Overview of the Ethical Aspects of Attorney Fees
A lawyer's fee should be reasonable and there are factors to be considered in determining the reasonableness of a fee.16 min read
2. I. ABA MODEL RULES:
3. II. ABA MODEL CODE OF PROFESSIONAL RESPONSIBILITY
4. III. CALIFORNIA RULES OF PROFESSIONAL CONDUCT
5. IV. OTHER CALIFORNIA STATUTES REGULATING ATTORNEY'S FEES:
6. V. ABA MODEL RULES COMMENTS AND DISCUSSION:
7. VI ABA MODEL CODE OF PROFESSIONAL RESPONSIBILITY COMMENTS:
8. VII CALIFORNIA COMMENTARY:
9. VIII CLOSING CONCLUSIONS ON ATTORNEY'S FEES:
Overview of the American Bar Association Rules for Attorney Fees
I. ABA MODEL RULES:
Rule 1.5 Fees
(a) A lawyer's fee shall be reasonable. The factors to be considered in determining the reasonableness of a fee include the following:
(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal services properly;
(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and
(8) whether the fee is fixed or contingent.
(b) When the lawyer has not regularly represented the client, the basis or rate of the fee shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation.
(c) A fee may be contingent on the outcome of the matter for which the service is rendered, except in a matter in which a contingent fee is prohibited by paragraph (d) or other law. A contingent fee agreement shall be in writing and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal, litigation and other expenses to be deducted from the recovery, and whether such expenses are to be deducted before or after the contingent fee is calculated. Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement stating the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination.
(d) A lawyer shall not enter into an arrangement for, charge, or collect:
(1) any fee in a domestic relations matter, the payment or amount of which is contingent upon the securing of a divorce or upon the amount of alimony or support, or property settlement in lieu thereof; or
(2) a contingent fee for representing a defendant in a criminal case.
(e) A division of fee between lawyers who are not in the same firm may be made only if:
(1) the division is in proportion to the services performed by each lawyer or, by written agreement with the client, each lawyer assumes joint responsibility for the representation;
(2) the client is advised of and does not object to the participation of all the lawyers involved; and
(3) the total fee is reasonable.
II. ABA MODEL CODE OF PROFESSIONAL RESPONSIBILITY
DR 2-106 Fees for Legal Services.
(A) A lawyer shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee.
(b) A fee is clearly excessive when, after a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee. Factors to be considered as guides in determining the reasonableness of a fee include the following:
(1) The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly.
(2) The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer.
(3) The fee customarily charged in the locality for similar legal services.
(4) The amount involved and the results obtained.
(5) The time limitations imposed by the client or the circumstances.
(6) The nature and length of the professional relationship with the client.
(7) The experience, reputation, and ability of the lawyer or lawyers performing the services;
(8) Whether the fee is fixed or contingent.
(C) A lawyer shall not enter into an arrangement for, charge, or collect a contingent fee for representing a defendant in a criminal case.
III. CALIFORNIA RULES OF PROFESSIONAL CONDUCT
Rule 4-200. Fees for Legal Services
(A) A member shall not enter into an agreement for, charge, or collect an illegal or unconscionable fee.
(B) Unconscionability of a fee shall be determined on the basis of all the facts and circumstances existing at the time the agreement in entered into except where the parties contemplate that the fee will be affected by later events. Among the factors to be considered, where appropriate, in determining the conscionability of a fee are the following:
(1) The amount of the fee in proportion to the value of the services performed.
(2) The relative sophistication of the member and the client.
(3) The novelty and difficulty of the questions involved and the skill requisite to perform the legal service properly.
(4) The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the member.
(5) The amount involved and the results obtained.
(6) The time limitations imposed by the client or by the circumstances.
(7) The nature and length of the professional relationship with the client.
(8) The experience, reputation, and ability of the member or members performing the services.
(9) Whether the fee is fixed or contingent.
(10) The time and labor required.
(11) The informed consent of the client to the fee.
IV. OTHER CALIFORNIA STATUTES REGULATING ATTORNEY'S FEES:
Business & Professions Code ( hereafter "B&P") Section 6146 limits and controls attorneys fees in medical malpractice actions.
