| Before entering private practice, I spent more than 14 years with the
State Bar's Ethics Hotline. Each year, the hotline would tally incoming calls to determine
which ethical issues were raised most often. Each year, the most common issue concerned
fees for legal services. This is not surprising. Legal fees are an important, yet
delicate, subject for both attorneys and clients. Attorneys are expensive, and often
clients do not understand and dispute the amount, basis or value of an attorney's fee.
There are numerous ethical and civil requirements regarding legal fees and fee
agreements. In my experience, many practicing attorneys are not fully aware of these
requirements.
Attorneys who do not comply with fee requirements do so at their own peril. They face
an increased risk of attorney-client fee disputes, loss of earned fees, and malpractice
and disciplinary complaints.
This article, the first of two parts, addresses basic requirements regarding legal fees
and fee agreements. I focus first on fee agreements, because failure to have a proper fee
agreement can be disastrous for an attorney. Lack of a written fee agreement can lead to a
fee dispute by itself. If the fee dispute occurs, the attorney's ability to collect his or
her entire fee will be prejudiced severely.
It is critical for an attorney to know when a fee agreement must be in writing. As
discussed below, failure to provide a written fee agreement when required will render the
fee agreement voidable at the option of the client and restrict the attorney to a quantum
meruit recovery.
When an attorney represents a client on a contingency basis, the fee agreement must be
reduced to writing and must be signed by both the attorney and client. (Bus. & Prof.
Code §6147(a).) The attorney must, at the time the agreement is entered into, provide a
duplicate copy of the agreement to the client. (Bus. & Prof. Code §6147(a).)
The written fee agreement must contain stipulated information, including a statement of
the contingency rate that the client and attorney have agreed upon, and a statement that
the fee is not set by law but is negotiable between attorney and client. (Bus. & Prof.
Code §6147(a)(1), (a)(4).) The written agreement must explain how disbursements and costs
incurred in connection with the prosecution or settlement of the claim will affect the
contingency fee and the client's recovery. (Bus. & Prof. Code §6147(a)(2).)
It must also explain to what extent the client may be required to pay compensation to
the attorney for related matters, arising out of the attorney-client relationship, that
are not covered by the contingency fee contract. (Bus. & Prof. Code §6147(a)(3).)
 Where the attorney
represents the client on a medical injury recovery action under Business & Professions
Code §6146 (commonly called a MICRA action), the written contingency fee agreement must
contain a statement that the fee rates set forth in §6146 are maximum rates, and that the
attorney and client may negotiate a lower rate. (Bus. & Prof. Code §6147(a)(5).) The
only contingency fee agreement exempted specifically from §6147 is a fee agreement
covering the recovery of workers' compensation benefits. (Bus. & Prof. Code
§6147(c).)
In non-contingency representations, where it is reasonably foreseeable that the total
expense to the client, including attorney fees, will exceed $1,000, the attorney-client
fee agreement must again be in writing. (Bus. & Prof. Code §6148.) The attorney must
provide a signed copy of the fee agreement to the client at the time the agreement is
entered into. (Bus. & Prof. Code §6148(a).)
The written fee agreement must contain the basis of compensation including any hourly
rates, statutory fees or flat fees, or other standard charges applicable to the
representation. (Bus. & Prof. Code §6148(a)(1).) It must also contain statements
describing the general nature of the legal services to be provided to the client and the
respective responsibilities of the attorney and the client to the representation. (Bus.
& Prof. Code §6148(a)(2), (a)(3).)
Although the §6148 requirements will apply in most hourly or flat fee representations,
there are exceptions. Section 6148 requirements do not apply where legal services are
rendered in an emergency situation or where a writing is otherwise impracticable. (Bus.
& Prof. Code §6148(d)(1).)
The requirements do not apply where a fee arrangement is implied by the fact that the
attorney's services are of the same general kind as rendered to and paid for previously by
the client. (Bus. & Prof. Code §6148(d)(2).) The requirements do not apply where the
client is a corporation or where the client states in writing, after full disclosure of
§6148, that a writing concerning fees is not required. (Bus. & Prof. Code
§6148(d)(4), (d)(3).)
Currently, under both §§6147 and 6148, where an attorney does not maintain errors and
omissions insurance or has not provided the requisite law corporation guarantees covering
errors and omissions, the attorney must disclose this fact to the client in the written
fee agreement. (Bus. & Prof. Code §§6147(a)(6), 6148(a)(4).) This requirement is
scheduled currently to end on Jan. 1, 2000. (Bus. & Prof. Code §§6147(d), 6148(f).)
