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Category: Ethics & Professional Responsibility

Earn a Certificate in Ethical Billing & Reasonable Fees

June 17, 2020

NALFA hosts CLE and professional development programs on attorney fee and legal billing issues.  We are the nation’s leading CLE provider of programs on attorney fee and legal billing matters.  All our programs are free for our members, faculty, and fellows.  Since 2008, NALFA has hosted over 45 different programs and events covering a range of attorney fee and legal billing topics.  Hundreds of litigators and other professionals from across the U.S. and around the globe have registered and participated in these programs.  Our faculty has included 18 sitting federal judges.

NALFA is now offering a Certificate in Ethical Billing & Reasonable Fees.  This is the nation’s first and only certificate of its kind.  Litigators who register for 4 or more CLE programs (live or on-demand) will earn NALFA’s Certificate in Ethical Billing & Reasonable Fees.  This certificate is also open to UK cost lawyers, in-house counsel, and insurance claims professionals.  Upon earning this certificate recipients will qualify for NALFA fellowship.  Firm-wide certification and fellowship is available for qualifying law firms.

“We're building a worldwide network of attorney fee expertise.  Attorney fee issues have become a substantive area of law,” said Terry Jesse, Executive Director at NALFA.  “We’re excited about this new certification program.  Earning this designation will show that recipients have completed a curriculum on ethical legal billing practices and reasonable attorney fees,” Jesse said.

Client’s Acknowledgement of Fee Splitting is Not ‘Consent’ in CA

June 9, 2020

A recent Metropolitan News story, “Client’s Acknowledgement of Fee-Splitting is Not ‘Consent’” reports that a lawyer cannot collect an agreed-upon referral fee from another attorney where the client merely acknowledged receipt of a letter telling him of the arrangement and affirming that he understood, but without his expressing explicit consent, the Third District Court of Appeal held.

The client’s subsequent testimony that his acknowledgement indicated his approval of the fee was ineffective, Justice Louis Mauro wrote.  At the time of the arrangement, Rules of Professional Conduct, rule 2-200 was in effect.  It read: “(A) A member shall not divide a fee for legal services with a lawyer who is not a partner of, associate of, or shareholder with the member unless: (1) The client has consented in writing thereto after a full disclosure has been made in writing that a division of fees will be made and the terms of such division….”

To like effect is the current rule 1.5.1, which declares: “(a) Lawyers who are not in the same law firm shall not divide a fee for legal services unless: (1) the lawyers enter into a written agreement to divide the fee; (2) the client has consented in writing, either at the time the lawyers enter into the agreement to divide the fee or as soon thereafter as reasonably practicable, after a full written disclosure to the client of: (i) the fact that a division of fees will be made; (ii) the identity of the lawyers or law firms that are parties to the division; and (iii) the terms of the division….”

The opinion reverses a San Joaquin Superior Court judgment in favor of the referring attorney, Robert K. Reeve of Valley Springs (in Calaveras County), and against Stockton attorney Kenneth N. Meleyco.

A jury awarded Reeve $78,750, based on both his causes of action for breach of contract and under a quantum meruit theory, and San Joaquin Superior Court Judge Barbara A. Kronlund added an award of $49,364.35 in prejudgment interest.  Explaining the reversal as to contract damages, Mauro said: “We conclude the client’s written acknowledgement that he received and understood the letter did not constitute written consent to the referral fee agreement under former rule 2-200, and the client’s subsequent testimony did not remedy the deficiency.  The referral fee agreement is unenforceable as against public policy and Reeve cannot recover for breach of contract.”

The client signed and returned a copy of the letter from Meleyco apprising him of the arrangement with Reeve, with his signature appearing under the words, “I, JAMES G. LUOMA, acknowledge receipt of this letter and understand the contents.”

Mauro set forth: “Consent is different from disclosure or receipt, and it is also different from understanding….Written consent requires written words expressing agreement or acquiescence, not just words expressing receipt or understanding.  Luoma’s acknowledgement was deficient in this regard.

