|Your fee agreement is the second
most important document in your law practice. (Because of the severity of disciplinary
action for failure to maintain proper trust account records, we consider trust account
records the most important law practice documents.)
A properly drafted fee agreement is
the foundation of your earning your living, assisting in setting and earning fees and
recouping costs. In a dispute, it can assist in fee retention. Fee agreements also assist
in managing risk arising from legal malpractice and disciplinary liability.
A fee agreement presents the attorney with a terrific window of opportunity to do much
Why? After the attorney-client relationship commences, the lawyer owes the client
fiduciary duties of the highest character. (Neel v. Magana, Olney, Levy, Cathcart &
Gelfand (1971) 6 Cal.3d 176, 189-190 [98 Cal.Rptr. 837].)
The essence of a fiduciary or confidential relationship is that the parties do not deal
on equal terms, because the person in whom the trust and confidence is reposed and who
accepts that trust and confidence is in a superior position to exert unique influence over
the dependent party. (Barbara A. v. John G. (1983) 145 Cal.App.3d 369, 383 [193 Cal.Rptr.
The scope of these duties is very broad, comprising duties of:
Undivided loyalty to protect the clients interests.
(Flatt v. Superior Court (1995) 9 Cal.4th 275.)
Confidentiality of client communications and information.
(B&P Code S6068(e); Evid. Code SS950 et seq.; Code Civ. Proc. S2018.)
Competence in representing clients with skill, prudence
and diligence as lawyers of ordinary skill and capacity commonly possess. (Lucas v. Hamm
(1961) 56 Cal.2d 583, 591 [15 Cal.Rptr. 821]; B&P Code S6067; rule 3-110(A), Cal. Rls.
Communication with the client in the following respects.
(1) Whatever information the attorney has or may acquire in relation to the subject matter
of the transaction (Ball v. Posey (1986) 176 Cal.App.3d 1209, 1214; Beery v. State Bar
(1987) 43 Cal.3d 802, 812-813); (2) all facts and circumstances necessary to enable the
client to make free and intelligent decisions regarding the subject matter of the
representation (Lysick v. Walcom (1968) 258 Cal.App.2d 136, 147 [65 Cal.Rptr. 406]); (3)
to advise the client of significant developments in the cli-ents matter and to
respond to client status inquiries (B&P Code S6068(m) and rule 3-500, Cal. Rls. Prof.
Cond.); and (4) the terms and conditions of a settlement offer [criminal cases any
offer; civil cases written offers] (rule 3-510, Cal. Rls. Prof. Cond.).
Exercise independent judgment, including rendering candid
advice, even unpleasant facts and alternatives. (Vapnek, Tuft, Peck & Weiner (1997) 1
The Rutter Group California Practice Guide Professional Responsibility 3-2 (3:8);
B&P Code S6106; see also rules 1-600(A) and 3-310(F)(1), Cal. Rls. Prof. Cond. and
Model Rule 2.1, ABA Model Rls. Prof. Cond.)
Scrupulous honesty and protection of client funds and
property. (Prob. Code S16004(c); rule 4-100, Cal. Rls. Prof. Cond.; B&P Code S6106;
Blackmon v. Hale (1970) 1 Cal.3d 548 [83 Cal.Rptr. 194].)
Once we accept the heavy mantle of fiduciary duties to our clients, we lose the full
opportunity to protect our own interests unless it is in the best interests of our
Before our relationship begins, however, we have this wonderful window of opportunity
to bargain about the terms and conditions of our employment, absent any fraud or undue
influence, at arms length with any prospective client. (Ramirez v. Sturdevant (1994)
21 Cal.App.4th 904, 913 [26 CalRptr.2d 554, 558].) The fee agreement is not only the
instrument by which you and the client seal a contract for legal services, fees and costs,
but also a tool by which you can structure the terms and conditions of your
A properly drafted fee agreement can:
Structure the course of the attorney-client relationship;
Provide a process of dispute resolution with our clients;
Add provisions which will protect us from the overbearing
Shift the risk of loss or the burden of costs to the
client in unusual circumstances.
