Inside Track: Ethical Dilemmas: Flat Fee Charges and the Rules of Professional Conduct:

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  • June
    17
    2015

    Ethical Dilemmas: Flat Fee Charges and the Rules of Professional Conduct

    Aviva Meridian Kaiser

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    June 17, 2015 – For lawyers charging a flat fee, the Rules of Professional Conduct require they notify clients of the scope of the fee. Flat fees are still subject to unearned fee provisions.

    Question

    I am starting my own practice and am considering charging a flat fee for most of my legal services. What information must I tell the client about the flat fee? How do I determine what amount of the flat fee is earned if representation is terminated before completion of the specific agreed-upon service?

    Answer

    The information that must be communicated to the client about the flat fee is governed by several of the Rules of Professional Conduct.

    Notify Your Client of the Scope of the Flat Fee

    Flat fee is defined in SCR 20:1.0(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).

    As this definition indicates, a flat fee is subject to several other rules.

    SCR 20:1.5(b) requires that the scope of the representation and the basis or rate of the fee be communicated to the client in writing, before or within a reasonable time after commencing the representation, unless the total cost of the representation including attorney's fees will be $1,000 or less. If the total cost of the representation including attorney's fees is $1,000 or less, the communication may be oral or in writing.

    Still Subject to Unearned Advanced Fee Provisions

    While the definition of flat fee states that the fee becomes the property of the lawyer upon receipt, the definition still subjects the flat fee to the unearned fee provisions of SCR 20:1.15(b)(4) or (b)(4m). Consequently, if the flat fee is not deposited in the lawyer’s trust account pursuant to (b)(4), the lawyer is required by SCR 20:1.15(b)(4m) to deliver to the client a notice in writing containing all of the information, even if the total cost of the representation is $1,000 or less:

    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 unresolved dispute about the fee to binding arbitration within 30 days of receiving written notice of such a dispute; and

    6. The ability of the client to file a claim with the Wisconsin Lawyers Fund for Client Protection if the lawyer fails to provide a refund of unearned advanced fees.

    Unearned Fee Must be Refunded

    A flat fee is also subject to SCR 20:1.16(d), which requires, upon termination, that a lawyer refund any advanced fee that has not been earned.

    Aviva Kaiserorg akaiser wisbar Aviva Meridian Kaiser is assistant ethics counsel with the State Bar of Wisconsin. Reach her by org akaiser wisbar email.

    In determining the amount earned when representation is terminated before the completion of the specific agreed-upon service, a lawyer is prohibited by SCR 20:1.0(dm) from using his or her hourly rate. As a result, the lawyer should include in the writing required by SCR 20:1.5(b) or SCR 20:1.15(b)(4m) the milestones or other basis by which the lawyer will have earned a portion of the fixed fee.

    These milestones are usually based on the completion of certain tasks such as discovery or drafts of specified documents. The lawyer and the client can also agree upon alternative milestones to address uncertainties about the future course of the representation. The milestones used should be tailored to the type of engagement: those suitable for a criminal matter may not be appropriate for a civil matter, a real estate transaction, or the drafting of a will. Moreover, the lawyer should avoid an unreasonable “front loading” of the milestones or other basis.1

    Limited-scope Considerations

    In addition, if the scope of representation is limited, SCR 20:1.2(c) requires that the client give informed consent in writing, except in certain circumstances, regardless of the amount of the fee. Informed consent, as defined by SCR 20:1.0(f), requires the lawyer to communicate adequate information and explanation about the material risks of and reasonably available alternatives to the limited-scope representation.

    Endnotes

    1 D.C. Bar Ethics Opinion No. 355 (June 2010).




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