“We understand Reeve to suggest that Luoma’s acquiescence can be inferred from his receipt of the letter, his understanding of the letter, and his lack of objection to the referral fee.  But because consent must be expressed in writing, silence cannot convey written consent.”

The testimony by Luoma that he intended his signing of the letter to indicate assent was ineffective because there was no ambiguity to be resolved in light of the meaning of the language being clear.  Mauro also said Reeve cannot recover under a quantum meruit theory because the last of his services in the case occurred more than three years before he filed his complaint and the statute of limitations in two years.

Article: Fee Sharing Between Discharged Counsel and New Counsel in Contingent Fee Cases

June 5, 2020

A recent The Legal Intelligencer article by Sarah Sweeney and Thomas Wilkinson of Cozen O'Connor, “Fee Division Between Discharged Counsel and New Counsel in Contingent Fee Cases” reports on the division of attorney fees between discharged counsel and new counsel in contingency fee matters.  This article was posted with permission.  The article reads:

When a client terminates, without cause, its legal representation in a contingent fee matter and subsequently retains new counsel from a different firm, the Rules of Professional Conduct related to the division and disbursement of fees impose certain requirements on the successor attorney.  The American Bar Association recently issued Formal Opinion 487—ABA Formal Opinion 487 (Fee Division with Client’s Prior Counsel), June 18, 2019—to identify the applicable rules, and to clarify the duties owed to the client by the successor attorney.

The opinion explains that Model Rule 1.5(e) (or its state equivalent) has no application to the division of fees in cases of successive representation.  Model Rule 1.5(e) applies to the division of fees between lawyers of different firms who are representing the client concurrently or who maintain joint ethical and financial responsibility for the matter as a whole.  Such situations are governed by Rule 1.5(b)-(c), which according to the opinion, require the successor counsel to “notify the client, in writing, that a portion of any contingent fee earned may be paid to the predecessor attorney.”

Specifically, Rule 1.5(b) requires attorneys to communicate the rate or basis of legal fees, and Rule 1.5(c) requires that the written fee agreement include the method of determining the fee.  Both subsections are designed to ensure that the client has a clear understanding of the total legal fee, how it will be computed, and when and by whom it will be paid.  When a client replaces its original counsel with new counsel in a contingent fee matter, the discharged attorney may have a claim for fees under quantum meruit or pursuant to a clause in the contingency fee agreement; and the successor counsel’s failure to communicate to the client the existence of such claim would run afoul of Rule 1.5(b)-(c).  Therefore, even if the exact amount or percentage (if any) owed to the first attorney is unknown at the time, it is incumbent on the successor attorney to advise a contingency client of the existence and effect of the predecessor attorney’s claim for fees as part of the terms and conditions of the engagement from the outset.

While the foregoing ABA guidance is reasonable, Model Rule 1.5(b) and (c) do not provide the most compelling basis to obligate successor counsel to advise the client of predecessor’s possible fee claim.  As explained in Pennsylvania Bar Association Formal Opinion 2020-200: Obligations of Successor Contingent Fee Counsel to Advise Client of Potential Obligations to Prior Counsel, “a contingent fee agreement that fails to mention that some compensation may be due to, or claimed by, the predecessor counsel in circumstances addressed by this opinion is inconsistent with Rules 1.4(b) and 1.5(c),” which “mandate that successor counsel provide written notice that compensation may be claimed by Lawyer 1, and explain the effect of that claim on Lawyer 2’s contingent fee.” See also Philadelphia Bar Association Professional Guidance Comm. Op. 2004-1 (“In discharging the inquirer’s obligations under Rule 1.1 (competence) and Rule 1.4 (communication), the committee recommends that the inquirer have a thorough discussion with the client about the potentials for a fee and cost claim by the discharged attorney, and how such a claim, if made, might affect the inquirer’s representation of that client and/or the client’s ultimate distribution, if there is any recovery in the client’s case.”). Pennsylvania Rule 1.4(b) is identical to Model Rule 1.4(b).

