E-09-03: Communicating Attorney Fees and Expenses
The State Bar Professional Ethics Committee issued Formal Opinion
E-09-03, outlining what information attorneys must convey to clients
regarding attorney fees and expenses and the scope of the
representation. Opinion E-09-03 supersedes Opinion E-91-2, which is
withdrawn.
by Professional
Ethics Committee
Formal Opinion E-09-03:
Communications Concerning
Attorneys Fees and Expenses
Synopsis: In every representation, a lawyer must
inform the
client of the scope of the representation, the basis or rate of the
lawyer’s fee, and any expenses for which the client will be
responsible. This communication should be sufficient to enable the
client to readily determine the matter or nature of an ongoing
lawyer-client relationship, the method by which the lawyer’s fee
will be calculated, and the types of costs and expenses for which the
client will be responsible. This communication must be in writing
whenever it is reasonably foreseeable that the total cost to the client
will exceed $1,000. Contingent fee agreements, however, always must be
in writing and signed by the client. The initial communication with the
client also should inform the client if the lawyer intends to charge a
reasonable rate of interest on delinquent balances and whether the
lawyer anticipates that the lawyer’s rates may increase during the
course of the representation. This opinion supersedes E-91-2, which is
Opinion
The initial correspondence sent to a client after consultation about
representation is an important communication about the lawyer and the
lawyer’s services. In addition to fulfilling the lawyer’s
obligations under the Rules of Professional Conduct (the Rules), the
communication can be used to establish a successful working relationship
between the lawyer and the client. Accordingly, careful consideration
should be given to the content of the initial communication.
This opinion discusses the new SCR 20:1.5, which sets forth a
lawyer’s obligations in communicating with a client concerning
fees and expenses.1 This rule sets forth the information that
must be communicated to a client with respect to a lawyer’s fees
and describes the circumstances in which information may be conveyed
orally or must be conveyed in writing or in a writing signed by the
client. Other rules, such as SCR 20:1.0 and SCR 20:1.2, which
contain important definitions, are relevant and will be discussed
herein.
Information That Must Be
Communicated to the Client
SCR 20:1.5(b)(1) requires that: 1) the scope of the
representation; 2) the basis or rate of the fee; and 3) the
expenses for which the client will be responsible be communicated to the
client before or within a reasonable time after commencing the
representation. The only exception to this requirement is when the
lawyer will charge a regularly represented client on the same basis or
rate as in the past. Each of the required elements of the communication
the lawyer must convey to the client merits further discussion.
Scope of the Representation. The communication
to the
client concerning the scope of the representation should be a clear
description of the services and matter for which the lawyer has been
retained. The rule does not explicitly require a particular degree of
specificity. The Professional Ethics Committee believes, however, that
the rule requires a lawyer to provide enough detail to enable the client
to identify the particular matter involved. In many cases, the
description of the scope of a representation may fulfill this
requirement while being brief. Accordingly, a description such as
“Legal representation in connection with contract dispute with
party X concerning delivery of widgets” or “Legal
representation in connection with automobile accident in X county on or
about date Y” should be sufficient for straightforward matters. An
estate planning matter could be described as “Preparation of
will” or more generally as “Preparation of estate
plan.”
Such a brief description, however, may not be possible when a
lawyer’s relationship with a client is not limited to a single
discrete matter. If there is not a particular matter or case that can be
easily identified, the lawyer should focus on providing as clear a
description of the lawyer-client relationship as possible. Again, this
description may be fairly brief and meet the rule requirements. So, for
example, if the lawyer is retained to handle general representation of a
business client, the description could state, for example,
“Business-related matters as may arise from time to time and as
requested by you.” Or a description may consist of “Legal
advice and services in connection with business matters as requested by
you.”
While the committee believes that fairly brief descriptions
usually may suffice to fulfill a lawyer’s obligations under SCR
20:1.5(b)(1), lawyers may wish to provide greater detail, particularly
with respect to services not within the scope of the representation.
Engagement letters are contracts with clients, and ambiguities will be
construed against the lawyer/drafter, and thus lawyers should carefully
consider whether the language reflects the parties’ actual intent.
