Drafting and Enforcing Fee Agreements

Transcription

1 Drafting and Enforcing Fee Agreements Prepared by Steven M. Richman, Esq Duane Morris LLP. All Rights Reserved. Duane Morris is a registered service mark of Duane Morris LLP. Duane Morris Firm and Affiliate Offices New York London Singapore Los Angeles Chicago Houston Hanoi Philadelphia San Diego San Francisco Baltimore Boston Washington, D.C. Las Vegas Atlanta Miami Pittsburgh Newark Boca Raton Wilmington Cherry Hill Princeton Lake Tahoe Ho Chi Minh City Duane Morris LLP A Delaware limited liability partnership From the film The Firm GENE HACKMAN: (As Avery Tolar) Everything depends on billing. How many hours do you spend even thinking about a client? I don't care if you're stuck in traffic or shaving or sitting on a park bench. General Comments ABA model rules are not law by themselves States set their own rules International: IBA proposed rule not dissimilar to ABA model rule or others that focus on reasonableness Clients may have guidelines that take the form of contractual obligations Underlying fairness 1

2 Fee Agreement as Contract Fee agreements are contract and basic contract rules of interpretation and drafting apply Customize Beware of boilerplate Update Plain language Arbitration Provisions: Pennsylvania PA: 1.5:250 Fee Arbitration A lawyer is encouraged to submit to fee arbitration in order to resolve a fee dispute if the fee agreement provides such a procedure. PA-R 1.5 cmt. But a provision in a fee agreement requiring mandatory arbitration of fee disputes creates pecuniary interests that are adverse to the client. Therefore, a lawyer is permitted to include such a provision in the fee agreement only if the disclosure and consent requirements of PA-R 1.8 are satisfied. Phila. B.A. Prof. Guid. Comm. Op (1988); (determining that client need not obtain independent counsel before agreeing to mandatory arbitration agreement). See also Phila. B.A. Prof. Guid. Comm. Op (1991) Arbitration: New Jersey Client has right to request fee arbitration and no suit on fees until letter send advising client of such right; if not timely filed, suit may commence Binding arbitration But district fee committee can decline to arbitrate where total fee exceeds $100,000 Limited right of appeal to Disciplinary Review Board which is final. 2

3 Ethical Overview Rule 1.5: reasonableness Other rules may impact, including but not limited to 1.4 (communication with client; reasonably consult), 7.1 (communications concerning a lawyer's services; no misrepresentations) and 1.3 (diligence)( A lawyer shall act with reasonable diligence and promptness in representing a client.) Engagement Letters Rule 1.5(b): When the lawyer has not regularly represented the client, the basis or rate of the fee shall be communicated to the client, in writing, before or within a reasonable time after commencing the representation Do not rely on unjust enrichment theories to bail you out Engagement Letters (cont d) A written fee agreement, or as it is sometimes known, an engagement letter, is not always needed. Consider: an initial invoice sent within a reasonable time after commencement of the representation Either of these can serve as a writing saying the basis of the fee. 3

4 Engagement Letters (cont d) Getting client signature also shows buy in by the client Removes factual question; case in NJ where client disputed either receipt or that there was an agreement. Again, you can prove unjust enrichment, but if red flags are raised at outset, why bother? Contingent fees must be in writing-check jurisdiction s rules Identify the Client Identify the client If multiple (as affiliates), make sure the engagement letter specifies and addresses appropriate privilege waivers Scope ABA Model RPC 1.2(c) provides: A lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances and the client gives informed consent. 4

5 PA Rule 1.2 (c) A lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances and the client gives informed consent. Remember obligation of diligence and competence Phased engagement letters Comment 3: Rule 1.5 No shortcuts (3) An agreement may not be made whose terms might induce the lawyer improperly to curtail services for the client or perform them in a way contrary to the client s interest. For example, a lawyer should not enter into an agreement whereby services are to be provided only up to a stated amount when it is foreseeable that more extensive services probably will be required, unless the situation is adequately explained to the client. Otherwise, the client might have to bargain for further assistance in the midst of a proceeding or transaction. However, it is proper to define the extent of services in light of the client s ability to pay. A lawyer should not exploit a fee arrangement based primarily on hourly charges by using wasteful procedures. When there is doubt whether a contingent fee is consistent with the client s best interest, the lawyer should offer the client alternative bases for the fee and explain their implications. Applicable law may impose limitations on contingent fees, such as a ceiling on the percentage Scope Creep New matters warrant new engagement letters If new parties, new conflicts checks 5

