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    New Trust Account Rules: Lawyer Fees and Fee Agreements

    A new trust account rule takes effect on July 1, 2007, and contains many changes that most lawyers will need to implement in their practices. This article focuses on some important changes, including new definitions of and handling instructions for advanced fees, flat fees, and retainers; the required use of written fee agreements when the cost of a representation is likely to exceed $1,000; and the ability to accept advanced fees and costs paid by credit card.
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    Wisconsin LawyerWisconsin Lawyer
    Vol. 80, No. 6, June 2007

    by Timothy J. Pierce

    Wbankisconsin's new Rules of Professional Conduct for Attorneys (the "rules" or "SCRs") take effect on July 1, 2007. While many of the new rules are substantially similar to the present rules, SCR 20:1.5, which governs fees and fee agreements, and SCR 20:1.15, the new trust account rule, have significant changes. The new SCR 20:1.5 was part of the revisions of the Rules of Professional Conduct for Attorneys adopted by the Wisconsin Supreme Court late last year and issued as Order 04-07 on Jan. 5, 2007. The proposed revisions to the trust account rule were not part of the Ethics 2000 process and therefore were considered separately.

    The court held a public hearing on the proposed new trust account rule on Jan. 17, 2007, and adopted the new rule at an administrative conference on April 12, 2007. On May 2, 2007, the court issued a final order (Order 06-04) adopting the new trust account rule. Order 06-04 is published on page 28 in this issue of Wisconsin Lawyer and the redlined version of the rule is available on WisBar™, the State Bar's Web site, for lawyers interested in comparing the current rule to the new rule.

    With respect to SCR 20:1.5, the new fee rule, the most significant change is that written fee agreements now will be required for any matter in which it is reasonably foreseeable that the total cost (fees plus expenses) will exceed $1,000, with an exception for regularly represented clients. Thus, Wisconsin lawyers will be required to use written fee agreements in most matters, and the rule specifies certain minimum requirements for those agreements.

    Timothy 

PierceTimothy J. Pierce, U.W. 1992, is the State Bar ethics counsel and liaison to the State Bar Professional Ethics Committee.

    The new trust account rule contains many changes.1 Among the most significant are new definitions of advanced fees, flat fees, and retainers. These definitions make clear that flat fees are advanced fees and therefore ordinarily must be placed in a trust account until earned. The new rule, however, contains an alternative protection for advanced fees that allows lawyers to place any advanced fee, including a flat fee, directly into the lawyer's business account if the lawyer provides the client with a written fee agreement containing certain information, provides the client with a written final accounting when terminating the representation, and agrees that disputes over the lawyer's fee will be submitted to fee arbitration. The new rule also allows lawyers to take steps that will allow the lawyer to forego the current five-day waiting period for withdrawal of earned advanced fees from trust. Another significant new provision allows lawyers to accept advanced payments of fees and costs by credit card.

    Thus, the new trust account rule allows lawyers to do many things that currently are prohibited and potentially cuts down on paper work by allowing lawyers to avoid trust account recordkeeping requirements with respect to advanced fees. The new rule also potentially benefits clients by requiring that lawyers provide clear and timely information about fees and costs and by steering fee disputes to fee arbitration, which is generally the least cumbersome and most prompt method for resolving such disputes.

    While the new trust account rule allows lawyers significantly greater latitude with respect to fees, this new latitude is the result of an attempt to balance the sometimes conflicting goals of allowing lawyers greater freedom in conducting the business of practicing law and, at the same time, ensuring that funds of clients and third parties are adequately protected. As a result, the new trust account rule is complex. This article is not a comprehensive discussion of all the changes in the new rule. Rather, this article provides an overview of some of the most significant and immediate changes in the new trust account rule and the new fee rule, although the new fee rule is less complex. Lawyers should read the new rules and comments in their entirety for themselves. The new SCR 20:1.5 is located on page 68 of this issue, and the new SCR 20:1.15 is printed in its entirety in this issue's Supreme Court Orders column on page 28.

    This article is divided into three sections. The first section discusses the highlights of the new trust account rule. Because the new trust account rule is lengthy, only portions are excerpted here. The second section discusses the highlights of the new fee rule, and the text of the entire new rule and comment is included with this article as Appendix A on page 68. The third section discusses some additional considerations for fee agreements. Finally, the article includes two sample fee agreements on pages 70 and 72.2

    The sample fee agreements serve only as suggestions, and lawyers may use or reject them in whole or in part. The sample fee agreements are intended to provide clients with clear information about a lawyer's handling of fees, which is in keeping with the purpose of the new fee and trust account rules. These samples also were drafted to be relatively brief, however, and do not contain some types of clauses that, although not mandatory, are used by many lawyers.