If, for example, a lawyer intends to provide general transactional, but
not litigation, services to a business client or a lawyer wishes to
agree to represent a client on a criminal charge at trial, but not on
any possible appeal, such exclusions should be included in the
description of the engagement. Care also should be taken to avoid
descriptions that might imply a future obligation to monitor the
client’s estate plan, for example, “General Estate
Planning,” unless that is what is intended.
SCR 20:1.2(c) permits a lawyer to limit the scope of
representation if the limitation is “reasonable under the
circumstances and the client gives informed consent.” When
undertaking a limited-scope representation, it is particularly important
for the lawyer to clearly communicate to the client the limits of the
representation. In most circumstances, in a limited-scope representation
it will be necessary for the lawyer to inform the client what services
the lawyer will not provide to the client. This is because the
representation often is limited in a manner that varies from what a
client might typically expect, and this information must be communicated
to the client; for example, “legal representation through trial
(but not including any appeals) in connection with pending OWI
charge.” Even when an oral communication concerning the scope of
representation is permitted, communicating any limitations on the scope
of representation in writing helps protect both lawyer and client.
The Basis or Rate of the Fee. SCR 20:1.5
provides no
explanation as to the detail that must be included in a description of
the basis or rate of the lawyer’s fee. The committee believes that
the rule requires the information to be sufficient to enable the client
to understand how the fee will be calculated, and that it should be
communicated in a clear and easily understood manner. The basis or rate
of the fee might be a specified hourly charge, a flat fee, a percentage
of the amount recovered, or a description of a set of factors on which
the fee will be based.2
In setting the basis or rate of the fee, a lawyer must comply
with SCR 20:1.5(a), which prohibits a lawyer from making an
agreement for, charging, or collecting an unreasonable fee or an
unreasonable amount for expenses. SCR 20:1.5(a) provides that the
factors to be considered in determining the reasonableness of the 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 the
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.”3
The ABA Comments4 caution that
“[a] lawyer should not exploit the fee arrangement based
primarily on hourly charges by using wasteful procedures.”5 Fees that the Wisconsin Supreme Court has
ruled to be unreasonable include fees that exceed a statutorily
permitted fee,6 fees that were inflated to make up for
fees lost when the client successfully challenged a previous
billing,7 and fees charged for retrieving
the
client’s file to answer inquiries when the client filed a
grievance against the lawyer.8
Anticipated Changes in the Basis or Rate of the
Fee. The
Wisconsin Committee Comment accompanying SCR 20:1.5 states that
“[a] lawyer should advise the client at the time of commencement
of representation of the likelihood of a periodic change in the basis or
rate of the fee or expenses that will be charged to the client.”
Not disclosing, for example, that hourly rates may be adjusted annually
may run afoul of SCR 20:1.5(b)(1)’s
requirement that the client be informed of the basis of the rate or fee.
As discussed below, changes in the basis or rate of the fee also
must be communicated to the client when the changes actually occur.
(Other information that must be communicated in writing is discussed
later in this opinion.)
Interest Charges. The rules do not prohibit a
lawyer from
charging a reasonable rate of interest on outstanding balances. If the
lawyer intends to charge interest on unpaid balances, that information
must be part of the written communication to the client regarding fees
or must be clearly communicated to the client at the beginning of the
representation if a written communication is not required. A lawyer who
imposes interest charges absent prior notification to the client runs
the risk of being found to have violated SCR 20:1.5(b)(1),
concerning communication as to the basis or rate of the fee, and to have
charged an unreasonable fee in violation of SCR 20:1.5(a).9
Expenses for
which the
Client will be Responsible. If the client will be charged for
photocopying costs, court reporter fees, filing fees, and the like, the
communication at the outset of the representation must inform the client
of that fact. The rule does not require that the specific amount of the
costs that will be charged to the client (for example, the per-page cost
for photocopying) be identified in advance, but that information should
be provided if known.10
SCR 20:1.5(a) prohibits a lawyer from charging or collecting
an unreasonable amount for expenses. The ABA Comment accompanying
SCR 20:1.5 states that a lawyer may seek reimbursement for the cost
of services performed in-house, such as copying, or for other expenses
incurred in-house, such as telephone charges. According to the comment,
this may be done “either by charging a reasonable amount to which
the client has agreed in advance or by charging an amount that
reasonably reflects the cost incurred by the lawyer.”11 Marking up expenses, such as fees for
photocopying, with the intention to use such expenses as a source of
profit for the lawyer, is not permitted.12
Requirement of a Written
Communication
Whether the information the lawyer must provide the client regarding
the scope of the representation, fees, and expenses may be communicated
orally or whether it must be communicated in writing depends on the
amount of the fee and expenses that are involved and whether or not the
fee is contingent on the outcome of the matter.