6 Whose Authority: PA Rule 1.2(a) (a) [A] Subject to paragraphs (c) and (d), a lawyer shall abide by a client s decisions concerning the objectives of representation and, as required by Rule 1.4, shall consult with the client as to the means by which they are to be pursued. A lawyer may take such action on behalf of the client as is impliedly authorized to carry out the representation... PA Rule 1.4(a)--Communication (1) promptly inform the client of any decision or circumstance with respect to which the client s informed consent, as defined in Rule 1.0(e), is required by these Rules; (2) reasonably consult with the client about the means by which the client s objectives are to be accomplished; (3) keep the client reasonably informed about the status of the matter; (4) promptly comply with reasonable requests for information; and (5) consult with the client about any relevant limitation on the lawyer s conduct when the lawyer knows that the client expects assistance not permitted by the Rules of Professional Conduct or other law. (b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation. Define the Scope of Representation Remember that the engagement letter is a contract with you and the client; do not adhere blindly to forms Rule 1.2(a): An attorney shall abide by a client s decisions concerning the objectives of representation. This includes the performance of tasks for which the client will be charged. 6

7 PA Rule 1.1--Competence A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation. PA Rule 1.3--Diligence A lawyer shall act with reasonable diligence and promptness in representing a client But make sure you do not too narrowly define the scope which may interfere with your ability to be diligent and competent E.g., some tasks are necessary parts of others Understanding the Different Roles Rule 1.2 Scope Of Representation And Allocation Of Authority Between Client And Lawyer lawyer shall abide by a client's decisions concerning the objectives of representation and shall consult with the client as to the means by which they are to be pursued. A lawyer may take such action on behalf of the client as is impliedly authorized to carry out the representation... 7

8 Scope of Authority (cont d) *** (d) A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law. Lawyer as Advisor Rule 2.1 Advisor In representing a client, a lawyer shall exercise independent professional judgment and render candid advice. In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors, that may be relevant to the client's situation BUT: privilege does not usually cover business advice Communication Rule 1.4 Communication (1) promptly inform the client of any decision or circumstance with respect to which the client's informed consent is required (2) reasonably consult with the client about the means by which the client's objectives are to be accomplished; (3) keep the client reasonably informed about the status of the matter; (4) promptly comply with reasonable requests for information; and (5) consult with the client about any relevant limitation on the lawyer's conduct when the lawyer knows that the client expects assistance not permitted by the Rules of Professional Conduct or other law. (b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation 8

9 Reasonableness of Fee ABA Model Rule 1.5 A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. PA Rule 1.5: A lawyer shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee. PA Rule 1.5 Reasonableness Factors (1) whether the fee is fixed or contingent; (2) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (3) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; PA Rule 1.5 (cont d) (4) the fee customarily charged in the locality for similar legal services; (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; and (8) the experience, reputation, and ability of the lawyer or lawyers performing the services. 9

10 Non-Exhaustive PA Rule 1.5 also notes that the factors are to be considered include the above. PA Comment: notes difference between existing and new clients, and In a new clientlawyer relationship, however, an understanding as to the fee should be promptly established. Differentiation of Fees Firms may have different fees for same attorney: e.g., preferred rate and national or standard rates. Some clients ask for 10% off standard rate: if have preferred rate that is less, should that be used? What is a Reasonable Fee? The touchstone of any fee arrangement is reasonableness. Comment 1: not every factor is relevant in every case Same: While the Model Rules aim at the amount of the fee, the type of the fee arrangement chosen must also be reasonable under the circumstances. 10