    Caveats:

    • This article represents the personal opinions of the author, and any interpretation or advice herein is not binding on any court or the Office of Lawyer Regulation (OLR).
    • The sample fee agreements provided reflect the personal views of the author and have not been reviewed or approved by any court, the State Bar of Wisconsin, or the OLR and therefore are not guaranteed to ensure compliance with any supreme court rule.

    Highlights of the New Trust Account Rule - SCR 20:1.15

    1) Definitions of advanced fees, flat fees, and retainers. As part of the review process of the proposed changes to the trust account rule, the court adopted definitions of advanced fees, flat fees, and retainers. These definitions are not found in SCR 20:1.15, but rather in SCR 20:1.0, the new "Terminology" rule, which provides:

    (ag) "Advanced fee" denotes an amount paid to a lawyer in contemplation of future services, which will be earned at an agreed-upon basis, whether hourly, flat, or another 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., SCR 20:1.15(g), and SCR 20:1.16(d).

    (dm) "Flat fee" denotes a fixed amount paid to a lawyer for specific, agreed-upon services, or for a fixed, agreed-upon stage in a representation, regardless of the time required of the lawyer to perform the service or reach the agreed-upon stage in the representation. A flat fee, sometimes referred to as "unit billing," is not an advance against the lawyer's hourly rate and may not be billed against at an hourly rate. Flat fees become the property of the lawyer upon receipt and 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)., SCR 20:1.15(g), and SCR 20:1.16(d).

    (mm) "Retainer" denotes an amount paid specifically and solely to secure the availability of a lawyer to perform services on behalf of a 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).

    These are traditional definitions that are consistent with SCR 20:1.5 (Wisconsin Committee Comment), Wisconsin Ethics Opinion E-93-4, and case law from other jurisdictions.3 The two most important points to note in these definitions are that 1) any payments, including flat fees, for future legal services are advanced fees, and 2) retainers are not payment for any legal services but instead are payment simply to secure the lawyer's availability to perform services. The purpose of these definitions is not to impose discipline for simply calling something by the wrong name but instead to provide clarity in the rule by providing specific definitions for terms that often are confused and to provide enhanced guidance as to the appropriate account for different types of fees. While these definitions are drawn from generally well-settled case law and ethics opinions, many lawyers currently use the term "retainer" to refer to fees that actually are advanced fees. In that sense, these are new definitions.

    2) The new trust account rule requires that all advanced fees, including flat fees, be placed in the lawyer's trust account, unless the lawyer complies with the alternative protection provisions of SCR 20:1.15(b)(4m). SCR 20:1.15(b)(4) requires that a lawyer place all advanced fees in trust. This has always been the case and is not a new requirement. What is new, however, is that flat fees now explicitly are defined as advanced fees and therefore must be placed in trust until earned. The OLR currently allows lawyers to initially place flat fees in either the lawyer's business account or the lawyer's trust account. The OLR's current policy is based, in large part, on administrative reasons (for example, the difficulty in determining when a portion of a flat fee is earned and thus should be withdrawn from the trust account), but this policy is inconsistent with the general principle that advanced fees should be held in trust until earned. As of July 1, 2007, the plain language of the rules will require that flat fees be placed in trust until earned. This is a significant change, particularly for criminal defense lawyers, who frequently use flat fees. As discussed below, however, the new trust account rule has a provision that will allow lawyers to place advanced fees directly into the lawyer's business account.

    3) If a lawyer complies with the alternative protection provisions of SCR 20:1.15(b)(4m), a lawyer need not place any advanced fees in the lawyer's trust account. This new provision is perhaps the most significant aspect of the new trust account rule and represents a radical change from the current rule. Under this new provision, a lawyer may place advanced fees directly into the lawyer's business account provided that the lawyer transmits to the client a writing containing certain information, some of which also is required to be provided to the client in writing by SCR 20:1.5. The lawyer also must provide a final accounting and agree to submit disputes over the lawyer's fee to fee arbitration. SCR 20:1.15(b)(4m) reads:

    (4m) Alternative protection for advanced fees. A lawyer who accepts advanced payments of fees may deposit the funds in the lawyer's business account, provided that a court of competent jurisdiction must ultimately approve the lawyer's fee, or that the lawyer complies with each of the following requirements:

    a. Upon accepting any advanced payment of fees pursuant to this subsection, the lawyer shall deliver to the client a notice in writing containing all of the following information:

    1. the amount of the advanced payment;

    2. the basis or rate of the lawyer's fee;

    3. any expenses for which the client will be responsible;

    4. that the lawyer has an obligation to refund any unearned advanced fee, along with an accounting, at the termination of the representation;

    5. that the lawyer is required to submit any dispute about a requested refund of advanced fees to binding arbitration within 30 days of receiving a request for such a refund; and