B&P Section 6147 regulates contingency fee agreements (excluding workers' compensation proceedings), requires disclosure of information concerning malpractice insurance of the attorney, makes the agreement avoidable at the option of the client for noncompliance by the attorney, but does not regulate the actual contingent fee charged.
B&P Section 6147.5 controls and regulates the contingent fees chargeable in claims between merchants as defined in the Commercial Code, imposing maximums where there is no written agreement, and minimums.
B&P Section 6148 requires that in non-contingency fees, where "it is reasonably foreseeable" that the attorney's fees and expenses will exceed $1,000 that there shall be a written fee agreement, that the attorney disclose malpractice insurance/guarantee information, and that in the event of noncompliance the client may avoid the agreement. (Note: In the event the client voids the fee agreements provided for in B&P 6147 or 6148, the attorney shall be entitled to collect a reasonable fee.)
B&P 6149 makes the written attorney fee agreement a confidential communication.
B&P 6149.5 requires insurers to report to natural person claimants settlements over $100 delivered to the claimant's lawyer.
B&P 6200 establishes a program of mandatory attorney-client fee arbitration which, when requested by the client is binding on the attorney. Where the attorney has brought an action for fees against the client, the client may obtain an automatic stay of the action; gives jurisdiction to the State Bar to place an attorney failing to satisfy an award on inactive enrollment, and also to award penalties against the attorney of 20% of the award or $1,000, whichever is greater, and which penalty becomes part of the member's dues for the next year.
C.C.P. 86 gives municipal and justice courts jurisdiction to conduct trials or to confirm, correct or vacate attorney-client fee arbitration awards; C.C.P. 116.220 gives small claims courts jurisdiction where the fee arbitration award "does not exceed five thousand dollars". (Note: The foregoing is not an all inclusive list. Certain other state and/or federal statutes regulate attorney's fees in specialized areas such as bankruptcy and probate proceedings, and see for example Labor Code 4906(b) in workers' compensation proceedings, but contrast C.C.P. 1021, which provides "Except as attorney's fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties;..."
V. ABA MODEL RULES COMMENTS AND DISCUSSION:
ABA MODEL RULES, RULE 1.5, COMMENT : Furnishing the client with a simple memorandum or a copy of the lawyer's customary fee schedule is sufficient if the basis or rate of the fee is set forth. (but compare California B&P Code, which requires a more extensive written retainer agreement in covered matters).
COMMENT  A lawyer may require advance payment of a fee, but is obligated to return any unearned portion. A lawyer may accept property in payment for services (caveat-where the interest may be in the cause of action or litigation, or adverse to the interests of the client; see e.g. model rule 1.8)
COMMENT ..[A] lawyer should not enter into an agreement whereby services are to be provided only up to a stated amount...[O]therwise, the client might have to bargain for further assistance in the midst of a proceeding or transaction. A lawyer should not exploit a fee arrangement based primarily on hourly charges by using wasteful procedures.
VI ABA MODEL CODE OF PROFESSIONAL RESPONSIBILITY COMMENTS:
Charging a "clearly excessive fee" is grounds for discipline. State ex rel. Nebraska State Bar Ass'n v. Richards, 165 Neb. 80, 90, 84 N.W.2d 136, 143 (1957) See also fn. 88 "An attorney has the right to contract for any fee he chooses so long as it is not excessive...and this Committee is not concerned with the amount of such fees unless so excessive as to constitute a misappropriation of the client's funds (see Opinion 27", ABA Opinion 320 (1968)
The prudent attorney standard: note that ABA'S DR-2-106 makes a "lawyer of ordinary prudence" the standard for determining whether a fee is "clearly excessive", but what about if not clearly excessive? Could a layperson determine simple excessiveness?
