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LawBiz® TIPS – Week of January 1, 2013

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When Is a Flat Fee Refundable?

An interesting issue can be raised about one type of alternative billing arrangement, namely a fixed or flat fee stipulated in the engagement letter before the assignment even begins. If a lawyer takes a flat fee in advance as a retainer, and work is promised in exchange for that fee, then failure to perform the work requires a refund. Apportionment is required and how this should be done is a function of the engagement agreement first and, if silent on the issue, then a balancing of interests and time expended on the work to date.

How does the lawyer apportion work already done versus work yet to be done, especially when the fee agreement is silent on the subject? The concern here would center on what is stipulated in the engagement agreement, specifically if the lawyer requests and the client agrees that the flat fee paid is not refundable under any circumstances once work begins.

If a lawyer charges a flat fee and the fee meets the Rule of Professional Conduct 1.5 standard of being "reasonable," and the client knowingly accepts the fee in a written fee agreement, it is ethically acceptable to retain the fee. The lawyer is not technically required to provide a refund in this case. The rationale to do so from a client relations standpoint is, of course, another matter.

This issue illustrates the position that, even when using alternatives to the billable hour, lawyers may be safer, despite whatever billing methodology is employed, to keep track of time expended. Where your billings may come into question or when, as in this instance, a refund is needed, the tried and true method of demonstrating what you've done usually comes back to hourly metrics. If a client wants to dispute whether a value charge for a service was reasonable, a time record can provide useful backup documentation. The real goal should be effective, frequent communication between attorney and client to make sure such disputes don't arise and/or are settled quickly.

Of course, if the client is in some way dissatisfied with the work performed and requests a refund, the issue then becomes one of competence of the lawyer and the quality of the services provided vs. the quality of the work promised. This, then, would suggest either a negotiated settlement with the client or taking a hard line and facing the ire of the client either in a disciplinary hearing or malpractice action.

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When Is a Flat Fee Refundable?

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