    6. the ability of the client to file a claim with the Wisconsin lawyers' fund for client protection in the event the lawyer fails to provide a refund of advanced fees.

    b. Upon termination of the representation, the lawyer shall deliver to the client in writing all of the following:

    1. a final accounting, or an accounting from the date of the lawyer's most recent statement to the end of the representation, regarding the client's advanced fee payment with a refund of any unearned advanced fees;

    2. notice that, if the client disputes the amount of the fee and wants that dispute to be submitted to binding arbitration, the client must provide written notice of the dispute to the lawyer within 30 days of the mailing of the accounting; and

    3. notice that, if the lawyer is unable to resolve the dispute to the satisfaction of the client within 30 days after receiving notice of the dispute from the client, the lawyer shall submit the dispute to binding arbitration.

    c. Upon timely receipt of written notice of a dispute from the client, the lawyer shall attempt to resolve that dispute with the client, and if the dispute is not resolved, the lawyer shall submit the dispute to binding arbitration with the State Bar Fee Arbitration Program or a similar local bar association program within 30 days of the lawyer's receipt of the written notice of dispute from the client.

    d. Upon receipt of an arbitration award requiring the lawyer to make a payment to the client, the lawyer shall pay the arbitration award within 30 days, unless the client fails to agree to be bound by the award of the arbitrator.

    This provision allows a lawyer to avoid placing advanced fees in trust and thus to avoid both the trust account recordkeeping requirements (SCR 20:1.15(f)) and the requirement to provide five days notice before withdrawing earned advanced fees from trust (SCR 20:1.15(g)). If a lawyer complies with this provision, a lawyer need not ever run advanced fees through the lawyer's trust account. However, in return for relief from these requirements, the lawyer must do three things:

    A) Provide the client with a written fee agreement. The rule does not use the term "fee agreement" but does require the lawyer to provide the client with a notice, which essentially functions as a written fee agreement containing all six items enumerated in SCR 20:1.15(b)(4m)a. 1. through 6., the first three of which also are required by SCR 20:1.5(b). The comment to this section also states that the notice should include the address of the Wisconsin Lawyers' Fund for Client Protection. This notice must be provided to the client before or at the same time that a lawyer accepts an advanced fee that the lawyer intends to place in the lawyer's business account. The client need not sign this notice and, as discussed in the next section, the rules broadly define "writing," which would apply to this notice.

    B) Provide the client with a written final accounting. When terminating the representation, the lawyer must provide the client with a written accounting and notice that contains all the information enumerated in SCR 20:1.15(b)(4m)b. 1. through 3.

    C) Fee Arbitration. The lawyer must agree that if the client timely disputes the lawyer's fees in writing, the lawyer must submit the dispute to State Bar-sponsored binding fee arbitration. The rule does not require the client to agree to fee arbitration, and a lawyer does not violate the rule if the lawyer submits the dispute to fee arbitration but the client refuses to participate. The rule also gives the lawyer 30 days to attempt to resolve a fee dispute with the client directly before submitting the matter to fee arbitration. Finally, under this new rule, if a lawyer chooses to use this alternative, it would be misconduct to refuse fee arbitration or fail to abide by an arbitrator's award.

    The lawyer may deposit advanced fee payments directly into the lawyer's business account without observing the requirements of SCR 20:1.15(b)(4m) if the lawyer's fees must be approved by a court. Such required court approval is common, for example, with respect to GAL fees.

    4) The alternative protection provisions of SCR 20:1.15(b)(4m) do not allow a lawyer to place advanced costs and expenses in the lawyer's business account. The treatment of advanced costs and expenses under the new rule remains the same as under the current rule. While lawyers will be allowed to follow the alternative protection provisions and place advanced fees in the lawyer's business account, advanced costs still must be placed in the lawyer's trust account.4

    5) Under the new trust account rule, a lawyer may establish a separate trust account to receive advanced fees and costs by credit card. The current trust account rule prohibits any transaction by credit card (or debit card) into or out of a trust account. While the current rule allows credit cards to be used for payments into the lawyer's business account, the current rule effectively prohibits clients from paying advanced fees or costs by credit card because they cannot be placed directly in the trust account (where advanced fees and costs must be placed) and running such funds through the lawyer's business account would constitute commingling, which is misconduct. The reason for the current credit card prohibition with respect to trust accounts is the possibility of a chargeback on a credit card, which can sometimes occur when a card holder notifies the card issuer of a dispute with a vendor, and the issuer withdraws a previously made payment. Such a chargeback would result in a third party unilaterally withdrawing funds from the lawyer's trust account and risks conversion of other clients' funds. The new trust account rule, while retaining this basic prohibition, has an alternative that will allow a lawyer to set up a separate trust account to receive payments of advanced fees and costs by credit card. Note that if the lawyer chose to follow the alternative protections found in SCR 20:1.15(b)(4m), the lawyer could simply accept advanced fees by credit card directly into the lawyer's business account but still would need a separate special trust account to accept advanced costs by credit card.