Your fee agreement should be reviewed once a year to update it after changes in the
case law. That review is also an opportunity to be creative and proactive. Any client
problems which have plagued your practice should be evaluated with the following points in
Could the problem have been prevented by one or more
provisions in your fee agreement?
Could you have defended yourself better if there had been
one or more provisions in your fee agreement?
Would your risk have been lessened by one or more
provisions in your fee agreement?
Are there aspects of your relationships with clients you
would like to change which would be facilitated by a provision in your fee agreement?
If your answer was yes to one or more of these questions, add some
provisions to your fee agreement so that past problems are resolved in future
relationships with clients.
Drafting fee agreements
Weve told you how important the fee contract is to every lawyers practice.
The next question is: What should be in your fee agreement? The answer in large part
depends upon the nature of your practice and your clientele. The same fee agreement does
not work for all practices, for all clients or for all matters. In developing forms for
your office, you need to examine who you are as a lawyer, who you serve as clients, and
The first place to look in developing a good fee agreement is the Business &
Professions Code. Of most universal interest, S6147 lays out what matters must be covered
in contingent fee contracts, while S6148 does the same for hourly and other non-contingent
Next, you should look to the relevant Rules of Professional Conduct applicable to
financial arrangements between attorneys and clients, including the rules in Chapter 3
(Professional Relationship with Clients) and Chapter 4 (Financial Relationship with
Clients). These rules will give you some guidance as to disclosures that should (or in
some situations must) be made in fee agreements as well as provisions that should not be
Then, if you want to ensure that your fee agreement properly serves the two players it
is designed to protect, your clients and you, you must also look to relevant case law.
You dont need to reinvent the wheel of fee agreements. A number of publications
provide model fee agreements (the State Bar through the Internet [www.calbar.org];
Continuing Education of the Bar, Fee Agreement Forms Manual; Vapnek, Tuft, Peck &
Weiner (1997) The Rutter Group California Practice Guide Professional
Responsibility, at Chapter 5, Forms; and Lewis & Peck (1998) Lawyers Handbook on
Fees and Fee Agreements.) These publications have models for your fee agreement which you
can adopt off the shelf or modify to suit your particular area of the law,
clientele and special matters.
As you can see, whole books have been written about what to include in your fee
agreement and this article is but the tip of the iceberg of possible fee agreement
provisions. We wanted to call to your attention the importance of certain general
provisions defining who is the client; who is not the client in relevant circumstances;
what is the scope of the legal services; and what is not within the scope. In our
experience, these areas are given less attention by lawyers, thus creating greater risk of
fee disputes, legal malpractice claims or disciplinary complaints.
Who is the client?
Surprisingly, many fee agreements do not define who is the client who is to receive the
attorneys services. This is especially important in the following circumstances:
Multiple parties. Many times a number of parties walk into
your office to the first interview. In this situation, it is important to ferret out (1)
who the intended client is from among the potential clients, and (2) which client or
clients you want to represent. It is then important to memorialize the decision in the fee
agreement. There are a number of factors you can consider, including: If you represent two
or more parties in the same matter, you probably have a potential conflict of interest,
requiring compliance with rule 3-310 (C)(1).
Organization v. individuals.
If the individuals are partners in a general partnership, are you going to represent
the partners individually or the partnership or both?
If you meet with homeowners, are they intending that you represent the homeowners
association, the members individually, or both?
If there is a corporation involved, will you be representing the corporation or its
constituents or both?
If you are to represent any one of the organizations above, review rule 3-600 of the
Rules of Professional Conduct for necessary compliance, and document your compliance
through the fee agreement.