The role of the successor attorney with respect to the discharged attorney’s claim for fees should also be set forth in the engagement agreement.  The opinion advises that the engagement agreement should expressly state whether the issue is one to be decided between the discharged attorney and the client or, alternatively, whether the successor attorney will represent the client in connection with the resolution of prior counsel’s fee interest.  If the latter, the successor attorney must obtain the client’s informed consent to the conflict of interest arising from his/her dual role “as counsel for the client and a party interested in a portion of the proceeds.” (emphasis in original)  In many situations, the fees paid to the discharged and successor attorneys may not affect the client’s ultimate recovery, and the client may make an informed decision to leave the matter for the two attorneys to determine among themselves.  In resolving any such dispute, both attorneys remain bound by Rule 1.6 confidentiality or pursuant to any confidentiality provisions in any underlying settlement agreement.

Upon recovery, the successor attorney must comply with Rule 1.15(d) by notifying the discharged attorney of the receipt of funds.  However, client consent is required prior to disbursement of any fees that may be payable to the discharged attorney.  If there is a disagreement about the discharged attorney’s claim or the amount owed, the successor attorney must hold the disputed fees in a client trust account under Rule 1.15(e) until the dispute is resolved.

The Disciplinary Board of the Pennsylvania Supreme Court (board) has proposed that the guidance in the opinion be incorporated into the comment supporting Pennsylvania Rule of Professional Conduct 1.5 governing fees.  Recognizing that the opinion is not binding precedent, the board’s published notice for comment dated Dec. 7, 2019 stated that the opinion represents “helpful guidance to successor counsel and predecessor counsel in this common situation.  The original lawyer in a contingency-fee matter will often assert a lien on the proceeds.  But if the client retains new counsel, that client may not understand there is a continuing obligation to pay the original lawyer for the value that lawyer contributed or was entitled to under the original fee agreement.”

The board has proposed amending Comment [4] of Rule 1.5 to expressly reference the opinion.  The comment period has expired, so practitioners should proceed on the assumption that the board’s recommendation will likely be approved by the Supreme Court.  While adoption of the new proposed comment will not make compliance with all aspects of the opinion mandatory, practitioners would be wise to include a written notice to clients that a portion of the fee may be claimed by predecessor counsel.  In addition, successor counsel should confirm in writing any undertaking to resolve the prior counsel’s fee interest.  Since the opinion characterizes this as involving a conflict of interest requiring the client’s informed consent to a waiver, the successor firm should also confirm that consent in writing.  In this respect the opinion goes further than previous bar association ethics guidance in Pennsylvania.

Inclusion of an express reference to an ABA or other ethics opinion in the text of a comment to a disciplinary rule is highly unusual.  An alternative would have been to instead include a concise summary of that guidance.  In any event, the Disciplinary Board presumably felt it appropriate to supplement the guidance on this important topic to lawyers handling contingent fee cases because lawyers often fail to engage in earnest efforts to resolve the respective fee interests promptly after successor counsel is retained, leaving the unsuspecting client exposed to complications, potential litigation and delays over the allocation of fees and costs following an award or settlement.

When asked by a prospective client to replace the client’s counsel in a pending contingency fee case, attorneys and firms should be mindful of the duties imposed by the opinion on successor counsel, as well as the specific Rules of Professional Conduct in the relevant jurisdiction and any other applicable substantive law or authority.  In many cases compliance with the new guidance will require updating contingent fee agreements, as well as ensuring the client is adequately informed of the prior counsel’s fee interest and how it will be addressed in the event of a recovery.

Sarah Sweeney is professional responsibility and compliance counsel at Cozen O’Connor.  She serves as co-chair of the Philadelphia Bar Association’s professional guidance committee.  Thomas G. Wilkinson is a leader of the legal professionals practice group at Cozen O’Connor.  He is a member of the professional guidance committee and the ABA standing committee on professionalism.

