Termination, contracts, and fees - Fees

Learning Outcomes

After reading this article, you will be able to identify and apply the MPRE rules governing attorney fees. You will understand what makes a fee reasonable, the requirements for fee agreements (including contingency fees), how fee disputes must be handled, and the restrictions on fee sharing. You will be able to answer MPRE-style questions on fee arrangements, client communication, and related ethical obligations.

MPRE Syllabus

For the MPRE, you are required to understand the ethical rules and requirements concerning attorney fees. This article focuses your revision on the following syllabus points:

• Identify what constitutes a reasonable attorney fee under the Model Rules.
• Distinguish between permissible and impermissible fee arrangements, including contingency fees.
• Recognize the requirements for fee agreements, including when a writing is necessary.
• Understand the procedures for handling fee disputes and the obligation to safeguard disputed funds.
• Explain the rules on fee splitting between lawyers and with non-lawyers.
• Apply the rules for communication with clients about fees and expenses.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following is required for a contingency fee agreement to be valid?
   1. It must be in writing and signed by the client.
   2. It may be oral if the client consents.
   3. It is allowed in criminal defense cases.
   4. It can be based on the amount of alimony recovered in a divorce.
2. If a client disputes the amount of a fee after the lawyer receives settlement funds, the lawyer must:
   1. Immediately transfer all funds to the lawyer’s account.
   2. Hold the disputed portion in trust until the dispute is resolved.
   3. Send all funds to the client and seek arbitration later.
   4. Keep all funds until the client agrees to the lawyer’s fee.
3. Which of the following is NOT a factor in determining whether a fee is reasonable?
   1. The time and labor required.
   2. The lawyer’s reputation and experience.
   3. The client’s ability to pay.
   4. The customary fee in the locality.
4. A lawyer may split a fee with a lawyer in another firm if:
   1. The client agrees in writing and the total fee is reasonable.
   2. The lawyers are related by blood.
   3. The client is not informed.
   4. The lawyer pays a referral fee to a non-lawyer.

Introduction

Attorney fees are a central aspect of the client-lawyer relationship and are strictly regulated by the Model Rules of Professional Conduct. Lawyers must ensure that all fees are reasonable, clearly communicated, and properly documented. Fee arrangements, including contingency fees and fee splitting, are subject to specific requirements. Mishandling fees or failing to resolve disputes appropriately can result in discipline.

Key Term: Reasonable Fee
A fee that is fair under the circumstances, considering factors such as time, labor, complexity, results obtained, and customary charges in the locality.

Fee Agreements and Communication

Lawyers must communicate the basis or rate of their fee and expenses to the client, preferably in writing, before or within a reasonable time after starting the representation. While most fee agreements do not have to be in writing, contingency fee agreements always must be.

Key Term: Fee Agreement
The arrangement between lawyer and client specifying how the lawyer will be compensated for legal services, including the basis, rate, and method of payment.

Reasonableness of Fees

All fees must be reasonable. Factors include:

• Time and labor required.
• Novelty and difficulty of the issues.
• Skill needed to perform the service.
• Likelihood that accepting the case will preclude other employment.
• Fee customarily charged in the locality.
• Amount involved and results obtained.
• Time limitations imposed by the client or circumstances.
• Nature and length of the professional relationship.
• Experience, reputation, and ability of the lawyer.
• Whether the fee is fixed or contingent.

Charging an unreasonable fee is grounds for discipline, regardless of client consent.

Contingency Fees

Contingency fees are permitted in most civil cases but are prohibited in criminal defense and domestic relations matters involving divorce or support awards. All contingency fee agreements must:

• Be in writing, signed by the client.
• State the method by which the fee is calculated.
• Specify what expenses will be deducted and whether they are deducted before or after the fee is calculated.
• Clearly notify the client of any expenses for which the client is liable, even if not successful.
• Provide a written statement at the conclusion of the matter showing the outcome and how the fee was determined.