    The relevant section, SCR 20:1.15(e)(4)h., provides:

    h. Exception: Fee and cost advances by credit card, debit card or other electronic deposit. A lawyer may establish a trust account, separate from the lawyer's IOLTA trust account, solely for the purpose of receiving advanced payments of legal fees and costs by credit card, debit card or other electronic deposit, subject to the following conditions:

    1. the separate trust account shall be entitled: "Credit Card Trust Account";

    2. lawyer and law firm funds, reasonably sufficient to cover all monthly account fees and charges and, if necessary, any deductions by the financial institution or card issuer from a client's payment via credit card, debit card, or other electronic deposit, shall be maintained in the credit card trust account, and a ledger for account fees and charges shall be maintained;

    3. each payment by credit card, debit card or other electronic deposit, including, if necessary, a reimbursement by the lawyer or law firm for any deduction by the financial institution or card issuer from the gross amount of each payment, shall be transferred from the credit card trust account to the IOLTA trust account immediately upon becoming available for disbursement; and

    4. within 3 business days of receiving actual notice that a chargeback or surcharge has been made against the credit card trust account, the lawyer shall replace any and all funds that have been withdrawn from the credit card trust account by the financial institution or card issuer; and shall reimburse the account for any shortfall or negative balance caused by a chargeback or surcharge. The lawyer shall not accept new payments to the credit card trust account until the lawyer has reimbursed the credit card trust account for the chargeback or surcharge.

    This rule thus allows the currently prohibited practice of clients using credit cards to pay advanced fees and costs but requires the lawyer to establish a separate trust account solely for holding such funds. While its purpose is very limited, this separate credit card trust account is still a trust account and is subject to the requirements of all trust accounts, such as recordkeeping and overdraft notification. The funds must be transferred out of the credit card trust account as soon as they become available and then must be placed in the appropriate account, which normally would be the lawyer's IOLTA account. Advanced costs, however, must always be transferred to the appropriate trust account.

    The rule does not address the question of whether the lawyer or the client should be responsible for the credit card issuer's fees, which normally are borne by sellers. The comment to this rule, however, does provide guidance:

    Comment: Financial institutions, as credit card issuers, routinely impose charges on vendors when a customer pays for goods or services with a credit card. That charge is deducted directly from the customer's payment. Vendors who accept credit cards routinely credit the customer with the full amount of the payment and absorb the charges. Before holding a client responsible for such charges, a lawyer needs to disclose this practice to the client in advance, and assure that the client understands and consents to the charges.

    In addition, the lawyer needs to investigate the following concerns before accepting payments by credit card:

    1. Does the credit card issuer prohibit a lawyer/vendor from requiring the customer to pay the charge? If a lawyer intends to credit the client for anything less than the full amount of the credit card payment, the lawyer needs to assure that this practice is not prohibited by the credit card issuer's regulations and/or by the agreement between the lawyer and the credit card issuer. Entering into an agreement with a credit card issuer with the intent to violate this type of requirement may constitute conduct involving dishonesty, fraud, or deceit, in violation of SCR 20:8.4(c).

    2. Does the credit card issuer require services to be rendered before a credit card payment is accepted? If a lawyer intends to accept fee advances by credit card, the lawyer needs to assure that fee advances are not prohibited by the credit card issuer's regulations and/or by the agreement between the lawyer and the credit card issuer. Entering into an agreement with a credit card issuer with the intent to violate this type of requirement may constitute conduct involving dishonesty, fraud, or deceit, in violation of SCR 20:8.4(c).

    3. By requiring clients to pay the credit card charges, is the lawyer required to make certain specific disclosures to such clients and offer cash discounts to all clients? If a lawyer intends to require clients to pay credit card charges, the lawyer needs to assure that the lawyer complies with all state and Federal laws relating to such transactions, including, but not limited to, Regulation Z of the Truth in Lending Act, 12 CFR Sec. 226.

    Discussion of federal regulations and requirements of credit card companies is beyond the scope of this article, but lawyers who wish to use this new alternative must resolve these questions. The new rule does allow a lawyer to require the client to pay credit card charges with advance disclosure and client consent, but such an arrangement may prove problematic for the lawyer for the reasons discussed in the comment. Regardless of the arrangement with the client, the lawyer still must transfer the appropriate amount to the appropriate account as soon as such funds become available.