Article: How to Avoid Attorney Fees Disputes in California

May 25, 2020

A recent Daily Journal article by Heather L. Rosing and David M. Majchrzak, “The Evolution of Fee Disputes: How To Protect Yourself in a New Day & Age” reports on avoiding attorney fee disputes in California.  This article was posted with permission.  The article reads:

While attorneys and clients have always disputed over fees, the number and severity of clashes appear to have risen in recent years, with notable consequences.  We are a service industry, and what we are selling is our skill and our time, with only so many hours in the day.  If an attorney is not paid, especially if that person is in a small firm or in solo practice, the situation can have a significant impact on the ability to continue operations and meet expenses.  It is therefore critical for every practitioner to carefully examine ways of avoiding these disputes, which can also sometimes lead to counterclaims for legal malpractice.

The #1 best way for an attorney to achieve protection is to pay close attention in the case intake process.  Many attorneys embroiled in fee disputes have bemoaned accepting the client in the first place.  “Why didn’t I see the red flags?  If I did anything wrong, it was accepting this client despite my gut feeling that it was a bad idea!”

When considering accepting a new client, the attorney should ask why the client needs legal services and what the goal is.  Understanding what your client hopes to get out of the representation will allow you to assess what it will cost to provide the services.  In turn, this allows you to formulate a rough budget, and discuss with the potential client whether that person has ability to fund the representation.  A large number of fee disputes occur simply because the client is surprised by the cost of legal services and is not financially prepared for the situation.

Another critical inquiry is whether the client has had other attorneys assist with the same matter.  Who came before you?  Were they terminated?  Does the client owe them money?  Maybe there were several attorneys before you.  What does this mean?  Is it a red flag?  If the potential client’s history of representation makes you uncomfortable, this may not be the right client for you.

Once you have decided to accept the representation, it is time to fashion the fee agreement, which requires a careful examination of Business and Professions Code Section 6147 for contingency fee matters and Business and Professions Code Section 6148 for hourly matters. Among other requirements, these statutes mandate that fee agreements must be signed by both the attorney and the client.  The client must be provided with a copy.  Critically, the failure to ensure that your fee agreement conforms to the statutory requirements of the Business and Professions Code could give the client having the option of voiding your fee agreement, leaving you with a quantum meruit claim, which is less preferable than a fee claim based on a contract.

But complying with the Business and Professions Code is not enough.  The agreement should clearly state the scope of the representation, and, in certain circumstances, discuss what is not included.  If neither you nor the client are clear on exactly what you are doing for the client, a fee dispute may ensue.  The 1993 case of Nichols v. Keller, 15 Cal. App. 4th 1672, further describes the potential malpractice-related consequences of failing to clarify the scope of engagement and make referrals on issues related to your representation.

For hourly engagements, it is also important to determine whether an advance retainer is necessary and whether the client has the ability to make that payment.  If, for example, you are going to represent someone in a business litigation matter, and you request a $10,000 retainer, and they balk, this is a good indicator that they will not be able to sustain your fees.  Prudent practitioners often times require that the retainer be regularly replenished and that the client provide a special pretrial retainer in an amount necessary to try the case 60-90 days before trial.

While a properly drafted contingency fee agreement provides the attorney with a lien on the recovery, hourly arrangements do not automatically include a lien.  If an hourly attorney is interested in securing a lien through the initial fee agreement, Rule of Professional Conduct 1.8.1 (Business Transactions with a Client and Pecuniary Interests Averse to the Client) and the 2004 case of Fletcher v. Davis, 33 Cal. 4th 61 should be studied.  It is possible to obtain a valid charging lien in an hourly case with the proper documentation, and it is oftentimes prudent to get one if there is an expected recovery from a third party.

Another consideration is whether your arrangement is for a flat fee.  Rule of Professional Conduct 1.5 not only discusses the concept of an unconscionable or illegal fee, but also, in subsection (e), sets forth the circumstances in which a flat fee is allowable.  This must be read in conjunction with Rule of Professional Conduct 1.15(b), which describes the special language that must be included in the fee agreement in order to place a flat fee in your operating account.  It is also important for an attorney to clearly differentiate between an advance retainer and a flat fee for the client, as unsophisticated consumers of legal services may not readily understand the difference.