VII CALIFORNIA COMMENTARY:
Unlike the ABA Rules, California does not employ the "lawyer of ordinary prudence" standard used by the ABA to determine whether a fee is unconscionable, but merely provides:
"Rule 4-200(B):"Unconscionability of a fee shall be determined on the basis of all the facts and circumstances existing at the time the agreement is entered into..." (Thereafter follows a list of eleven points to be considered in determining the conscionability of a fee [see R.P.C. Rule 4-200 (B)(1) through (11)] )
A. Attempting to collect fees in excess of relevant statutory fees:
In the Matter of Riley, 3 Cal. State Bar Ct. Rptr 91 (1994), the Review Department discusses, inter alia, an attorney's attempt to circumvent the relevant provisions of the Probate Code relating to prior court approval for minor's attorney's fees. The Review Department stated: "Where a statutory scheme requires a tribunal to approve the fees charged by counsel in a matter, it constitutes professional misconduct for an attorney to secure or attempt to secure fees in excess of those allowed by the [tribunal]'(citations)"
We can therefore conclude that an attorney's attempts to charge a fee in excess of that allowed by statute, or that allowed by a tribunal, constitutes either (or both) an illegal or unconscionable fee, and grounds for disciplinary action. In Coviello vs. State Bar (1953) 41 Cal.2d 273, the attorney in a State Bar disciplanary action was charged with two counts by the State Bar. Count one alleged that the attorney had charged and received from a client in an industrial injury case a fee in excess of that awarded by the Industrial Accident Commission. Count two alleged the attorney attempted to modify his original retainer to charge a client a fee in excess of that originally agreed to and charge instead the larger statutory probate fee.
The Supreme Court held, with respect to the attorney's charging and collecting a fee larger than that awarded by the Industrial Accident Commission:
...it constitutes professional misconduct for an attorney to secure or attempt to secure fees in excess of those allowed by the commission..."
As to the probate matter, it appears the attorney and client initially entered into a written agreement to perform certain probate work on behalf of the client, for the agreed fee of $150. After beginning work on the case, it appeared the attorney had to perform additional work, in part because the client misstated the value of the estate, because additional heirs existed, and because the client had gone to a safe deposit box without the inheritance tax appraiser, and because of other joint tenancy property which had to be cleared.
The attorney wrote to the client, pointed out the extra services required, and stated he'd accept the statutory probate fee. In the probate petition, petitioner-attorney disclosed he had been paid $150 by the client "on account".
It appears the controversy between attorney and client arose due to the attorney's attempt to change the terms of the retainer, and accept instead of the originally agreed sum, a statutory fee over 3 times larger, for the additional work required.
With respect to seeking an additional fee in the probate matter, The Supreme Court stated: "It is clear that petitioner had bona fide grounds for requesting additional fees...His testimony that Mrs. Hughes misrepresented the value of the property to him is substantiated...Petitioner was also required to perform some unanticipated services. Under these circumstances he was justified in seeking a modification of the original agreement...it cannot be said that he sought to mislead the probate court by failing to inform it of the original contract..."
The result was that as to the count involving the additional fees in the industrial injury case, the attorney was subject to discipline, however in the probate matter, he was justified in charging the additional fee equal to the statutory fee, giving the client a credit for the sum previously paid, as the client's conduct indicated she had agreed to his proposed modification of their original contract.
We can conclude here that attempting to, or charging and collecting a fee in excess of those allowed by statute or a particular tribunal may be grounds for discipline. Lkewise, attempting to circumvent statutes or regulations limiting or fixing attorney's fees may also give rise to discipline for ethical improprieties.
B. Attempts to collect a minimum fee on discharge in contingency fee cases:
In the Matter of Scapa and Brown, 2 Cal.State Bar Ct. Rptr. 635, the Review Department discusses respondent-attorneys' practice of accepting "contingency fee" cases but requiring in their written retainer agreement that clients who discharged the firm were committed to a "minimum of $600 of legal fees" if they discharged respondents, and regardless of whether any work was done to justify this minimum fee:
"Our Supreme Court has condemned the conduct of attorneys who overreached clients because of unethical fee practices. In Hulland v. State Bar, 8 Cal.3d 440, the Court observed that the "legal profession is 'more than a mere"money-getting trade"...Twice over 40 years, the Court has observed that 'the right to practice law "is not a license to mulct the unfortunate" (Bushman v. State Bar (1974) 11 Cal.3d 558..."