Failure to comply with any written fee agreement requirement under §6147 or §6148
renders the fee agreement voidable at the option of the client and the attorney will be
restricted thereafter to a quantum meruit recovery for the reasonable value of his or her
services. (Bus. & Prof. Code §§6147(b), 6148(c).)
As a result, attorneys should always insure that their fee agreements meet statutory
requirements. Failure to do so invites a fee dispute between the attorney and client, and
can lead to the breakdown of an otherwise harmonious and effective attorney-client
relationship. As a practical matter, attorneys know that asserting their rights in a fee
dispute can result in a retaliatory malpractice action or disciplinary complaint from the
client.
Even where an attorney has met all statutory written fee agreement requirements, the
attorney may still not be entitled to collect the contracted fee because the fee is either
illegal or unconscionable. The California Rules of Professional Conduct prohibit an
attorney from entering into an agreement for, charging or collecting an illegal or
unconscionable fee. (Rule 4-200(A).)
An illegal fee violates existing law. An example would be a fee that exceeds the
permissible amount set by law or a fee that is taken without proper court approval. For
example, the maximum contingency fee that an attorney can charge or collect in a MICRA
action is set by Business & Professions Code §6146, while the maximum contingency fee
in a recovery action between merchants is set by Business & Professions Code §6147.5.
An example of a court approval requirement is Probate Code §2644, which requires court
approval of fee agreements involving minors. Attorneys, who today generally limit their
practices to no more than a few substantive areas, should investigate and educate
themselves regarding applicable statutory requirements.
An unconscionable fee has been defined traditionally as a fee that is so exorbitant
that it "shocks the conscience" of attorneys practicing in the same community.
Today, courts still look to this standard, but also engage in an analysis of
unconscionability factors set forth in California Rule of Professional Conduct 4-200.
(Shaffer v. Superior Court (1995) 33 Cal.App.4th 993, 39 Cal.Rptr.2d 506.)
Under Rule 4-200, the determination of whether a fee is unconscionable involves a
factual inquiry requiring consideration of 11 factors set forth in the rule. These
factors, which are not intended to be exhaustive, are all worthy of note and include:
1. The amount of the fee in proportion to the value of the services performed;
2. The relative sophistication of the member and the client;
3. The novelty and difficulty of the questions involved and the skill requisite to
perform the legal service properly;
4. The likelihood, if apparent to the client, that the acceptance of the particular
employment will preclude other employment by the member;
5. The amount involved and the results obtained;
6. The time limitations imposed by the client or by the circumstances;
7. The nature and length of the professional relationship with the client;
8. The experience, reputation, and ability of the member or members performing the
services;
9. Whether the fee is fixed or contingent;
10. The time and labor required; and
11. The informed consent of the client to the fee.
Under Rule 4-200, the unconscionability of a fee is determined on the basis of the
facts and circumstances existing at the time the agreement is entered into, except where
the parties contemplate that the fee will be affected by later events. (Rule 4-200(B).)
As such, clients should not be able to second-guess the contracted fee after work is
performed, although some of the factors, such as factor 5 regarding the "amount
involved and the results obtained," and factor 10 regarding the "time and labor
required" undercut this notion.
As a practical matter, attorneys know that clients regularly second guess the fee
amount following resolution of their matter and/or presentation of the attorney's bill.
As a result, factor 11 regarding the " informed consent of the client to the
fee" becomes extremely important for an attorney where the client later disputes a
contracted fee. Combining the unconscionabilty standards with the written fee agreement
requirements, it becomes clear why it is so important for attorneys to reduce verbal fee
agreements to signed writings.
No one likes surprises, especially when it comes to money. The written fee agreement
approach minimizes surprises and benefits both the attorney and client.
It facilitates an earlier, more complete mutual understanding between the attorney and
client regarding legal fees.
It protects the attorney in the event that a fee dispute later arises.
Most importantly, it works to avoid the development of the fee dispute.
Adherence to fee and fee agreement requirements benefits attorneys, clients and the
legal profession. In my opinion, the better that individual attorneys understand and
comply with their fee and fee agreement duties, the better the legal profession will be
held in the public eye.
 David M.M. Bell, now in private practice,
formerly was State Bar director of professional competence, overseeing rule development
and the Ethics Hotline. He can be reached at dmbell@dnai.com.
|