The fee agreement should also discuss the issue of fee disputes up front.  For example, you can include language that says that the client should bring any problems with any bill to your attention within 30 days of receipt, so that you can proactively address them.  The agreement can also let the client know that, in the event of a fee dispute, the client has the option of participating in mandatory fee arbitration through the local bar association, pursuant to Business and Professions Code Section 6200 et seq.  In the event that the dispute cannot be resolved through Bar Association arbitration, the fee agreement can mandate private arbitration, if that is your preference.

There are many resources for crafting the best fee agreement.  The State Bar of California has form fee agreements at www.calbar.org, and some legal malpractice insurers provide sample language. It is important, though, to take the time to customize every fee agreement to the specific situation, so both the attorney and the client are clear on the terms of engagement from the outset.

The next step in avoiding fee disputes is to do upfront budgeting combined with the issuance of regular bills.  There is no downside to letting the client know early and often what the matter will cost. In litigation, because the cost can vary significantly based on how the dispute evolves, it may be necessary to update the budget at regular intervals.  Disputes are far less likely if the client is not surprised by a bill.

Business and Professions Code Section 6148 discusses certain requirements for billing fees: “All bills rendered by an attorney to a client shall clearly state the basis thereof.  Bills for the fee portion of the bill shall include the amount, rate, basis for calculation, or other method of determination of the attorney’s fees and costs.”  For costs, the statute requires that “[b]ills for the cost and expense portion of the bill shall clearly identify the costs and expenses incurred and the amount of the costs and expenses.”  There also certain requirements about responding to a client request for a bill.

The State Bar of California also provides use full guidance to attorneys in the form of fee arbitration advisories, which can be found at http://www.calbar.ca.gov/Attorneys/Attorney-Regulation/Mandatory-Fee-Arbitration/Arbitration-AdvisoriesThese advisories deal with a variety of common issues, such as bill padding, nonrefundable retainer provisions, determination of a reasonable fee, the form of proper billing, and much more.  Knowing upfront what can cause a fee dispute puts you way ahead of the game.

Another key to avoiding fee disputes is clear communication.  The Rules of Professional Conduct require that attorneys keep clients updated on significant developments.  The proactive practitioner, however, will go far beyond this, frequently talking and emailing with the client about case status, strategy, goals, and budgeting.

Sometimes, however, despite clear and frequent communication about the matter and regular bills, the client simply lacks the cash flow to fund the continued representation.  In that instance, the attorney should have a candid conversation with the client as soon as possible.  It may be that the client is desirous of settlement in light of the situation.  The client may choose to liquidate investments or seek the help of friends and family members to fund the representation.  It may be that a payment plan is appropriate.  It may be that the attorney is comfortable continuing with representation because the attorney has a valid lien that complies with the Rules of Professional Conduct.  A failure to proactively address nonpayment, however, exacerbates the situation and increases the likelihood of a disintegration of the attorney-client relationship.

The consequences of allowing a full-blown fee dispute to emerge can be severe.  Not only can the fee dispute affect the ability of the attorney to run his or her law firm, but fee disputes can lead to counter allegations of malpractice, true or not.  It is well-known that lawsuits for fees invite cross-claims for malpractice.  Then, the attorney has to fund an insurance deductible and faces the prospect of increased premiums (and potentially insurability issues) in the future.  If the attorney is uninsured, this means that he or she must raise or reserve a substantial sum for the defense of the claim.  Litigation over the malpractice issues also interrupts the attorney’s normal operations and can cause high levels of stress and anxiety.  Finally, even an attorney goes through the whole process to secure a judgment for his or her fees, there may be issues with collectibility and bankruptcy.  Most fee awards are dischargeable in a Chapter 7 proceeding.

The solution is straightforward and commonsensical — a thoughtful case intake procedure, a tightly crafted fee agreement, proactive budgeting, and regular billing and communications.  These four steps will help you maximize your revenues, best serve the clients, and avoid unpleasant proceedings with client you once served.

