: Fact and Fiction

Brent J. Edison Assistant Disciplinary Counsel Disciplinary Board of the Supreme Court

Free Ethics IVN, April 5, 2010

2

Attorney’s Fees

“A lawyer’s time andadvice are his stock in trade.”

3

Lawyer Discipline Cases re: Fees• http://www.ndcourts.gov/Search/Opinions.asp• Query: “fees”• Topic: “Disciplinary Proceedings” • Results: 76 cases

4

N.D.R. Prof. Conduct 1.5. Fees

• (a) Reasonableness requirement• (b) Communication requirements• (c) Contingent fee requirements• (d) When contingent fees prohibited• (e) Division of fees• (f) Charging for legal assistants• (g) Prohibition of fee splitting

5

Fees, N.D.R. Prof. Conduct 1.5(a) Rule of Reasonableness

• Lawyer shall not:– Make an agreement for– Charge– Collect an unreasonable fee or amount for expenses.

6

Reasonableness FactorsRule 1.5(a)

• (1) Time and labor, novelty and skill• (2) Other employment precluded?• (3) Customary charge• (4) $ involved and results• (5) Time limitations• (6) Relationship with client• (7) Lawyer’s experience, reputation, ability• (8) Fixed or contingent?

7

Not Reasonable

• Collecting retainer, not filing BR, not refunding– Disciplinary Board v. Lee, 1998 ND 90, 578 N.W.2d 89– Disciplinary Board v. Madlom, 2004 ND 206, 688 N.W.2d 923

• Charging $275 lawyer rate for paralegal time– Disciplinary Board v. Hellerud, 2006 ND 105, 714 N.W.2d 38

• Charging more because not familiar with ND law– Hellerud

• Charging $15,000 for $65,000 gross estate– Hellerud

8

Not Reasonable

• Charging more than bankruptcy court approved– Disciplinary Board v. Dvorak, 1998 ND 134, 580 N.W.2d 586

• Charging $590 for 12 minutes work over 10 months– Disciplinary Board v. McCray, 2008 ND 162, 755 N.W.2d 835

• Accepting “large, suspicious cash payments … that were excessive and bore no relationship to the apparent work being performed.”– Disciplinary Board v. Chinquist, 2006 ND 107, 714 N.W.2d 469

• Agreeing to accept W.C. as “sole and exclusive remuneration” but charging client – Disciplinary Board v. Moe, 1999 ND 110, 594 N.W.2d 317

9

Not Reasonable

• Failing to refund unearned fees– Disciplinary Board v. Lee, 1998 ND 90, 578 N.W.2d 89– Disciplinary Board v. Madlom, 2004 ND 206, 688 N.W.2d 923– Disciplinary Board v. McKechnie, 2006 ND 2, 708 N.W.2d 310– Disciplinary Board v. Nassif, 547 N.W.2d 541 (N.D. 1996) – Disciplinary Board v. Karlsen, 2008 ND 235– Disciplinary Board v. Raymond, 1997 ND 236, 571 N.W.2d 153

10

New ClientRule 1.5(b)

• Shall Communicate :– Basis, rate or amount of fee– Before or within reasonable time– Preferably in writing

• Cases:– Disciplinary Board v. Chinquist, 2006 ND 107, 714 N.W.2d 469

– Disciplinary Board v. Hellerud, 2006 ND 105, 714 N.W.2d 38

– Disciplinary Board v. Montgomery, 374 N.W.2d 607 (N.D. 1985)

11

Contingent FeesRule 1.5(c)

• Agreement–In writing–Signed by client

12

Contingent FeesRule 1.5(d)

• Prohibited–Domestic relations–Criminal defense–By other law

13

Contingent Fee AgreementsRule 1.5(c)

Must Include

• How computed• Settlement … %• Trial … %• Appeal …%

• How expenses deducted• From gross?• From net?

• Expenses client pays if no recovery

14

Contingent FeesRule 1.5(c)

• Written settlement statement–Outcome–Remittance to client• Method of determining• Itemization of expenses

15

Non-Refundable Retainers Redux

• Ethics of Non-Refundable Retainers

• Gavel - Nov. 2005

16

Oxymorons

• “Jumbo shrimp”• “Original copy” • “Friendly divorce”• “Amish technology”• “Non-Refundable retainer”

– Kent A. Gernander, Nonrefundable Retainers & Other Oxymorons, Bench & Bar of Minnesota (Feb. 2009)

17

Non-Refundable RetainersND Rules

• Rule 1.5 – Subsection (a): “A lawyer shall not make an

agreement for, charge or collect an unreasonable fee … .”

– Comment [4]: “A lawyer may require advance payment of a fee, but is obliged to return any unearned portion.”

18

Non-Refundable RetainersND Rules

• Rule 1.16– Subsection(e): “Upon termination of representation,

a lawyer shall take steps to the extent reasonably practicable to protect a client’s interest, such as … refunding any advance payment of fee or expense that has not been earned or incurred.”