Representation Not Involving a Contingent Fee.
1)
Matters for which it is reasonably foreseeable that the total cost of
the representation will be greater than $1,000. A written
communication to the client is required if it is
“reasonably foreseeable” that the total cost of
representation to the client, including attorney’s fees, will be
more than $1,000.13
2) Matters for which it is reasonably foreseeable that
the
total cost of the representation to the client will be $1,000 or less.
If it is reasonably foreseeable that the total cost of the
representation will be $1,000 or less, the communication to the client
regarding the scope of the representation, fees, and expenses need not
be in writing. Thus, a lawyer who intends to charge $500 for a simple
matter still must inform the client of the scope of the representation,
the basis or rate of the fee, and any expenses for which the client will
be responsible, but may do so orally. A written communication conveying
the same information would, of course, also comply with the rule.14
What if the total cost of the representation was anticipated to
be $1,000 or less at the outset of the representation, but then exceeds
$1,000 during the course of representation? SCR 20:1.5 does not
explicitly address that scenario. The rule’s reference to what is
“reasonably foreseeable” arguably implies that the
appropriate reference point is the commencement of the representation.
On the other hand, once the cost exceeds $1,000, it is certainly
foreseeable that the total cost will be even higher than that by the
time the representation is concluded. Further, the clear intent of the
rule is to encourage, and in most cases require, lawyers to provide
information with respect to fees and costs to clients in writing.
Accordingly, in the committee’s opinion, compliance with the rule
would require a written communication concerning fees and expenses when
the lawyer anticipates the total cost to exceed $1,000, regardless of
whether this occurred at the commencement of the representation or while
the representation is in progress.
Representation Involving a Contingent Fee.
Pursuant to
SCR 20:1.5(c), a contingent fee agreement must be in a writing
signed by the client and must state:
1) “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”;
2) “litigation and other expenses to be deducted from the
recovery”; and
3) “whether such expenses are to be deducted before or
after the contingent fee is calculated.”
4) The agreement also “must clearly notify the client of
any expenses for which the client will be liable whether or not the
client is the prevailing party.”15
In accordance with SCR 20:1.5(b)(1), the contingent fee
agreement also must explain the scope of the representation. This is
particularly important if the lawyer’s representation is limited,
for example, to handling the matter through settlement or trial, but not
on appeal.
When the contingent fee matter is concluded, SCR 20:1.5(c)
requires the lawyer to provide the client with a written statement:
1) “stating the outcome of the matter;” and
2) “if there is a recovery, showing the remittance to the
client and the method of its determination.”
Note that SCR 20:1.5(d) prohibits a lawyer from entering
into a contingent fee agreement in certain types of actions affecting
the family or when representing a defendant in a criminal case or any
proceeding that could result in deprivation of liberty.
Communication with Regularly
Represented Clients
SCR 20:1.5(b)(1) does not require a communication with the
client about the scope of the representation or the basis or rate of the
fee and the expenses for which the client is responsible if the lawyer
will be charging “a regularly represented client on the same basis
or rate as in the past.” Neither the rule nor the comments define
“regularly represented client.” The ABA Comment, however,
states that “[w]hen the lawyer has regularly represented a client,
they ordinarily will have evolved an understanding concerning the basis
or rate of the fee and the expenses for which the client will be
responsible.”16 This suggests that sporadic or
infrequent representation that is unlikely to have produced such an
understanding will not constitute regular representation. It further
suggests that the question does not necessarily turn on the number of
matters or contacts within a certain period, but rather on the nature of
the relationship between the lawyer and the client.