In Scapa and Brown, when clients discharged the firm, regardless of the amount of work done, if any, the firm attempted to assert a lien for attorney's fees of $600 minimum or more, regardless of the reasonable value of their services, "by charging exorbitant amounts for perfunctory services performed almost entirely by support staff..." (Scapa and Brown, supra, at 654).
This conduct earned the respondent attorneys an actual suspension of 18 months. We can conclude from the "minimum fee" provisions of Scapa and Brown's retainer agreement, that regardless of the fees set forth in a retainer agreement, an attorney may only be entitled, on discharge, to the reasonable value of the attorney's services.
We can draw a conclusion that in contingency fee cases, where the lawyer is discharged before the contingency materializes, the lawyer is only entitled to the reasonable value of his/her services; regardless of any provisions to the contrary in the retainer agreement.
C. Obtaining a default judgment against client for fees when still attorney of record:
In Hulland v. State Bar (1972) 8 Cal.3d 440, the attorney was retained to represent the client in a divorce matter. The client signed both a "request for services" and a confession of judgment in the sum of $650 for "money justly due for legal services". The client paid $130 to attorney, and the case commenced.
Thereafter, the client left a tax refund check with attorney. The attorney testified he thought the tax refund check was either security for, or for his fees. The client testified she brought it to him for "safekeeping". When the tax refund check was presented to client by attorney to endorse, she instead kept it, did not endorse it, and left his office.
A dispute arose between attorney and client as to whether attorney still represented client. Attorney's office advised cllient unless client endorsed check for attorney's fees, attorney would not appear at a scheduled hearing; client replied she'd get another attorney. Attorney's staff had client sign a substitution of attorneys but did not file it at that time.
Thereafter, attorney had the hearing taken off calendar, subsequently filing the confession of judgment previously signed by the client, and obtaining a default judgment against client in the sum of $650 plus interests and costs. The substitution of attorneys was filed after the State Bar contacted attorney following client's complaint.
The Supreme Court ennunciated:
"Wilful failure to perform legal services...in itself warrants disciplinary action...the local committee properly found that petitioner wilfully failed to render the promised services, hoping thereby to compel Mrs. Sneed to turn the check over to him. "When an attorney, in his zeal to insure the collection of his fee, assumes a position inimical to the interests of his client, he violates his duty of fidelity to this client...Petitioner's wilful failure to render the service for which he was retained and his assumption of a position contrary to his client's interests clearly warrant public reproval... Petitioner used a confession of judgment to the detriment of his client...in an oppressive and overreaching attempt to collect unearned fees."
It is of some importance in Hulland that the court found that he had wilfully faled to render services for which he was retained, in as much as he was not substituted out of the case until after he had taken the hearing off calendar and obtained a judgment against the client.
The court instructs us that Hulland was entitled only to the reasonable value of his services up to the time of his discharge, not the full amount of the contract. Here, the quantum meruit value of the attorney's services was $495, and crediting $90 of the client's payment ($130 less $40 costs), the balance due for the reasonable value of his services was $405, but he used the confession of judgment in an effort to collect a larger sum.
The Supreme Court continued:
"Surely the legal profession is more than a mere 'money getting trade'...it at least requires the rendition of services for any payment received. ...Attempting to collect money for services not to be performed is merely one step removed (from the offense of obtaining money by false pretenses)...The effort to collect unearned fees becomes highly oppressive and deteimental to the client when the attorney arms his demands with the force and weight of a judgment...thus prevents his client from contesting the reasonableness of the fees before the judgment..."
Here, it appears a dispute arose between the attorney and client concerning additional fees. It was not disputed that the attorney performed some services, filed pleadings on behalf of the client, and obtained a hearing date. Once the dispute arose over the tax refund check, the attorney had the client sign a substitution of attorneys but did not file it and remained her attorney of record, retaining her file. Instead, he proceeded to take the hearing off calendar, and obtained a default judgment against the cilent. This is a broader form of misconduct than simply attempting to obtain an excessive fee, in that he took a position adverse to his client, and failed to perform services (i.e., the hearing taken off calendar).
