Fees for legal services (Rule 1.5)

Special Coverage

PROPOSED RULES OF PROFESSIONAL CONDUCT

In the proposed new Rule 1.5 - "Fees for Legal Services," which will replace current Rule 4-200 - the Commission for the Revision of Rules of Professional Conduct has decided to keep the 83-year-old unconscionable fee standard for describing a prohibited fee and therefore retain the disciplinary function of the rule.

In 1934, the California Supreme Court in Herrscher v. State Bar, 4 Cal. 2d 399, 402-03, first announced the public policy rationale against charging an "unconscionable" fee. They reasoned that discipline should be imposed on the attorney where there are "elements of fraud or overreaching on the attorney's part, or failure on the attorney's part to disclose the true facts, so that the fee charged, under the circumstances, constituted a practical appropriation of the client's funds under the guise of retaining them as fees." This language from Herrscher has now become part of two new factors in Rule 1.5 (see paragraphs (b)(1) and (2)). The other 11 factors from the current Rule 4-200 have been renumbered (b)(3) through (13).

In proposing the new rule, the commission considered and rejected the ABA Model Rule 1.5 "unreasonable" standard. California is one of five states which have decided not to adopt this model rule standard. Unlike many states, California has a unique statutory mandatory fee arbitration program (see Business and Professions Code Section 6200 et. seq.) which handles disputes over the "reasonableness" of fees and costs an attorney may charge a client.

In addition to keeping the "unconscionable" fee standard, the proposed Rule 1.5 also adds three substantive paragraphs not found in the current Rule 4-200. First, paragraph (c) prohibits charging a contingent fee in certain family law matters and in criminal cases where constitutional rights or public policy considerations are involved. Second, paragraph (d) prohibits charging a client a non-refundable fee except in cases where it is paid to the attorney to assure the attorney's availability for a specified period of time. See Baranowski v. State Bar, 24 Cal. 3d. 153 (1979). The concept of a true retainer harkens back to a time when the profession had fewer attorneys to serve clients and it was necessary to ensure the attorney was "available" when needed and not representing an opposing party. In today's practice many attorneys still try to describe their fee as non-refundable and will violate the proposed rule if their fee agreement, billing and deposit of the fee, show it was not paid for "availability" of services. Finally, paragraph (e) was added to permit attorneys to charge a flat fee which is defined as a "fixed amount" which is complete payment for performance of services regardless of the work ultimately performed.

The practical effect of the proposed new Rule 1.5 means that an attorney is still subject to State Bar discipline in those cases where the facts suggest the attorney engaged in fraud or overreaching in negotiating or setting the fee or failed to disclose material facts, all of which reflect on the unfitness to practice law. The new rule also reinforces the basic concepts of contract law, that except for true retainers which are rare in today's practice, an advance fee is never earned unless and until the attorney provides services to the client.

Rule 1.5 Fees for Legal Services

(Proposed rule adopted by the board March 9, 2017)

(a) A lawyer shall not make an agreement for, charge, or collect an unconscionable or illegal fee.

(b) Unconscionability of a fee shall be determined on the basis of all the facts and circumstances existing at the time the agreement is entered into except where the parties contemplate that the fee will be affected by later events. The factors to be considered in determining the unconscionability of a fee include without limitation the following:

(1) whether the lawyer engaged in fraud* or overreaching in negotiating or setting the fee;

(2) whether the lawyer has failed to disclose material facts;

(3) the amount of the fee in proportion to the value of the services performed;

(4) the relative sophistication of the lawyer and the client;

(5) the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;

(6) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;

(7) the amount involved and the results obtained;

(8) the time limitations imposed by the client or by the circumstances;

(9) the nature and length of the professional relationship with the client;

(10) the experience, reputation, and ability of the lawyer or lawyers performing the services;

(11) whether the fee is fixed or contingent;

(12) the time and labor required; and

(13) whether the client gave informed consent* to the fee.

(c) A lawyer shall not make an agreement for, charge, or collect:

(1) any fee in a family law matter, the payment or amount of which is contingent upon the securing of a dissolution or declaration of nullity of a marriage or upon the amount of spousal or child support, or property settlement in lieu thereof; or

(2) a contingent fee for representing a defendant in a criminal case.

(d) A lawyer may make an agreement for, charge, or collect a fee that is denominated as "earned on receipt" or "non-refundable," or in similar terms, only if the fee is a true retainer and the client agrees in writing* after disclosure that the client will not be entitled to a refund of all or part of the fee charged. A true retainer is a fee that a client pays to a lawyer to ensure the lawyer's availability to the client during a specified period or on a specified matter, but not to any extent as compensation for legal services performed or to be performed.

(e) A lawyer may make an agreement for, charge, or collect a flat fee for specified legal services. A flat fee is a fixed amount that constitutes complete payment for the performance of described services regardless of the amount of work ultimately involved, and which may be paid in whole or in part in advance of the lawyer providing those services.

Comment

Prohibited Contingent Fees

[1] Paragraph (c)(1) does not preclude a contract for a contingent fee for legal representation in connection with the recovery of post-judgment balances due under child or spousal support or other financial orders.

Payment of Fees in Advance of Services

[2] Rule 1.15(a) and (b) govern whether a lawyer must deposit in a trust account a fee paid in advance.

[3] When a lawyer-client relationship terminates, the lawyer must refund the unearned portion of a fee. See rule 1.16(e)(2).

Division of Fee

[4] A division of fees among lawyers is governed by rule 1.5.1.

Written Fee Agreements

[5] Some fee agreements must be in writing* to be enforceable. See, e.g., Business and Professions Code §§ 6147 and 6148.