    6) A lawyer may avoid the current rule's five-day notice requirement by giving a client prior notice that advanced fees that have been earned will be withdrawn from trust on the date a bill is mailed or otherwise transmitted to the client. The current SCR 20:1.15(g), known as the "five day rule," requires lawyers to wait five business days after notifying the client that advanced fees have been earned and will be withdrawn from the trust account. This rule proved problematic for lawyers in some practice areas, particularly bankruptcy, when time was of the essence and the lawyer could not be in the position of creditor to the client. The rule also was problematic because it required a lawyer to return withdrawn fees to trust whenever the client objected. Thus a client potentially could wait years, object, and thereby force the lawyer to return funds to the trust account.5 The new SCR 20:1.15(g), which maintains the five-day rule but provides an alternative and places time limits on a client's ability to require lawyers to return funds to trust, reads:

    (g) Withdrawal of non-contingent fees from trust account.

    (1) Notice to client. At least 5 business days before the date on which a disbursement is made from a trust account for the purpose of paying fees, with the exception of contingent fees or fees paid pursuant to court order, the lawyer shall transmit to the client in writing all of the following:

    a. an itemized bill or other accounting showing the services rendered;

    b. notice of the amount owed and the anticipated date of the withdrawal; and

    c. a statement of the balance of the client's funds in the lawyer trust account after the withdrawal.

    (1m) Alternative notice to client. The lawyer may withdraw earned fees on the date that the invoice is transmitted to the client, provided that the lawyer has given prior notice to the client in writing that earned fees will be withdrawn on the date that the invoice is transmitted. The invoice shall include each of the elements required by sub. (g)(1) a., b. and c.

    (3) Objection to disbursement. If a client makes a particularized and reasonable objection to the disbursement described in sub. (g)(1), the disputed portion shall remain in the trust account until the dispute is resolved. If the client makes a particularized and reasonable objection to a disbursement described in sub (g)(1) or (1m) within 30 days after the funds have been withdrawn, the disputed portion shall be returned to the trust account until the dispute is resolved, unless the lawyer reasonably believes that the client's objections do not present a basis to hold funds in trust or return funds to the trust account under this subsection. The lawyer will be presumed to have a reasonable basis for declining to return funds to trust if the disbursement was made with the client's informed consent, in writing. The lawyer shall promptly advise the client in writing of the lawyer's position regarding the fee and make reasonable efforts to clarify and address the client's objections.

    Note that the rule now explicitly exempts contingent fees from the notice requirement and the requirement that the lawyer return disputed fees to trust. The rule also exempts lawyers from these requirements when a court approves and sets the lawyer's fees, a practice that is common with respect to GAL fees.

    The rule also allows lawyers to avoid the five-day requirement by providing advance notice to the client. A client's consent is not required and lawyers may avail themselves of this provision by simply placing adequate language in fee agreements. The rule also requires lawyers to "transmit" to clients a "notice" containing all the information required by SCR 20:1.15(g)(1)a. through c. when withdrawing earned fees from trust. As discussed in the next section, the broad definition of "writing," which applies to a "notice," would allow lawyers to comply with the notice requirement by sending a client an email with all the required information.

    The new rule maintains the current rule's requirement that lawyers return disputed funds to trust but places some limits on this requirement. First, any objection that requires the lawyer to return funds to trust must be made within 30 days of the funds being withdrawn from the trust account. Objections made outside this 30-day window do not trigger the obligation to return the disputed funds to trust. Second, any objection must be "particularized and reasonable" in order to trigger the obligation to return funds to trust. This language was chosen so that a client's statement that, for example, the client simply does not want to pay normally will not force a lawyer to hold funds in trust. A client's objection based on articulated reasons, however, normally would trigger the obligation. The rule does not require a client to object in writing or in any specific format.

    Finally, note that a lawyer's obligation to respond to a client's objection to fees applies regardless of whether the objection requires the lawyer to return funds to the trust account.

    7) Other provisions. There are many other provisions in the new trust account rule, such as an exception for in-house counsel (SCR 20:1.15(k)(4)), an amended definition of fiduciary property (20:1.15(a)(4)), an amended definition of trust property (SCR 20:1.15(a)(10)), and changes to the rules governing the Lawyers' Fund for Client Protection (SCR 12.04). This article does not provide a detailed discussion of all the changes, and lawyers are strongly encouraged to carefully read the entire rule.

    Highlights of the New Fee Rule - SCR 20:1.5

    1) For any matter in which it is reasonably foreseeable that the total cost of the representation to the client will exceed $1,000, the new fee rule requires that certain information be transmitted to the client in writing and thus requires a written fee agreement. The new rule does not use the term "fee agreement," but SCR 20:1.5(b)(1) does require that certain information with respect to fees and expenses be transmitted to the client in writing whenever the total cost to the client is likely to exceed $1,000. This writing must include:

    A) The scope of the representation. This should be a clear description of the services and matter for which the lawyer has been retained. The rule does not require a set degree of specificity, but simply writing "legal representation" likely would be suspect, whereas writing "legal representation through trial in connection with the pending OWI 3rd Offense criminal charges in Grant County" should suffice. Best practice may involve informing the client of what the representation does not cover.

