Orange alert: Careful what you call 'fees'
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Karpman |
By Diane Karpman
Whether it is "profits per partner" or realization of a contingency
fee, getting paid is the bottom line. Your dependents believe that you are gainfully
employed and like, the baker or candlestick maker, you will receive compensation
for your labor and continue to maintain their lifestyles. They don't have a
clue about fiduciary duties. (Lawyer contracts are fortified with agency principles,
resulting in potential fee forfeiture for a serious breach, such as the duty
of loyalty.)
Wait a minute, this is supposed to be about fees. But you need to understand
that a fiduciary relationship involves a client investing trust and confidence
in the lawyer. If clients lose faith, they must be able to discharge their lawyers
without a penalty. Discharge by clients is an unfettered right, therefore clients
cannot be penalized or held hostage for exercising this right of discharge.
This can become a critical issue, sometimes conjoined with the type of fees
the lawyer receives. "Retainer" is a term that is casually bandied
about. It can be synonymous with "fee agreement," or employed as a
verb, as where you are "retained" by a client.
Then, there is an entirely different type of "retainer," known as
a general or "true retainer." It is consideration paid to a lawyer
to "be there" for the client during a given period of time. It is
not tied to performance in a particular case. True retainers are fully earned
upon receipt, and therefore, must not be placed in the client trust account.
Truly exotic specialists are sometimes paid money to never show up on the other
side. A famous bloodthirsty merger and acquisition firm is paid by a corporate
client to never be adverse to their position. Yes, I know this may appear as
almost "un-American" on its face or offend our collective puritanical
beliefs, that is, being paid not to work.
"True retainers" are often used by criminal defense lawyers. The
lawyer is being compensated for lost opportunities cases that they have
to refuse, such as representing other members of the Soprano "family."
It is like "availability insurance."
Lawyers sometimes confuse the "true retainer" with a "nonrefundable"
fee.
"Nonrefundable" is a confusing term for clients and is flat-out prohibited
in New York. Legal fees are refundable until they are "earned," the
old-fashioned way, by performance.
An advanced fee, or prepaid fee, is refundable until earned. Therefore, to label
it as "nonrefundable" is contradictory.
Orange alert: the "label" is not controlling, because the purpose
of the payment and conduct of the lawyer will be considered. Oops, if you bill
against it, you could be changing its character, converting a "true retainer"
to an advanced fee.
Usually, clients think that they are paying you to do "something."
So, if you are getting paid for just "being on their side," make certain
that clients understand what that means. If they actually want you to do something,
that is separate from the "true retainer," and requires separate compensation.
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