If the prospective clients envision your preparation of documents formalizing an
ostensible partnership and desire you to represent the partnership in formation, review
whether there are sufficient indicia of an ostensible or oral partnership in order to
permit you to represent the partnership in formation as an entity. (See e.g. Beuhler v.
Shardellati (1995) 34 Cal.App.4th 1527 [41 Cal.Rptr. 104].) If there is not sufficient
agreement among the partners concerning the form of organization and their respective
duties and liabilities to each other, you may have to represent the individuals.
Capacity. Define the capacity in which you are
representing a client. If the client is an officer, director or managing agent of a
corporation, do you represent the individual in their representative or individual
capacity? If the person is a trustee or executor of an estate, are you representing the
client in their representative or individual capacity? The answer may change the nature of
your duties, especially whether you have duties to reveal confidential information to a
successor in interest. (See Moeller v. Superior Court (1997) 16 Cal.4th 1124.)
Defining who is not the client. Third party liability is expanding, a few examples of
which are set forth below. Your fee agreement is an ideal place to set forth the parties
you do not intend to represent.
1. Limited partnerships. Evolving case law has recognized that although a lawyer may
represent a partnership (general or limited) without representation of individual
partners, the lawyer may owe duties to general or limited partners not to favor one
partner over another concerning business opportunities. (Johnson v. Superior Court (1995)
38 Cal.App.4th 463.) It is important to clarify that the lawyer does not represent
individual partners if the lawyer intends to represent solely the organization.
2. Duties to clients spouse in personal injury matters. As set forth below,
Meighan v. Shore (1995) 34 Cal.App.4th 1025, 1044, held that an attorney who represented a
husband in seeking recovery for personal injuries had a duty to the non-client wife
regarding a cause of action for loss of consortium. Where more than one person comes to an
initial interview, it is important to clarify through memorialization in the fee agreement
which of those persons is not the client and that they should seek independent counsel for
their legal needs.
3. Confusion over the rights of third party payers. It is not uncommon to have another
party pay for a clients legal services. Not only should you comply with rule
3-310(F), Cal. Rls. Prof. Cond., but also you should specifically and expressly indicate
that the payer is not a client and will not be receiving legal services to avoid
One of the most important provisions in any fee agreement is the clause defining the
scope of the lawyers services. B&P Code S6148 (governing hourly and other
non-contingent fee agreements) requires a statement of: The general nature of the
legal services to be provided to the client. (B&P Code S6148(a)(2).)
Surprisingly, B&P Code S6147 (governing contingent fee contracts) contains no such
requirement. Yet we believe that in order to protect the client and the lawyer and to
avoid miscommunications, every fee agreement should include a very clear and concise
description of the nature of the legal services to be provided.
If you are representing the client in litigation, identify the litigation and the
specific scope of the representation within the context of that litigation. If you are
representing a client in connection with a transaction or a dispute that is not in
litigation, clearly identify the matter and the scope of the representation (e.g., the
purchase of the Famous Fast Food Franchise in Fremont). It is also important to identify
clearly the parties you are representing (with conflict waivers if multiple parties),
related parties you are not representing (with non-engagement letters to those persons),
and the adverse parties (whether or not the client is in litigation). If your fee
agreements already clearly define the scope of the services to be rendered, you may be
thinking, Well, Im in good shape with my fee agreements. Well, think
again and keep reading.
Related services not provided
Under California case law, it can now be argued that it is not enough to specify the
scope of the attorneys undertaking. Rather, some courts are now telling lawyers they
must also advise their clients what related services they will not be performing.
The first case on this issue was Nichols v. Keller (1993) 15 Cal.App.
4th 1642, 19 Cal.Rptr.2d 601. In Nichols, the attorney agreed to represent the client
in a pending workers compensation claim. There was no mention of the attorney
representing the client on a third party tort claim. The client then failed to file a
third party claim in a timely manner and sued his lawyer for not advising him of the time
deadline. The Nichols court stated that the attorney was not obligated to represent the
client in the third party tort case, but that he did have a duty to tell the client that:
(1) there may be other remedies the attorney will not investigate, and (2) other counsel
should be consulted on such matters.