11 Explain the Basis: PA Rule Comment It is not necessary to recite all the factors that underlie the basis of the fee, but only those that are directly involved in its computation. It is sufficient, for example, to state that the basic rate is an hourly charge or a fixed amount or an estimated amount, or to identify the factors that may be taken into account in finally fixing the fee. When developments occur during the representation that render an earlier estimate substantially inaccurate, a revised estimate should be provided to the client. A written statement concerning the fee reduces the possibility of misunderstanding. Furnishing the client with a simple memorandum or a copy of the lawyer s customary fee schedule is sufficient if the basis or rate of the fee is set forth. Sample Explanation of Fees Our fees are based on the time spent and the regular hourly rates of each attorney and legal assistant performing services on [NAME OF CLIENT] s behalf. The hourly rates vary from person to person and are adjusted periodically (usually in January each year). We will be glad to provide you with a schedule of rates presently in effect for all the lawyers, paralegals and legal assistants who may be performing work for [NAME OF CLIENT], if you so desire. Most of the work on the matter will be handled by me. My current rate is $.00 per hour. To the extent possible, I will endeavor to have associates and/or legal assistants, at lower rates, handle appropriate tasks. Address Extenuating Circumstances In the event that any work must be done on an immediate and emergency basis requiring that we set aside other ongoing projects, we may think it appropriate to add a premium to our billing rates in such circumstances. Other factors may be taken into consideration in determining our fees, including the novelty and difficulty of the questions involved; the skill requisite to perform the services properly; the experience, reputation and ability of those performing the services; the time limitations imposed by you or the circumstances; the amount involved and results obtained; and any other factors that may be relevant in accordance with applicable rules of professional conduct. However, these factors will not result in our fees exceeding the indicated amounts based on our hourly rates without prior discussion with you. 11

12 Retainers (Sample Language) We may at any time request an advance fee retainer for any professional fees associated with the matter. Retainers and other funds that belong to [NAME OF CLIENT] will be held without interest on account by the firm, until disbursed. Such funds may be applied in payment of [NAME OF CLIENT] s account for legal fees owed or other expenses incurred on [NAME OF CLIENT] s behalf. In particular, in connection with our representation of you in this matter, you have agreed to provide a retainer in the amount of $. These funds will remain in our client trust account for the duration of our representation, and any remaining balance will be returned to you immediately upon termination of our representation. We reserve the right to use any part of said funds to satisfy a delinquent payment, and to discontinue our representation until you forward funds to restore the full retainer. Evergreen Retainer (Sample Language) In particular, in connection with our representation of you in this matter, you have agreed to provide a retainer in the amount of $. These funds will be deposited in our client trust account; we will draw against those funds to satisfy monthly statements, a copy of which will be sent to you. Upon each month s deduction from the retainer, we will so advise you, and you agree to deposit an amount to bring the retainer to $ each month. We reserve the right to use any part of said funds to satisfy a delinquent payment. In the event that the full amount of the retainer is not restored within 30 days of our sending a statement to you, or payment terms satisfactory to us are not established, we reserve the right to renegotiate the terms of this engagement, to terminate it and withdraw from this or any representation of [name of client] and/or to pursue our other remedies. Confirmation of No Representation Until Retainer Make clear no work, and do no work, until retainer paid Can establish attorney-client relationship even if not engagement letter 12

13 What is a Reasonable Expense? Comment 1 to ABA Rule 1.5: A lawyer may seek reimbursement for the cost of services performed in-house, such as copying, or for other expenses incurred in house, such as telephone charges, either by charging a reasonable amount to which the client has agreed in advance or by charging an amount that reasonably reflects th ecosdt incurred by the lawyer. ABA Formal Opinion (Dec. 6, 1993) Lawyer obliged to (1) disclose basis for fee at outset of engagement and (2) reasonably explain fees and costs in statements issued No false or misleading communications Statements must adequately apprise clients as to how basis of billing is applied Other ethical obligations, such as zealous representation, can impact AGBA Formal Opinion (cont d) Billing for Professional Fees, Disbursements and Other Expenses Charges other than professional fees - unless disclosed in advance, the client should not be billed for General Overhead Surcharges on disbursements Professionals performing clerical functions Administrative functions 13