The question the lawyer should consider is whether it is
reasonable for the lawyer to conclude that the client understands that
the client will be billed on the same basis as in the past. The answer
to this question depends on the context. Clients with differing levels
of sophistication in dealing with lawyers, for example, may have
differing conclusions regarding the concept of regular representation.
The lawyer should be sensitive to this when deciding whether the basis
or rate of the fee should be communicated to the client when additional
representation is undertaken.
Timing of the Communication
SCR 20:1.5(b)(1) requires that the communication concerning
the scope of the representation, the basis or rate of the fee, and the
expenses for which the client will be responsible be communicated to the
client “before or within a reasonable time after commencing the
representation.” A lawyer accordingly may start working for the
client and may provide the client with the written communication
concerning fees within a reasonable time thereafter. What constitutes a
reasonable time after the representation has begun will depend on the
circumstance. SCR 20:1.5 contemplates, however, that the client be
advised of important information concerning the representation before
the matter proceeds very far and therefore should be done as soon as
reasonably practical. In this way, the client will not be inconvenienced
unnecessarily if the client decides to hire a different lawyer after
17
Definition of What Constitutes a Writing
When information concerning fees and expenses must be communicated in
writing, how may this be accomplished? SCR 20:1.0(q) defines a
writing as “a tangible or electronic record of a
communication or representation, including handwriting, typewriting,
printing, Photostating, photography, audio or video recording and
email.” Thus, a writing required by SCR 20:1.5 need not be in
the form of a fee agreement (indeed, the rule does not use that term),
but could be something as simple as an email, a letter or memorandum, or
as suggested by the ABA Comment, “a copy of the lawyer’s
customary fee arrangements.”18 Arguably, a voicemail message falls
within the definition of a writing, although using a voicemail message
as a writing undercuts the benefits of documentation and retention
contemplated by the rule.
Other Information that Must be Communicated in Writing
Changes in the Basis or Rate of the Fee. Regardless
of whether
the initial communication concerning fees was required to be in writing,
SCR 20:1.5(b)(1) requires that any changes in the basis or rate of
the fee or expenses be communicated to the client in writing. There are
no exceptions to this requirement. Thus, even in the case of a regularly
represented client as to whom no communication regarding fees and
expenses was required at the commencement of additional representation,
information concerning a change in the basis or rate of the fee (for
example, an increase in hourly rates) must be communicated to the client
in writing. The Wisconsin Committee Comment to SCR 20:1.5 explains
this requirement as it relates to a regularly represented client:
“In instances when a lawyer has regularly represented a
client, any changes in the basis or rate of the fee or expenses may be
communicated in writing to the client by a proper reference on the
periodic billing statement provided to the client within a reasonable
time after the basis or rate of the fee or expenses has been changed.
The communication to the client through the billing statement should
clearly indicate that the change in the basis or rate of the fee or
expenses has occurred along with an indication of the new basis or rate
of the fee or expenses.”
The Wisconsin Committee Comment thus makes it clear that a change
in rates does not necessarily require a separate written notification to
the client, but it does require at least a clear statement on a bill
sent to the client notifying the client of the change and indicating the
new basis or rate of the fee or expenses.
Purpose
and Effect of any Retainer or Advance Fee.
SCR 20:1.5(b)(2)
states that if the total cost of representation to the client, including
attorney fees, is more than $1,000, the purpose and effect of any
retainer or advance fee that is paid to the lawyer shall be communicated
to the client in writing. According to the Wisconsin Committee Comment
accompanying SCR 20:1.5, “the lawyer should identify whether
any portion, and if so what portion, of the fee is a retainer.” A
retainer is defined in SCR 20:1.0(mm) as:
“[A]n amount paid specifically and solely to secure the
availability of a lawyer to perform services on behalf of the client,
whether designated a ‘retainer,’ ‘general
retainer,’ ‘engagement retainer,’ ‘reservation
fee,’ ‘availability fee,’ or any other
characterization. This amount does not constitute payment for any
specific legal services, whether past, present or future and may not be
billed against for fees or costs at any point. A retainer becomes the
property of the lawyer upon receipt, but is subject to the requirements
of SCR 20:1.5 and SCR 20:1.16(d).”