The moral as to attorney's fees from Hulland appears to be, if you collect the fee, do the work it represents. If you don't do the work, return the "unearned" portion of the fee, and if your client signs a substitution of attorneys, file it and deliver a copy of the file to the client or successor attorney.
In Hulland, there were several issues presented, including not only the charges in excess of a reasonable sum for attorney's fees, but failure to perform legal services for which retained, and the taking of a position adverse to the client.
D. Unconscionable fees; generally:
In Bushman v. State Bar (1974) 11 Cal.3d 558, the attorney was disciplined for, inter alia, collecting an exorbitant and unconscionable fee.
The attorney was retained to represent a party in an action "for divorce and custody of a minor child of the marriage."
The attorney had client sign a retainer providing for an hourly fee, and also a promissory note for $300 forthwith and the balance at $50 a month. Attorney advised client his policy was that a minimum retainer of $5,000 was required "whenever attorney Chern was the opposing counsel in a custory matter...without regard to the time spent by Bushman on the case...because Mrs. Chern would generate a 'paper war' "
Opposing counsel, however, billed for only 5 1/2 hours of work . The court here found Bushman's legal services consisted of:
"...nothing unusual or novel...Bushman filed...a demurrer, cross- complaint, petition for appointment of a guardian-ad-litem, and stipulation to a...report, as well as an answer to the complaint, and a declaration of points and authorities. He attended two hearings on orders to show cause, and subpoenaed and interviewed a doctor."
In attempting to justify his fee, Bushman claimed he spent over 100 hours on the case, and billed the clients for $2,800 plus costs. The Supreme Court found the reasonable value of his fee was the sum awarded in the divorce as attorney's fees by the trial court; i.e. $300 plus costs.
The Supreme Court held: "The fees charged, and those which Bushman attempted to collect, were excessive, overreaching, exorbitant, and unconscionable... It is settled that gross overcharge of a fee by an attorney may warrant discipline. The test is whether the fee is 'so exorbitant and wholly disproportionate to the serivces performed as to shock the conscience' (citations)."
The court in Bushman commented on the fact that as to the promissory note, there was no provision to cancel same, and at the time of the State Bar proceeding, Bushman apparently still had it in his possession. The court commented that even at his hourly rate specified in the retainer agreement, the $2,800 charge did not represent 100 hours of work in a routine case without novel issues.
Lessons we may learn from Mr. Bushman's 1 year suspension can include (1) it's a risky practice to take a security interest adverse to your clients to secure a fee; (2) charging for up to 20 times the time spent by opposing counsel in the same case may be unreasonable; (3) where a trial court awards a sum certain to your client as attorney's fees, that sum may later be determined to be the reasonable value of your attorney's fees. You may wish to request the language of any such attonney's fee order provides that the fees ordered shall be a credit against fees due you from the client, and not determinative of the reasonable value of your legal services. Of course, attorneys can't always be limited by the work (or lack thereof) done by opposing counsel. A problem for Bushman was that he claimed 100 hours, but couldn't substantiate it, and even his own billings at his regular rates were considerably less than 100 hours in a case the Supreme Court characterized as nothing novel or unusual.
VIII CLOSING CONCLUSIONS ON ATTORNEY'S FEES:
Obtain a copy of your jurisdiction's Rules of Professional Responsibility; become familiar with their provisions regarding attorney's fees.
When practicing before courts and tribunals with authority to fix and determine attorney's fees, don't attempt to obtain fees in excess of those set; whether for the same or another matter. If you represent the client on another matter for which fees are due, have the client pay separately for the other matter.
In contingent fee cases, if the client discharges you before the contingency occurs, make counsel and the other interested parties aware of your lien for the reasonable vaule of your fees (without breaching client confidences). You wouldn't otherwise get paid before the contingency materialized, so why try to do so before the case settles?
It setting your attorney's fees, remember you may be called upon to justify them, especially if a dispute arises with the client over fees. Attorney fee disputes are a leading cause of malpractice claims. Where the attorney sues for fees, clients frequently cross-complain for malpractice.
Where the client is on the defensive and resisting your claims for fees, you should decide whether you can objectively justify the amount you seek, and whether it's worth a potential malpractice claim or discipline from your state bar.