The next case on this same subject went even further. In Meighan v. Shore (1995) 34
Cal.App.4th 1025, 40 Cal.Rptr.2d 744, the court noted that the attorney representing one
spouse in a medical malpractice action had no obligation to represent the other spouse in
a loss of consortium case. However, the court went on to hold that if the attorney was not
going to handle the loss of consortium case, he owed a duty to both the client and the
clients spouse to advise them of the loss of consortium remedy and to send them to
the counsel for consultation.
In a series of seminars we recently presented to California lawyers insured by
Lawyers Mutual Insurance Co., we asked lawyers to tell us where they saw the risk in
their own practices if they failed to go the extra step and tell clients what related
matters they were not handling or investigating. We received a wide variety of responses,
including: (1) tax advice in virtually all litigation and transactional matters; (2)
cross-complaints in insurance defense or other cases; (3) collection activities and
appellate work, particularly in contingent fee cases; (4) bankruptcy or asset protection
advice in a wide variety of areas where the concern arises, including family law and
litigation where there are uninsured claims against the client; (5) disputes with health
care providers or insurers in personal injury matters; (6) litigation or arbitration in
transactional or estate matters; (7) criminal law proceedings in family law cases where
spousal abuse is raised as an issue; and (8) intellectual property issues in business
From our conversations with these lawyers, another reason to make careful disclosures
about what is and is not included in the scope of the attorneys representation
surfaced. Different lawyers practicing in the same communities and in the same areas of
law define the scope of their representation and the decision whether to handle related
matters differently. As such, it is beneficial both to the client and to the lawyer to lay
out clearly in the fee agreement (and to discuss clearly during the meeting with the
client relating to the fee agreement) how the attorney defines the scope of the
representation. Clarity not only avoids confusion and misunderstandings, it also leads to
better client relations and reduces the risk of financial and other conflicts with your
Responsibilities of the parties
Closely related to the provisions in your fee agreement defining and limiting the scope
of representation are the provisions setting out the respective responsibilities of the
attorney and the client. Interestingly, the B&P Code once again requires this clause
to appear in non-contingent fee contracts, but not in contingent fee contracts. (B&P
Code SS6148(a)(3), 6147.) Nevertheless, we very strongly believe that all fee agreements,
contingent and otherwise, should include a paragraph on the respective responsibilities of
the attorney and the client.
In this section of the agreement, the lawyer should set forth, among other things, the
clients responsibilities to provide the attorney with all relevant information, to
keep the attorney informed, to keep communications confidential, to appear when requested,
to respond to discovery requests (in litigation), to pay the attorneys bills in a
timely manner, and other important obligations. Also, if the client is going to be
undertaking tasks that might otherwise be deemed to be within the scope of the
attorneys duty (e.g., tendering defense of a lawsuit to a clients insurers),
those matters should also be specified in the clause relating to respective
responsibilities. The attorney, in turn, can and should spell out for the client the
attorneys obligation to keep the client reasonably informed about the significant
developments relating to the representation. (See Rule of Professional Conduct 3-500.)
We hope this article has inspired you to take a fresh look at your fee agreement as a
vital tool in your law office which can not only help you earn and keep fees, but also
better manage the risk of malpractice and disciplinary liability. We encourage you to have
your fee agreement audited on an annual basis for compliance with recent changes in
statutes, rules and case law and to add other specially tailored provisions to prevent
problems in your practice. May you continue to practice law with prosperity and
Steven A. Lewis is a principal in the firm of Lewis &
Bacon in Sacramento. For the past 22 years, he has specialized in representing and
advising attorneys in a wide variety of professional liability cases and ethics matters.
Ellen R. Peck, former State Bar Court judge and former ethics counsel to the State Bar and
the American Bar Association, is a solo practitioner in Malibu.