Wisconsin
Lawyer
Vol. 81, No. 12, December
2008
Ethics
Fees, n., meaning …
The Rules of Professional Conduct,
effective July 1, 2007, define the different types of fee arrangements
and fees that can be charged to clients.
by Dean R. Dietrich
Question
I know that the Rules of Professional Conduct were recently amended
to define different types of fees that can be charged a client. What do
these definitions really mean?
Answer
The Rules of Professional Conduct that became effective July 1, 2007,
do contain new definitions of the different types of fees that can be
charged to a client. While the list is not all-inclusive, the
definitions provide a basic outline of the different types of fee
arrangements that can be agreed to with a client. To comply with the
Rules of Professional Conduct, it is important that lawyers understand
the definitions.
The definitions included in SCR 20:1.0, Terminology, are the
following:
(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).
Dean R. Dietrich, Marquette
1977, of Ruder Ware, Wausau, is chair of the State Bar Professional
Ethics Committee.
An advanced fee is what often has been called (although
incorrectly) a retainer. An advanced fee is paid by the client and
placed in the lawyer’s trust account. The lawyer then performs
work for the client and pays himself or herself with a transfer from the
trust account to the lawyer’s business account. The lawyer sends a
bill to the client describing the amount taken from the trust account
for the services rendered. Usually after five days of sending the bill,
the lawyer transfers the amount by writing a check from the
lawyer’s trust account to the lawyer’s business account.
Lawyers may sometimes ask a client to pay an additional advanced fee
when all the funds have been taken from the trust account to pay for
services rendered. It is important to recognize that normally an
advanced fee paid by the client for the attorney’s future services
must be placed in the lawyer’s trust account and only paid out to
the lawyer after the services have been rendered, a statement has been
sent to the client, and the client raises no objection. Special
procedures may be followed to allow the lawyer to place the advanced fee
in the business account (see SCR 20:1.15(b)(4m)).
A flat fee is a set fee agreed to between the client and
the attorney for services to be rendered by the attorney. Flat fees also
are to be placed into the lawyer’s trust account and paid out only
after the services have been rendered. Portions of the flat fee may be
paid out at various times after the lawyer has completed a portion of
the services that the lawyer has agreed to provide. It is important to
note that the flat fee paid by the client becomes the property of the
lawyer on receipt and is subject to the various requirements of the
trust account rule and the requirement that the lawyer reimburse all or
a portion of the flat fee if the lawyer does not complete the services
as agreed to. The flat fee becomes the property of the lawyer on receipt
even though the monies are placed in the lawyer’s trust account
(unless alternate procedures are used) to ensure that the payment
belongs to the lawyer and is not subject to claims from a bankruptcy
trustee or other party such as a Medicare agency. Thus, lawyers must be
very careful in how they handle flat fees to ensure that they are placed
into the trust account even though the fees do become the property of
the lawyer on receipt. Procedures under the trust account rule allow a
lawyer to place a flat fee in the lawyer’s business account
provided proper notice is given to the client and the lawyer agrees to
binding arbitration of any fee dispute with the client. The alternate
procedure that allows a lawyer to place the flat fee into the
lawyer’s business account is found in SCR 20:1.15(b)(4m) and is
beyond the scope of this article.
A retainer is an amount paid to the lawyer solely for the
agreement by the lawyer to be the attorney for the client. It is a
payment made for the commitment by the lawyer and is not based on any
type or amount of services provided by the lawyer. It is strictly a
payment to the lawyer to ensure that the lawyer will represent the
client either immediately or in the future. This payment becomes the
property of the lawyer on receipt and may be placed in the
lawyer’s business account and used by the lawyer for business
purposes. A lawyer still is required to notify the client of the purpose
and effect of the payment under the fee rule (SCR 20:1.5) and may be
required to return some portion of the money to the client if the lawyer
is discharged from representing the client although such obligation
would be subject to a fact-intensive determination. This definition of
retainer requires the lawyer to have a clear understanding with the
client of the payment’s purpose and effect. The common use of the
word “retainer” does not apply to this precise definition of
retainer, so lawyers should be very clear when speaking with clients
regarding the payment of a retainer, in contrast to the payment of an
advanced fee as payment for future services to be provided by the
lawyer.
The new definitions in SCR 20:1.0 guide lawyers on how to
identify and handle fee payments by clients. While the definitions are
meant to be helpful, they do change the traditional meaning of the word
retainer. Lawyers must be careful to properly describe the purpose and
effect of any payment by a client for services to be provided by the
lawyer.
Wisconsin Lawyer