Advanced fee is defined in SCR 20:1.0(ag) as:
“[A]n amount paid to a lawyer in contemplation of future
services, which will be earned at an agreed-upon basis, whether hourly,
flat, or other basis. Any amount paid to a lawyer in contemplation of
future services whether on an hourly, flat or other basis, is an
advanced fee regardless of whether that fee is characterized as an
‘advanced fee,’ ‘minimum fee,’
‘nonrefundable fee,’ or any other characterization. Advanced
fees are subject to the requirements of SCR 20:1.5,
SCR 20:1.15(b)(4) or (4m), SCR 20:1.15(e)(4)h,
20:1.15(g), and SCR 20:1.16(d).”
When the Writing Must be Signed by the Client
SCR 20:1.5 does not require the client’s signature on a writing
that communicates the information required by SCR 20:1.5(b)(1) (the
scope of the representation and the basis or rate of the fee and
expenses for which the client will be responsible). Contingent fee
agreements, however, must be signed by the client. A writing signed by
the client also is required in certain situations involving a division
of fees between lawyers who are not in the same firm.19 Pursuant to SCR 20:1.0(q), a signed
writing includes “an electronic sound, symbol or process attached
to or logically associated with a writing and executed or adopted by a
”
Responding to a Client’s Request for Information Concerning Fees
and Expenses
SCR 20:1.5(b)(3) states that “[a] lawyer shall promptly
respond to a client’s request for information concerning fees and
expenses.”
In summary, a good working relationship with a client requires
proper communication concerning the fees and expenses for which the
client will be responsible. SCR 20:1.5 is designed to ensure that
this communication occurs.
Wisconsin Formal Ethics Opinion E-91-2 is hereby
withdrawn.
Endnotes
1Wisconsin’s Rules of
Professional Conduct for Attorneys were revised effective July 1, 2007,
and the new SCR 20:1.5 is substantially different from the prior version
of the rule.
2See Restatement (Third) of The Law Governing Lawyers,
§ 38, comment b (2001).
3If the representation contemplates a
division of a fee between lawyers who are not in the same firm,
SCR 20:1.5(e) comes into play. The requirements of that section are
beyond the scope of this Opinion.
4SCR 20:1.5 has both a Wisconsin
Committee Comment and an ABA Comment.
5SCR 20:1.5, ABA Comment
[5].
6In re Estate of Konopka, 175
Wis. 2d 100, 498 N.W.2d 853 (Ct. App. 1993).
7In re Glesner, 2000 WI 18, 233
Wis. 2d 35, 606 N.W.2d 173.
8In re Kitchen, 2004 WI 83, 273
Wis. 2d 279, 682 N.W.2d 780.
9See Wis. Ethics
Op. E-90-4.
10The absence of a requirement that the
specific amount for various expenses be disclosed in advance reflects
the fact that many types of expenses, such as expert witness fees,
cannot be known in advance.
11SCR 20:1.5, ABA Comment
[1].
12See ABA Formal Ethics Op. 93-379
(1993).
13SCR 20:1.5(b)(1). The term
“total cost” refers to fees charged by the lawyer or firm,
costs billed by the lawyer or firm to the client, and costs for which
the client will be directly responsible.
14As the ABA Comment points out:
“A written statement concerning the terms of the engagement
reduces the possibility of misunderstanding.” SCR 20:1.5, ABA
Comment [2].
15SCR 20:1.5(c).
16SCR 20:1.5, ABA Comment
[2].
17See Restatement (Third) of The Law Governing Lawyers,
§ 38, comment b (2001).
18SCR 20:1.5, ABA
Comment [2].
19See SCR 20:1.5(e).