Can you defend your fee structure?

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Published on 10/30/06

Recently, a regular reader of this column called me. He has an estate planning practice and offers flat fees that are non-refundable. In one instance, a client requested an estate plan; he completed the documents and sent them to the client for signature. The client then informed him that she had changed her mind and did not want the type of trust that had been created and, worse, now wanted the fee refunded.

What to do? As a matter of professional courtesy, he made an adjustment that was accepted by the client.

Months later, the client filed a complaint with bar counsel. Then, bar counsel reportedly called this lawyer to challenge the lawyer's fee structure, and went further to suggest that maintaining a record of hours billed is a requirement.

There are several levels of issues in this case that I'd like to address. The first is that, according to the Rules of Professional Conduct, fees must be "reasonable." Each jurisdiction has its own standards that define that term, meaning you must be able to defend the fee and the fee structure. Using an hourly standard is only one method of doing so. There is no requirement in any jurisdiction of which I'm aware that requires that fees be charged by the hour, nor that a record of hours be maintained.

If you charge a flat fee, the fee meets the standard of being "reasonable" and the client knowingly accepts the fee in a written fee agreement, you are within the Rules of Professional Conduct of every jurisdiction of which I'm aware.

Many lawyers today are flirting with value billing in order to move away from the concept of hourly billing, a practice many consider to be contrary to the best interests of the client.

In fact, contingency lawyers are the classic examples of value billing. If the client doesn't receive value, there is no charge; if the client does receive value, the lawyer's fee is based on a previously negotiated percentage.

Having said this, however, the lawyer must still show that the fee is reasonable. The public needs to be protected in these matters by bar counsel and lawyers cannot be greedy. Whether the lawyer exceeds the standard is a matter of individual review.

If you take a retainer in advance, whether the fee be called "refundable" or not, and work is promised in exchange for that fee, then failure to perform the work requires a refund. It doesn't matter what you called the fee.

However, if you take a fee in exchange for "coming off the market," this fee may be refundable because you've already done the work. In other words, there is a value that can be assigned to being prevented by the rules of conflict of interest from representing the other party. Again, the rule of reasonableness comes into play.

Bar counsel has significant clout. Lawyers don't want to become involved in a dispute with bar counsel for many reasons. It's economically expensive; it's emotionally draining; and, perhaps worst of all, bar counsel is entitled to go on a "fishing expedition" to review the entire practice, not just the one issue raised by one client.

For protection, consult with an ethics lawyer (a "lawyer's lawyer") who practices regularly before your jurisdiction's bar counsel.

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