Wisconsin Lawyer
Vol. 81, No. 12, December 2008

Ethics

Fees, n., meaning … 

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