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How to build a raise into your fee agreement

By Diane Karpman

Diane Karpman

Lawyers are fiduciaries as a matter of law. Being a fiduciary presents problems in contractual negotiations with clients, because lawyers are not selling rugs in the markets of Marrakesh, they are selling faithfulness.

The negotiation of the initial retainer is characterized as an “arm’s length transaction.” Ramirez v. Sturdevant (1994) 21 Cal. App. 4th 904. Yet even then, a lawyer can’t sell services with complete freedom of contract, because liability could be imposed for an unconscionable agreement under Rule 4-200. Rule 4-200 is one of the few rules that applies to “attempts” to charge or collect an illegal or unconscionable fee.

Once the client becomes your own, the “arm’s length” theory is eviscerated. When you take a client, you are saying, “Trust me.” Once that relationship of trust exists, it is difficult to modify contractual relations. This can raise significant issues in existing fee agreement modifications.

Consumers in the marketplace know that for most products, the price escalates over time. This is a fundamental truth for almost all services. Although consumer experience would seem to justify assuming that a client has this knowledge, it’s a good idea to articulate this in the initial fee agreement. That is, the price of your services may increase in the future. Severson & Werson v. Bollinger (1991) 235 Cal. App.3d 1569, prohibits unilateral increases. You should inform the client that your price may go up, but they are still entitled to notice at that time. You can’t expect them to catch it, because you have asked them to trust you.

Many authorities maintain that a midstream fee modification may implicate the rigorous requirements of Rule 3-300. This rule is designed to put the client on notice when a lawyer is going into business with, or acquiring an ownership, possessory, security or other pecuniary interest adverse to the client.

A proposed State Bar ethics opinion maintains that not all fee modifications trigger Rule 3-300, but watch out, it could be triggered due to the fiduciary nature of the relationship. The language of Rule 3-300 indicates it doesn’t apply to the agreement where a lawyer is initially retained. However, what about subsequent agreements after the fiduciary relationship is created?

You might be saying, “That makes sense because, after all, you could just quit.” Well, not so fast. In many instances, the client would incur foreseeable prejudice (Rule 3-700), so you can’t even quit without precautions.

To avoid future problems, why not comply with Rule 3-300 anyway? Explain that the terms of the agreement are fair and reasonable, by laying out the benefits and detriments of the new arrangement to the client in writing, instruct the client to consult with independent counsel, give them a few days to do so, and then have the client consent in writing to the new arrangement.

The freedom of rug traders to offer a product “as is” doesn’t exist for lawyers, even at the preliminary negotiation stage. The “caveat emptor” theory just doesn’t exist in attorney-client fee agreements.

• Legal ethics expert Diane Karpman can be reached at 310/887-3900 or at

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