– Comment [5]: “A client has a right to discharge a lawyer at any time, with or without cause, subject to liability for payment for the lawyer’s services.”

19

Non-Refundable Retainers

• In Re Cooperman, 633 N.E.2d 1069 (N.Y. 1994)–Case of first impression in U.S.–Fired lawyer kept $10,000 from criminal client–Held: Non-refundable retainers unethical

20

Non-Refundable Retainers

• Special non-refundable retainers: unethical –Non-refundable even if lawyer hasn’t done any work

• General non-refundable retainers: ethical – a/k/a “engagement retainer”, “classic retainer” or

“availability retainer” – Fixed sum in exchange for promise to be available to

perform, at an agreed upon price, legal services that may arise during specified period of time

Cooperman

21

Non-Refundable Retainers

• Special non-refundable retainers unethical– Cooperman analysis– Rule 1.5 “reasonableness” analysis– See, Gavel (Nov. 2005) – Majority of ethics opinions (e.g. SD)– But see, SBAND Ethics Op. 09-05

Trend

22

Non-Refundable Retainers

• Disciplinary Board v. Madlom, 2004 ND 206– Stipulation and Consent to Discipline– $750 to file bankruptcy– Lawyer fired before bankruptcy filed– Lawyer kept $750 under fee agreement:

“all fees paid are non-refundable and are considered as earned attorneys fees regardless whether or not you proceed with the completion of the bankruptcy process”

• Reprimand & refund of unearned retainer

North Dakota Cases

23

Non-Refundable Retainers

• Richmond v. Nodland, 501 N.W.2d 759 (N.D. 1993)– Action to recover $10,000 retainer– Arson charge dismissed– Client understood no refund– Summary judgment upheld– “No genuine issue of material fact about the terms of

the parties’ oral fee agreement”

North Dakota Cases

24

Non-Refundable Retainers

• Richmond v. Nodland– Contract and legal malpractice; not ethics case– Arson charge dismissed– Work completed; fee earned– Cooperman, body of law since

• Madlom– Lawyer discipline case– Non-refundable retainer– Lawyer fired before work completed

How do you reconcile Richmond and Madlom?

25

Non-Refundable Retainers

• Retainer for legal services in future– Trust account– Withdraw as earned

• Retainer for availability– Clear terms of agreement– Show quid pro quo or detriment from retention

• Flat fee– Clear terms of agreement– Make it clear no refund unless lawyer fails to do the work

• The words “non-refundable retainer” = red flag

Use Caution

26

Ethics Op. 09-05

• Re: deposit of credit card payments in operating account instead of trust account

• Accepts non-refundable retainers as “earned upon receipt”

• Unanswered questions: – What about Comment [4] to Rule 1.5?

• “A lawyer may require advance payment of a fee, but is obliged to return any unearned portion. See Rule 1.16(e).”

– What about Comment [5] to Rule 1.16(e)?• “A client has a right to discharge a lawyer at any time, with or without cause,

subject to liability for payment for the lawyer’s services.”

– What about ND Supreme Court decisions?• Why did the lawyer in Madlom have to refund a non-refundable fee?

27

Fee Sharing Rule 5.4(a)

• Shall not share fees with nonlawyer except:– (1) Deceased lawyer’s estate – (2) Rep. of deceased, disabled or disappeared

lawyer– Agreed upon price – Rule 1.17, Sale of Law Practice

– (3) Employee compensation, retirement, profit-sharing

– (4) Court-awarded fees to non-profits

28

Professional IndependenceRule 5.4(b)

• “A lawyer shall not form a partnership with a nonlawyer if any activities of the partnership consist of the practice of law.”

29

Multidisciplinary Practice (MDP)

• ABA Commission on MDP proposal (1999): – “Lawyers should be permitted to share fees and

join with nonlawyer professionals in a practice that delivers both legal and nonlegal professional services (Multidisciplinary Practice), provided that the lawyers have the control and authority necessary to assure lawyer independence in the rendering of legal services.”

• ABA House of Delegates nixed (2000)

30

Multidisciplinary Practice (MDP)

• Ethics 20/20 Commission (2009)– Chief Justice VandeWalle, Member – Reviewing rules in light of technology,

globalization– www.abanet.org/ethics/2020/

31

Future of MDP?

• District of Columbia DC Rule 5.4(b)

• Nonlawyers may own but firm must practice law only

• United Kingdom• DC model but nonlawyer share less than 25%

• Australia• May 21, 2007• Slater & Gordon • First law firm IPO and listing on stock exchange

Legalmart McLawyers

32

Thank You!

Brent J. Edison, Assistant Disciplinary Counsel

P.O. Box 2297 Bismarck, ND 58502-2297Tel (701) 328-3925 Fax (701)328-3964 E-mail bedison@nd.gov

✐