14 The Can of Soda Mediation $10,000 fee for preparation and day of mediation, other work during month Included $5.00 charge for the can of soda End of client Costs General overhead should be considered in setting the professional fee and not a separate charge Matter-specific disbursements (court stenographer, travel to court/meeting, etc., but only to extent of actual cost Reasonable in-house services, such as copying Sample Expenses/Disbursements Clause (Sample Language) [NAME OF CLIENT] is solely responsible for, and we will bill you for, all disbursements and out-of-pocket expenses made or incurred on [NAME OF CLIENT] s behalf. These expenses typically include such items as document reproduction, travel expenses, long distance telephone calls, mailing charges, messenger services, and filing fees. Please note, if we anticipate that substantial expenses will be incurred on [NAME OF CLIENT] s behalf, we will require that you pay the vendor directly and/or we may require a deposit from you in order to cover such expenses. 14

15 Discretion Consider this: Please note that I exercise discretion in determining which expenses to be billed Use to allay concerns External Vendors Rule 5.3 With respect to a nonlawyer employed or retained by or associated with a lawyer: (a) a partner and a lawyer who individually or together with other lawyers possesses comparable managerial authority in a law firm shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that the person s conduct is compatible with the professional obligations of the lawyer. (b) a lawyer having direct supervisory authority over the nonlawyer shall make reasonable efforts to ensure that the person s conduct is compatible with the professional obligations of the lawyer; and (c) a lawyer shall be responsible for conduct of such a person that would be a violation of the Rules of Professional Conduct if engaged in by a lawyer if: (1) the lawyer orders or, with the knowledge of the specific conduct, ratifies the conduct involved; or (2) the lawyer is a partner or has comparable managerial authority in the law firm in which the person is employed, or has direct supervisory authority over the person, and in either case knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action. ABA Rule 5.3 Essentially same as PA Both address outsourcing in comments sets forth factors to consider and other relevant rules as competence, allocation of authority, communication, confidentiality, professional independence and unauthorized practice of law 15

16 Client Direction (4) Where the client directs the selection of a particular nonlawyer service provider outside the firm, the lawyer ordinarily should agree with the client concerning the allocation of responsibility for monitoring as between the client and the lawyer. See Rule 1.2. When making such an allocation in a matter pending before a tribunal, lawyers and parties may have additional obligations that are a matter of law beyond the scope of these Rules. Engagement Letter Should address this Consider including lawyer discretion to engage vendors: should client be able to suggest cheaper alternatives that lawyer does not trust? Better to address in engagement letter and make sure full disclosure not just of conflicts, but of authority Harding et al v. Jacoby & Meyers LLP, No. 2:14-cv Putative class action filed Plaintiffs bore expenses from litigation support company with interlocking owners from the law firm Claim was clients not explicitly told those entities were actually engaged for the case Claims of breach of fiduciary duty, unjust enrichment, breach of contract, duty good faith and fair dealing 16

17 Cloud Issues Involves data creation, use, security and access, and compliance Duty to provide competent representation, communication, preservation of confidences, maintenance of records, delivery of papers, supervision Engagement letter provides opportunity to settle up front the ability of lawyer to use Payment Terms (Sample Language) We will render monthly statements that are payable within 30 days. In the event that any statement is not timely paid, or that other payment terms satisfactory to us are not mutually agreed upon in writing, we reserve the right to renegotiate the terms of this engagement, to terminate it and withdraw from this or any representation of [NAME OF CLIENT], and/or to pursue our other remedies, including the right to charge you a late fee and/or interest of up to 1% per month for any statement which has not been paid within 30 days after we sent it to you. Use of Billing to Communicate The attorney must therefore inform the client about the cost of representation and relationship between the attorney s fees and the services provided The regular bills sent to the client are a good source of information for the client about the status of and work on the matter Though some clients may resent the in your face confirmations of instructions 17

18 E.g. 1/5/14.3 hours to client confirming John Smith s instructions to me to not oppose motion after being advised of risk of default because of monetary considerations. Communications Concerning Lawyer s Services Rule 7.1 A lawyer shall not make false or misleading communications about the lawyer or the lawyer s services A lawyer s bills must therefore be honest and accurate Transactions with Clients Rule 1.8(a) A lawyer shall not enter into a business transaction with a client without safeguards Changing terms of billing for an existing client (e.g. from hourly to contingent) has been held to constitute a business transaction with a client 18