    B) The basis or rate of the lawyer's fee. Again, the rule sets no specific standard, but the clear intent is that this writing should provide sufficient information to enable the client to understand how the fee will be calculated and should be written in a clear and readily understood manner.

    C) The expenses for which the client will be responsible. If the client will be charged for copying costs, experts, travel time, medical records, and so on, that information must be included in the agreement. The amount charged for such expenses should be included in the agreement if the amount is known.

    Beyond these three requirements, SCR 20:1.5(b)(1) does not mandate that anything further be in the fee agreement.

    2) The rule does not require that the "writing" or agreement be signed by the client (except contingent fee agreements). While SCR 20:1.5 now clearly requires written fee agreements for most matters, it does not require the client's signature, except on contingent fee agreements, which always must be signed by the client.

    3) Writing is broadly defined. SCR 20:1.5 requires that information about fees be communicated to the client in writing. SCR 20:1.0(q) defines writing as "a tangible or electronic record of a communication or representation, including handwriting, typewriting, printing, Photostating, photography, audio or video recording and e-mail." Thus the writing required by SCR 20:1.5(b)(1) could take many forms, including email. It also can be argued that a voice-mail message would fit the definition, although using a voice-mail message as a writing may be risky for reasons of retention and documentation.

    4) The "writing" must be communicated to the client before or within a reasonable time of commencing the representation. SCR 20:1.5(b)(1) does not mandate that the fee agreement be transmitted to the client before commencing work on the matter, although that is clearly preferred. Thus, in situations when time is of the essence, the lawyer may start work and provide the client with the written fee agreement within a reasonable time. Obviously, what is a "reasonable time" depends on specific circumstances, but the fee agreement should be sent to the client as soon as reasonably practicable.

    5) For any matter in which it is reasonably foreseeable that the total cost of the representation to the client will be $1,000 or less, the information about fees and expenses may be communicated to the client orally or in writing. Although SCR 20:1.5(b)(1) does not require that information about fees be communicated in writing if the total cost is likely to be less than $1,000, it still requires that the information that is required in a writing also be communicated to the client orally. Thus, a lawyer who intends to charge $300 for a simple traffic matter and not use a written fee agreement, still would be required to orally inform the client of the scope of representation, the basis or rate of the fee, and any expenses for which the client will be responsible.

    6) When a lawyer is representing a regularly represented client and charging fees on the same basis or rate as in past representations, the written or oral communication requirements do not apply. SCR 20:1.5(b)(1) requires that specified information about fees and expenses be communicated to clients except when the lawyer is charging a regularly represented client on the same basis or rate as in the past. Neither the rule nor the comment defines a regularly represented client, but note that the rule uses the term "regularly" rather than "continuously." Thus the rule does not require written fee agreements for a regularly represented client even on completely new matters. It remains to be seen whether two, four, six, or some other number of matters per year constitutes "regularly represented," but it seems reasonable to assume that if a client routinely hires a specific lawyer or firm for whatever matters might arise, and matters actually do arise on a more than sporadic basis, that client is regularly represented.

    7) Any change in the basis or rate of the lawyer's fee must be communicated to the client in writing. This requirement of SCR 20:1.5(b)(1) applies to all representations, regardless of whether the rule requires a written fee agreement in the matter. Thus, if there is no written fee agreement because the lawyer is representing a regularly represented client, but the lawyer wishes to increase his or her hourly rates, that information must be communicated to the client in writing. The first paragraph of the Wisconsin Committee Comment states:

    "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 a 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. 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."

    Therefore, an increase in hourly rates does not necessarily require a separate written notification to the client, but it does require a clear and prominent statement on a bill sent to the client.

    8) The purpose and effect of any retainer or advance fee must be communicated to the client in writing if the total cost of the representation is more than $1,000. SCR 20:1.5(b)(2) requires this communication, but interestingly, does not use the "reasonably foreseeable" language found in SCR 20:1.5(b)(1) with respect to the $1,000 threshold. As a practical matter, the lawyer should always inform the client of the purpose of any retainer or advance fee payments, whether or not there is a written fee agreement, because this is part of the lawyer's duty to communicate the basis or rate of the lawyer's fee. When a written fee agreement is required or used voluntarily, this information should be part of the agreement. The communication should clearly explain the actual purpose of any advance fees or retainers paid to the lawyer. For example, lawyers often request a "retainer" that actually serves as an advance on hourly fees, as opposed to a true retainer, which is not payment for legal services but simply secures a lawyer's availability. If a payment operates as an advance on hourly fees, it should be explained to the client as such.6

    9) All contingent fee agreements must be in writing and signed by the client. SCR 20:1.5(c) continues the current rule's requirement that all contingent fee agreements be in writing and signed by the client. The contingent fee agreement also must state how the fee is to be calculated, whether the fee is net or gross of any expenses, and whether the client bears responsibility for any costs or expenses. SCR 20:1.5(c) also continues the requirement that the client be provided with a settlement statement showing the remittance to the client and the method of its determination.