Heather L. Rosing and David M. Majchrzak practice in the areas of legal ethics, risk management, and litigation of professional liability claims at Klinedinst PC in San Diego.

Article: Courts, Others Can See Your Request for Attorney Fees

May 20, 2020

A recent Lexology article by Tyler Maulsby, “Fee Applications: Be Careful What You Wish For Because Everyone May Find Out” reports on the recent case involving an attempt to destroy law firm billing records and fee data in a FOIA case.  This article was posted with permission.  The article reads:

A recent spat between King & Spalding LLP (“K&S”) and the U.S. Department of Justice shows what can happen when a law firm tries to balance its interest in protecting the confidentiality of its billing information with its interest in pursuing an award of attorneys fees.  In King & Spalding v. United States Department of Health and Human Services et al., No. 16-cv-01616 (D.D.C.), K&S, on behalf of its client, filed a complaint against the government for disclosure of documents under the Freedom of Information Act (FOIA), which allows for an award of attorneys’ fees in certain circumstances.  After K&S won the lawsuit, it sought fees in the amount of approximately $665,000.  In support of its motion, K&S asked to file its bills under seal arguing that public disclosure of its hourly rates, staffing strategies and “other details will harm the firm’s standing with respect to its competitors.”  Judge Amit Mehta the U.S. District Court for the District of Columbia denied K&S’s request and ordered that K&S’s fee application must proceed in public view.  In response, K&S withdrew its request for fees altogether.  The firm further requested that the billing information it previously submitted remain under seal and that the court order the government to destroy its service copies of K&S’s motion.  Although the court declined to order the government to destroy the billing information, the court did permit the exhibits to K&S’s motion with the billing information to remain under seal in light of K&S’s decision to withdraw its motion

From a legal ethics standpoint this case raises a number of interesting issues.  First, are legal bills confidential?  Rule 1.6(a) of the New York Rules of Professional Conduct defines confidential information as information that is gained during or relating to the representation that is either (i) privileged, (ii) likely to be embarrassing or detrimental to the client if disclosed; or (iii) information that the client has asked the lawyer to keep confidential. However, Rule 1.6(b)(5)(ii) permits a lawyer to disclose confidential information in order to “establish or collect a fee."  As a result, even if information about how much the lawyer charged a client is “confidential“ within the meaning of the ethics rules, the lawyer would be permitted to disclose that information in order to establish or collect a fee, which includes a fee application.

Second, does a law firm have an independent interest in keeping its bills confidential?  In the above case, K&S argued that it needed to keep information about its hourly rates and staffing decisions under seal in order to protect its competitive advantage in the marketplace.  Although the district court disagreed, it is worth noting that the court’s decision focused on the fact that K&S was seeking fees from a governmental agency, meaning that any fee award would ultimately be paid by taxpayers.  In other cases not involving public funds, a court may have more leeway to seal billing records, especially if all of the parties agree in advance.

Third, be careful about inadvertently disclosing privileged information. In many jurisdictions, including New York, billing records are generally not protected by the attorney-client privilege.  However, descriptions in billing records that are detailed enough to disclose advice provided to a client or other communications concerning the representation may be protected and should be redacted prior to filing.

Finally, before filing a fee application, the lawyer should make sure that everyone is on the same page about whether the application can and will proceed under seal.  This may include requesting advance leave from the court and consent of opposing counsel. In K&S’s case, it seems that the district court reversed its original decision to allow the firm to submit records under seal.  However, in either case, if there is a possibility that the lawyer will not be permitted to file under seal, the lawyer should consult with his or her client and determine whether the client still wants the lawyer to proceed with the application.

Tyler Maulsby is a Partner at Frankfurt Kurtnit Klein & Selz PC in New York.  He is counsel to the Litigation, Legal Ethics & Professional Responsibility, and Securities Fraud & White Collar Defense practice groups.  He is listed as a 2019 “Rising Star” by Super Lawyers magazine.