Key Term: Contingency Fee
A fee paid to a lawyer only if the client obtains a recovery, calculated as a percentage of the amount recovered.

Payment in Advance and Retainers

Lawyers may require advance payment of fees, but any unearned portion must be refunded if the representation ends before the work is completed. Retainer fees paid solely to secure the lawyer’s availability may be non-refundable if clearly stated.

Key Term: Retainer
A sum paid to a lawyer to secure availability or as an advance against future fees; unearned portions must be returned unless otherwise agreed.

Fee Disputes and Safekeeping Funds

If a client disputes the lawyer’s fee after the lawyer receives funds (such as a settlement), the lawyer must promptly distribute any undisputed portion to the client and hold the disputed portion in a client trust account until the dispute is resolved.

Key Term: Fee Dispute
A disagreement between lawyer and client over the amount or entitlement to legal fees, requiring the disputed funds to be held in trust until resolved.

Fee Splitting

Fee splitting between lawyers in different firms is allowed only if:

• The division is proportional to the services performed by each lawyer or each assumes joint responsibility.
• The client agrees in writing to the arrangement.
• The total fee is reasonable.

Fee splitting with non-lawyers is generally prohibited, with limited exceptions (e.g., payments to a deceased lawyer’s estate, retirement plans, or court-awarded fees to a nonprofit).

Key Term: Fee Splitting
The division of legal fees between lawyers in different firms, subject to strict requirements; generally prohibited with non-lawyers.

Prohibited Fee Arrangements

• Contingency fees in criminal or divorce/support cases.
• Unreasonable or excessive fees.
• Non-refundable fees unless clearly stated and earned upon receipt.
• Agreements that restrict a lawyer’s right to practice after termination, except as part of retirement benefits or sale of a law practice.

Worked Example 1.1

A lawyer agrees to represent a client in a personal injury case for a 33% contingency fee. The agreement is oral, and after settlement, the client disputes the fee. Is the lawyer subject to discipline?

Answer:
Yes. Contingency fee agreements must be in writing and signed by the client. An oral agreement is invalid, and the lawyer may not collect the fee and is subject to discipline.

Worked Example 1.2

A lawyer receives a $10,000 settlement check for a client. The client disputes $2,000 of the lawyer’s claimed fee. What must the lawyer do with the funds?

Answer:
The lawyer must promptly distribute the undisputed $8,000 to the client and hold the disputed $2,000 in the client trust account until the dispute is resolved.

Worked Example 1.3

Two lawyers at different firms agree to split a fee for a case. The client is not informed. Is this arrangement proper?

Answer:
No. Fee splitting between lawyers in different firms requires the client’s informed written consent and that the total fee is reasonable. Failure to inform the client is a violation.

Exam Warning

Fee agreements that violate the rules—such as contingency fees in divorce or criminal cases, or agreements not in writing when required—are unenforceable and subject the lawyer to discipline, even if the client agreed.

Revision Tip

Always check if the fee agreement is in writing when required, and whether the fee is reasonable under all the circumstances.

Key Point Checklist

This article has covered the following key knowledge points:

• All attorney fees must be reasonable; client consent does not justify an unreasonable fee.
• Fee agreements must be communicated to the client, preferably in writing; contingency fees must always be in writing.
• Contingency fees are prohibited in criminal and divorce/support cases.
• Advance fees must be refunded if unearned; retainer fees must be clearly defined.
• Disputed fees must be held in trust until resolved; undisputed funds must be promptly distributed.
• Fee splitting between lawyers in different firms requires proportionality or joint responsibility, client’s written consent, and reasonableness.
• Fee splitting with non-lawyers is generally prohibited, with narrow exceptions.
• Agreements restricting a lawyer’s right to practice are not permitted, except in limited circumstances.

Key Terms and Concepts

• Reasonable Fee
• Fee Agreement
• Contingency Fee
• Retainer
• Fee Dispute
• Fee Splitting