Show Me The Money: Lawyers May Withdraw If Not Paid Fees

The American Bar Association released Formal Opinion 476, which addresses whether a lawyer can withdraw from a civil case because a client failed to pay the lawyer’s fees, without jeopardizing the duty of confidentiality and balancing this with information that the Court would need to consider granting a lawyer’s motion to withdraw. Withdrawal from a case in any instance invokes ABA Model Rule 1.6—Confidentiality of Information—however, lawyers may choose to withdraw from a case under Rule 1.16(b): Declining or Terminating Representation.

Failure to pay a lawyer’s fees is one reason a lawyer may withdraw from a civil litigation matter under 1.16(b)(5). A lawyer cannot go too in-depth and disclose confidential client information in motions for withdrawal, but previous opinions and Comment 16 to Rule 1.6 permit a lawyer to advise the court that “professional considerations” require withdrawing from the case.

Trial court judges also have to be aware of this balancing act between confidentiality and withdrawal because of unpaid fees. Judges have wide discretion in ruling on such motions. Along with considering the lawyer’s reasons, judges must consider the Court’s calendar and how the withdrawal will impact the parties to the case. Withdrawal motions are less problematic in earlier stages of litigation when these factors (along with the reasons the lawyer provides) are considered; when the case is further along and the trial is approaching, it falls more to the judge’s discretion.

In order to avoid breaching confidentiality when withdrawing over unpaid fees, a lawyer could vaguely reference “professional considerations” with no client information and persuade the court that more is not necessary. Or, if needed the lawyer may submit information deemed reasonably necessary by the court to minimize disclosure if it is appropriate. Lawyers and judges must cooperate in order to protect client confidentiality in motions for withdrawal.

A Co-Counsel Must Receive Notice When Shared Fee Is Received

The American Bar Association’s Standing Committee on Ethics and Professionalism issued Formal Opinion 475, which discusses the issue of safeguarding attorneys’ fees that are subject to splitting with co-counsel. According to Model Rule 1.5(e), a lawyer may divide a reasonable fee with another lawyer as long as the lawyers are not in the same firm, the client provided consent to the arrangement, and the fees ar proportionate to each lawyer’s performed services or each of the lawyers assumed joint responsibility in writing.

As per Model Rule 1.15(a), a lawyer needs to separate held property of third persons from the lawyer’s own property. The Committee determined that when one lawyer receives fees on behalf of multiple lawyers providing services in a matter, the additional lawyers count as third persons under the Rule. Therefore, the lawyer needs to keep the funds divided in a separate account—typically a trust account—within the state that the lawyer’s office is located. Additionally, the lawyer needs to keep complete records of the separate account and preserve it for five years after the representation is terminated.

Finally, the lawyer must promptly notify the other lawyers involved in receiving the funds and promptly deliver the funds that the other lawyers are entitled to receive. If there is any dispute about fee division, Model Rule 1.15(e) requires that the lawyer receiving the funds must keep them separate from the lawyer’s property until the resolution of the dispute.

Click here to read the opinion in its entirety.

Florida Lawyer May Waive Clients Reimbursement of Costs in Limited Circumstances

A recent opinion from the Florida Bar Professional Ethics Committee allows lawyers to waive repayment of litigation expenses from non-indigent clients when the case is settled under limited circumstances. The Committee found that “where there has been no agreement for the inquirer to be unconditionally responsible for the costs at the outset of the representation, the cost “forgiveness” occurs after settlement, and the inquirer will receive no fees for the representation.”

Florida Model Rule 1.8(e) allows lawyers to front litigation costs of non-indigent clients only if they later recover those expenses by charging a contingent fee based on the outcome of the litigation. When working with indigent clients, Rule 1.8(e) allows lawyers to front expenses without later seeking or receiving repayment.

This opinion now creates flexibility for Florida lawyers to forgo repayment in non-indigent cases. The Committee’s opinion was prompted by an inquiry from a lawyer who represented a client in a negligence case. The parties reached a settlement; however, the settlement proceeds barely covered the litigation costs that the lawyer had fronted. The lawyer inquired about forgiving the costs owed so that the client would receive some of the settlement proceeds.

The Committee opined that Rule 4-1.8(e)’s prohibition did not preclude forgiving the costs because the Rule addresses agreements entered into at the beginning of the representation as to the client being responsible for the costs. The Committee explained, “the exception allowing a lawyer to advance costs of litigation and make those advanced costs “contingent on the outcome of the matter” would permit the inquirer to reduce the amount of the costs the inquirer seeks to be reimbursed from the recovery, as the recovery is insufficient to cover all medical bills and litigation costs.”

Read the opinion in its entirety here.

Trusting Your Colleagues with Fees: ABA Opines on Lawyers Splitting Fees

The ABA Standing Committee of Ethics and Professional Responsibility recently opined that when one lawyer receives a fee that is to be shared with a lawyer (or lawyers) at another firm (or firms), the fee for the other lawyer(s) should be placed in trust in accordance with Model Rule 1.15.

Rule 1.5(e) allows a division of fees among lawyers in different law firms if the division fairly represents the services provided by each lawyer, the client agrees to the agreement, the agreement is confirmed in writing, and the total fee is reasonable. When multiple lawyers have entered into a Rule 1.5 agreement, the lawyers who do not receive the initial payment are considered to be a “third persons” under Rule 1.15.

Rule 1.15(a) states that a lawyer “shall hold property of . . . third persons that is in a lawyer’s possession in connection with a representation separate from the lawyer’s own property.”

Thus, the receiving lawyer must deposit the funds that belong to the other participating lawyer(s) into a trust account. The receiving lawyer must also inform the other lawyer(s) of the receipt of the funds, and promptly deliver to the other lawyer(s) their portion of the fee.

To read the full ABA opinion, click here.

 

Attorneys Entitled to Fees Despite Allegations of Rate Increases and Estimate Overruns

In August, the Connecticut Superior Court held that a law firm accused of failing to notify its litigation clients of rate increases and estimate overruns may still recover its legal fees. The law firm represented two clients who wanted their brother removed as executor of their father’s estate. During the course of the representation, the firm increased its hourly billing rate. After the clients complained about the difference in the rates from the initial retainer agreement, the clients and the firm reached an agreement to adjust the hourly billing rates.

Over the course of the matter, the firm provided fee estimates of future work as the clients fell behind on their invoice payments. The attorney-client relationship concluded when the clients terminated the firm’s representation with an overdue balance of over $184,000. When the firm commenced an action to collect their legal fees, the clients argued that the firm’s fees were unreasonable because the actual fees exceeded the fee estimates. Additionally, the clients argued that the firm should not be allowed to recover its fees because the firm violated Rule 1.5 of the Rules of Professional Conduct.

Ultimately, the court found that the estimates that the firm provided were not contractual agreements to limit the fees. The fees charged were reasonable under the relevant circumstances. Additionally, the court concluded that the firm did not violate Rule 1.5 because the version of the rule that the clients were relying on came into effect over three years after the firm’s representation of the clients ceased. Moreover, after the clients learned of the increase in fees, they reached an agreement with the firm thereby waiving their right to allege a violation of the rules. The court noted that even if there was a violation of Rule 1.5, it does not “create a presumption that a legal duty has been breached or that the attorney is precluded from collecting otherwise payable fees and disbursements.”

For more information, read the Opinion here.