    Additional Considerations

    Although the new fee rule does not require or prohibit the following practices, they are worth lawyers' consideration.

    1) There should be no language in a lawyer's fee agreement asserting any sort of "lien" or "interest" in the client's file for unpaid fees. Wisconsin law does not permit attorneys to place liens on client files for unpaid fees. A few other jurisdictions recognize such a lien, but even where it is recognized, the use of such a lien is quite limited and is becoming disfavored. The file is the client's property and the client is entitled to the file on request, regardless of whether the client owes the lawyer money.7 While it is sometimes noted "the existence of an attorney's lien on a client file has never been recognized in Wisconsin,"8 that language simply means that no such lien exists. In OLR Public Reprimand 2005-9, a lawyer was disciplined not only for failing to provide the file to the client on request (SCR 20:1.16), but also for asserting a frivolous claim (SCR 20:3.1) by claiming a lien on the file for unpaid fees. It also should be noted that if the lawyer wishes to retain a copy of the file, the lawyer must bear those copying costs and not pass them on to the client,9 unless, in certain circumstances, the lawyer is providing the client with a second set of previously provided materials.

    2) If a lawyer intends to charge interest on unpaid balances, that information should be part of the fee agreement or clearly communicated to the client at the beginning of the representation. The rules do not prohibit a lawyer from charging a reasonable rate of interest on outstanding balances. But the lawyer must notify the client of that intent as part of the duty to communicate the basis or rate of the lawyer's fee. A lawyer who simply imposes interest charges absent client notification and consent runs the risk of being found to have violated that duty (SCR 20:1.5(b)) and to have charged an unreasonable fee (SCR 20:1.5(a)).10

    3) A lawyer should be cautious about including in the fee agreement clauses that unilaterally impose on clients the responsibility for collection costs. The rules do not explicitly prohibit statements in fee agreements that the client will be responsible for any collection costs. Further, there is no Wisconsin ethics opinion or case (of which the author is aware) forbidding such statements or even addressing this subject. However, there is case law from other jurisdictions that finds such clauses unenforceable and possibly unethical.11 Courts fault these clauses for their unfairness, lack of mutuality, and chilling effect on a client's perhaps legitimate dispute with a lawyer over fees. These cases do not stand for the proposition that a lawyer would be forbidden from seeking legitimate fees and costs in a collection action, but they do forbid the use of clauses that unilaterally impose such costs on the client in advance.

    4) Consider including the firm's file retention policy in the fee agreement. Generally, it is recommended that former clients be given reasonable notice before old files are destroyed, and a convenient way to provide such notice is to include the firm's file retention policy with fee agreements (and closing letters). This notifies the client early on when they can expect the firm to dispose of old files.12

    5) A lawyer should avoid clauses that deem late payment to be "consent" for the lawyer's withdrawal from representation. Lawyers, unlike clients, do not have unfettered discretion to terminate the lawyer-client relationship. SCR 20:1.16(b) lays out various permissive grounds for withdrawal, and SCR 20:1.16(b)(5) allows a lawyer to withdraw if the client fails to substantially fulfill an obligation to the lawyer (for example, failing to comply with an agreement concerning payment of fees) and the client has been given reasonable warning that the lawyer will withdraw because of the unfulfilled obligation. It is questionable whether such a clause in a fee agreement will constitute reasonable warning. Further, if a matter is in litigation, the lawyer most likely must seek the tribunal's permission to withdraw, and the client is entitled to state to the tribunal whether or not the client consents. That being said, it is not improper to include a clause in a fee agreement that notifies the client that continued delinquency in payment of fees may result in withdrawal after the client has been given reasonable opportunity to come current.

    6) If the firm is organized as a limited liability entity, consider including a summary of the applicable law in the firm's fee agreement. If the firm is organized as a limited liability corporation, limited liability partnership, service corporation or any form of limited liability organization, SCR 20:5.7(e)(2) requires that clients and potential clients be provided a "plain-English summary of the features of the limited liability law under which it is organized and of the applicable provisions of this chapter." A clause in the firm's fee agreement is a convenient way to fulfill this requirement.

