Wisconsin Lawyer: Ethics: Earning a Bonus for Successful Results:

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    Ethics: Earning a Bonus for Successful Results

    There are opportunities for lawyers to establish bonus provisions in fee arrangements with clients that reward the lawyer for successful results, but many safeguards must be in place.


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    Wisconsin LawyerWisconsin Lawyer
    Vol. 79, No. 2, February 2006

    Earning a Bonus for Successful Results

    There are opportunities for lawyers to establish bonus provisions in fee arrangements with clients that reward the lawyer for successful results, but many safeguards must be in place.

    by Dean R. Dietrich

    Question

    Dean DietrichDean R. Dietrich, Marquette 1977, of Ruder Ware, Wausau, is chair of the State Bar Professional Ethics Committee.

    Contingent fee agreements allow lawyers to earn fees based on the success of their work. I don't use contingent fees, but I would like to have the same opportunity to receive fees based on my successful representation. Can I do so?

    Answer

    SCR 20:1.5(a) Factors. The vast majority of lawyers are compensated based on an hourly fee charged for services rendered. The factors that must be considered when establishing a fee for services are contained in SCR 20:1.5(a). These factors include:

    • the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
    • the likelihood, if apparent to the client, that accepting the particular employment will preclude other employment by the lawyer;
    • the fee customarily charged in the locality for similar legal services;
    • the dollar amount involved and the results obtained;
    • the time limitations the client or circumstances impose;
    • the nature and length of the professional relationship with the client;
    • the experience, reputation, and ability of the lawyer or lawyers performing the services; and
    • whether the fee is fixed or contingent.

    Lawyers and clients are always looking for creative ways to establish fee arrangements that will satisfy the needs of the attorney and the needs of the client. One option that could be implemented, although many safeguards will have to be in place, is to negotiate a bonus provision in the fee arrangement. Under the bonus provision, a lawyer would be entitled to additional fees if the representation had a successful outcome. This type of fee arrangement would work only in legal matters for which the representation's success can be accurately and fairly measured compared to a standard agreed to by the client and the lawyer. For example, law firms have had arrangements that allowed them to receive stock in exchange for providing legal services to startnup technology companies if the law firms successfully assisted the companies in obtaining specified amounts of capital in public stock offerings. There are many ways that a law firm could receive a bonus payment based on the success of the representation, provided the determination of success is clearly measurable and is clearly understood by both the lawyer and the client.

    SCR 20:1.8(a) Factors. The requirements of SCR 20:1.8(a) also may be applicable to fee arrangements in which the lawyer receives an increased fee based on the success of the representation. SCR 20:1.8(a) provides protections that must be met when a lawyer enters into a business transaction with a client. It can be argued that a fee arrangement with a bonus provision is another type of business arrangement between a lawyer and a client, so the requirements of SCR 20:1.8(a) should be met. These include:

    • The transaction, which is the fee arrangement with the bonus, must be fair and reasonable to the client;
    • The transaction terms must be fully disclosed and transmitted in writing to the client in a manner that the client can reasonably understand;
    • The client must be given a reasonable opportunity to seek the advice of independent counsel in the transaction; and
    • The client must consent in writing to the proposed fee arrangement.

    SCR 20:1.5(c) Factors. In addition, a lawyer who is entering into a fee arrangement with a bonus provision should follow the written fee requirements of a contingent fee matter contained in SCR 20:1.5(c). Under these requirements, the fee arrangement must be summarized in writing and signed by the client. These requirements provide protections to the lawyer and to the client in that the fee arrangement is understood and agreed to by both parties.

    After Representation Commences. It is difficult to imagine a fee agreement with a bonus provision being offered and agreed to after representation commences or at any time during the course of the representation. In such a situation, the lawyer may be violating her fiduciary duties to the client by exercising undue influence on the client to agree to a bonus provision because of the assumption that the lawyer will not continue to represent the client without the additional bonus. Whether a violation occurs will depend on the nature of the representation and the sophistication of the client who is being asked to agree to a special fee arrangement with a bonus provision.

    There are opportunities for lawyers to establish a fee relationship with a client that rewards the lawyer for successful results. These opportunities must be carefully considered and agreed to between the lawyer and the client in a manner that allows for accurate and transparent determination of the bonus compensation that will be paid. Lawyers are cautioned to follow the requirements of a contingent fee arrangement, as well as the criteria for entering into a business relationship with a client, to ensure that the fee arrangement complies with all applicable Rules of Professional Conduct.




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