Be mindful of limitations in agreements with clients

Most individuals and businesses enjoy a general freedom to negotiate and enter into private contracts for goods and services so long as those agreements comply with the law. Attorneys, however, do not generally enjoy this same level of unfettered autonomy. Indeed, there are a number of restrictions - often set by the ethical rules - on what terms can and cannot be included in an agreement governing an attorney-client relationship.

This is generally understood to be because of the unique position of trust that an attorney enjoys with a client. And for less sophisticated clients, the law recognizes that those clients may have inequitable bargaining power when negotiating a relationship with a lawyer. To that end, there are limitations on what an attorney may include in an agreement with a client.

Attorneys may avoid problems by taking a lay of the ethical land before entering into an agreement with a client. Below are some of the more common limitations on attorneys entering into agreements with prospective clients.

The Scope of the Representation

In the typical business setting, the market is determined by supply and demand, and a business may be able to sell its product so long as there is a customer willing to purchase it. But given the unique nature of the attorney-client relationship as well as the special duties imposed by that relationship, attorneys may not be able to represent just any client who wants to hire them.

A common barrier includes the ethical rules governing conflicts of interests. Pursuant to Rule 1.7 of the California Rules of Professional Conduct ("RPC"), an attorney is not permitted to represent a client, without informed written consent of each client involved, "if the representation is directly adverse to another client in the same or a separate matter" or if there is "a significant risk the lawyer's representation of the client will be materially limited by the lawyer's responsibilities to or relationships with another client a former client or a third person, or by the lawyer's own interests." The rule goes on to list additional circumstances where conflicts cannot typically be resolved through client consent.

Subject matter expertise may be a practical barrier as well. Many attorneys will avoid representing clients in matters outside their expertise. Notably, such a representation is not usually prohibited by the rules. California RPC 1.1(b) on attorney competence even provides several avenues for attorneys outside their depth to provide competent representation. Nonetheless, engaging in highly specialized areas of practice without sufficient training, supervision, or support could place the attorney at risk of a malpractice claim.

Initial Compensation and Modifications

There are also some general limitations on the fee an attorney may charge a client for services. As outlined in California RPC 1.5(a), "[a] lawyer shall not make an agreement for, charge, or collect an unconscionable or illegal fee." Whether a fee is "unconscionable" is generally based on "all the facts and circumstances existing at the time the agreement is entered into." RPC 1.5(b).

The rule delineates a list of non-exhaustive factors that may be considered in determining whether a fee is unconscionable, including the fee's proportion to the value of services, the relative sophistication of the parties, the length of the parties' relationship, the novelty and difficulty of the representation, the time and labor required, and the experience or reputation of the attorney. When an attorney charges a fee that is unconscionable, discipline can follow. That said, parties are typically afforded flexibility to determine the best way to calculate the value of the attorney's services.

Another common issue attorneys face is whether and to what extent they may adjust the agreed-upon fees during the course of an ongoing representation. Some types of modifications are quite common and accepted in the legal profession. For example, it is fairly routine for a law firm to increase hourly fees as part of a standard annual review. Some firms will include this expectation in the engagement letter to ensure that the client is aware.

But in making other modifications to a fee arrangement in the middle of the representation, lawyers may be subject to additional scrutiny. That is because of the public policy concern that a client could be more likely to agree to unfavorable financial terms because their interests could be at significant risk if the lawyer withdraws mid-representation. Courts or bars reviewing such arrangements often consider whether the modification of the fee arrangement was at the client's expense or otherwise traded on the client's vulnerable position in the middle of a legal representation.

Limiting Potential Liability and Fee Disputes

Attorneys may be tempted to get ahead of potential disputes with a client in an initial agreement. For instance, many jurisdictions allow attorneys to include provisions that mandate that the parties will attend arbitration if there is any future dispute over legal fees. These are typically ethically permissible because such provisions only determine the method for how any fee dispute will be resolved and does not impact the ultimate merits of the dispute. In California, State Bar Rule 3.501(A) and Cal. Bus. & Prof. Code § 6200(c) permit attorneys to include mandatory fee arbitration provisions in written agreements in order to resolve fee disputes with clients. Notably, in California such arbitrations are typically mandatory when initiated by a client (but voluntary for a client unless the parties have agreed in writing to submit to arbitration).

There are, however, limitations on what an attorney may attempt to resolve prospectively in the agreement. Generally, attorneys may not attempt to limit potential liability for malpractice in an engagement letter. California RPC 1.8.8(a) expressly prohibits attorneys from doing so. Other rules or statutes are aimed at preventing prohibit fee arbitration provisions from transforming into a mechanism to resolve malpractice claims.

Duration of the Agreement and Relationship

Clients generally may terminate the attorney-client relationship at any time for any reason. An attorney's ability to terminate the relationship, on the other hand, is typically more limited. Many jurisdictions include detailed rules that govern the specifics of when, why, and how an attorney may terminate the agreement, such as California RPC 1.16. Failing to adhere to these requirements may not only subject the attorney to discipline, but it may also create a potential legal malpractice or breach of fiduciary duty claim if the client alleges that the improper termination or withdrawal harmed the client.