    7) A clause requiring the arbitration of fee disputes, or even malpractice claims, is permissible if the clause is fair and the client gives informed consent. The majority of jurisdictions, and the ABA in its Formal Ethics Opinion 02-425, that have examined this topic find such a clause permissible under the rules but do require that the client provide informed consent. Informed consent is defined by SCR 20:1.0(f) as follows:

    "`Informed consent' denotes the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct."

    One of the most important elements of informed consent, as explained in comment [6] to SCR 20:1.0, is an explanation of the possible disadvantages to the client of a proposed course of conduct. For example, ABA Formal Opinion 02-425 notes:

    "[T]he lawyer should make clear that arbitration typically results in the client's waiver of significant rights, such as the waiver of the right to a jury trial, the possible waiver of broad discovery, and the loss of the right to appeal. The lawyer might also explain that the case will be decided by an individual arbitrator and inform the client of any obligation that the lawyer or client may have to pay the fees and costs of arbitration."

    Such clauses also must be fair. In Wisconsin Auto Title Loans v. Jones,13 the Wisconsin Supreme Court held a clause in a consumer loan contract requiring arbitration of disputes to be unconscionable, in part because the clause required the consumer to submit disputes to arbitration but left the lender free to choose other avenues to pursue relief. While this case does not deal with a lawyer's fee agreement, it is worth noting.

    8) There should be no clause in a fee agreement that seeks to limit a lawyer's liability. SCR 20:1.8(h)(1) prohibits any agreement with a client to prospectively limit the lawyer's malpractice liability unless the client is independently represented. Thus a client would need separate representation in order to make such an agreement. Further, SCR 20:1.8(h)(2) prohibits any agreement, at any time and under any circumstances, that limits the client's ability to file a grievance with the OLR. The making of such an agreement would be misconduct in and of itself, and the agreement itself would doubtless be unenforceable.

    9) Other considerations. The list above is not exhaustive of all possible clauses or terms lawyers may wish to address in fee agreements. For example, lawyers may wish to include information about:

    • how the lawyer will communicate with the client and the documents that will be sent to the client on a routine basis;
    • the lawyer's billing procedures and standards;
    • the lawyer's expectation for payment of bills for legal services rendered;
    • whether the lawyer will communicate by email with a client and the lawyer's timeline for responding to the client's email messages;
    • whether the lawyer will communicate with the client by cell phone and the circumstances under which a cell phone will be used;
    • the circumstances under which the lawyer will use other lawyers or support staff in the law firm or retain other professionals to assist the lawyer in providing representation; and
    • the circumstances under which the lawyer may seek to withdraw from or terminate the representation.

    Conclusion

    The new trust account and fee rules contain significant changes from the current rules. While the article highlights what the author views as the most significant changes, this article is not a comprehensive discussion of all the changes to either rule. What is most important to keep in mind, and what is in fact the guiding principle behind the new trust account and fee rules, is that lawyers have an obligation to provide clients with clear, complete, and timely information about what clients will be expected to pay the lawyer.

    Look for further information on this topic in future issues of Wisconsin Lawyer and through State Bar CLE seminars.

    Endnotes

    1The Wisconsin Supreme Court's order adopting the new trust account rule also made certain changes to SCR 20:1.5, Wisconsin Committee Comment, paragraph two, to reflect the definitions of various types of fees. Those changes to the comment are reflected in the language of SCR 20:1.5.

    2The sample fee agreements are adapted from samples provided by members of the Trust

    Account Working Group.

    3See, e.g., In re Kendall, 804 N.E.2d 1152 (Ind. 2004); In re Sather, 3 P.3d 403 (Colo. 2000).

    4See SCR 20:1.15(b)(4m) cmt.

    5The OLR currently applies a "reasonableness" standard in assessing whether a client's delayed objection will require that fees be returned to trust.

    6See SCR 10:1.5 Wis. Comm. Cmt., ¶ 2.

    7See Wis. Ethics Op. E-00-03.

    8See, e.g., Wis. Ethics Op. E-95-5.

    9Wis. Ethics Op. E-00-03.

    10See Wis. Ethics Op. E-90-4.

    11See Lustig v. Horn, 315 Ill. App. 3d 319, 732 N.E.2d 613 (2000); Ween v. Dow, 35 A.D.3d 58 (N.Y. App. Div. 2006); Gruber v. Erickson, 345 N.J. Super. 248, 784 A.2d 758 (2001).

    12For further discussion, see Wis. Ethics Op. E-98-1; Nerino Petro, Retaining Client Files, 79 Wis. Law. 25 (April 2006).

    13Wisconsin Auto Title Loans v. Jones, 2006 WI 53, 290 Wis. 2d 514, 714 N.W.2d 155.




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