19 Transactions with Clients (cont d) Rule 1.8(a) Requirements to change terms of billing: Terms must be fair, reasonable and understandable to client and transmitted in writing Client must be advised to and given opportunity to seek the advice of independent counsel Client must give informed consent to the terms of the transaction in a writing signed by the client Misconduct Rule 8.4 Misconduct It is professional misconduct for a lawyer to: (a) violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another; (c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation Disciplinary Boards and courts may use Rule 8.4 regarding billing fraud and abuse Misconduct (cont d) Rule 8.4(d) It is professional misconduct for a lawyer to engage in conduct that is prejudicial to the administration of justice Fraudulent billing has been held to violate Rule 8.4(d) 19

20 Practical Advice Time entries should show the movement and activity on a matter with narrative description of work performed Do not simply use the following without elaboration: Status Strategy Interoffice conference Worked on... Trial Preparation Legal Research Time Entries No block billing separate time entry for each task, with a detailed description Federal Bankruptcy Rule 2016 sets forth billing guidelines useful for all lawyers Detailed descriptions give full explanation for the amount of the bills Timely and complete bills help prevent claims that can arise out of large, old A/R E.g. 1/25/ hours Research 20

21 Instead, perhaps: 1/25/ hours Research into issues relating to enforcement of indemnification clause (3 hours); comparative law analysis of treatment of same in New Jersey and New York (2 hours); follow up on Jones v. Smith and distinguishing cases to address adverse party s argument (3 hours) Client may also have specific task identifiers Other Sample Entries Unacceptable Review Documents Acceptable Review documents produced by Acme Inc.; bates numbered 127 to 1574 Unacceptable - Review status Acceptable - Review transcript of Smith deposition and correspondence from Ms. Allen in preparation for telephone conference with Mr. Jones and Ms. James regarding options relating to settlement Billing for Learning Curve ABA Section of Business Law "Statement of Billing Principles: "Lack of experience should be appropriately reflected in a lawyer s hourly rate. Rule 1.1 Competence: A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation. 21

22 Some common sense [I]t is helpful to consider these questions, not from the perspective of what a client could be forced to pay, but rather from the perspective of what the lawyer actually earned. In short, flying for six hours for one client and working on the plane for five hours for another does not entitle the lawyer to claim eleven hours billed More Common Sense Review carefully for grammar and spelling particularly client names this is your work product Pay attention to scope creep and mushrooming attorney and staff involvement Be aware of continuity (e.g., calling final review and then have another week s worth of review ) Be aware of who is going to be reviewing and paying the bills Outside Counsel Guidelines: discuss any issues up front Be prepared to cut where appropriate; maintain control Outside Counsel Guidelines Guidelines from clients on outside counsel billing Often contain very detailed descriptions of what a client will and won t pay for Firm Policy on outside counsel guidelines The guidelines must be carefully reviewed to ensure compliance is possible, ethical and profitable 22

23 Particular Situations No Double Billing Simultaneous appearance or other work of behalf of more than one client Travel for one client while working on another client s matter Recycled work product Premium billing Permissible if agreed to by client Cannot bill for time not worked Life in the Real World Chen v. Chen Qualified Settlement Fund, 552 F.3d 218 (2d Cir 2009) in medical malpractice case, attorney sought court approval of fees in an infant compromise order after settlement; because he sought fees 5% over statutory minimum and misrepresented certain of his activities, entire (100%) of fee denied. Abuse has ramifications Reprimanded IN THE MATTER OF James C. Cunningham, BEFORE THE GRIEVANCE COMMITTEE OF THE NORTH CAROLINA STATE BAR , Wake County: Lawyer charged client $50.00 every time he reviewed the bill and $50.00 every time he sent a form letter enclosing the bill. Committee concluded this was overhead and charging client this to review a bill constitutes task padding, is excessive and thus a violation of applicable NC ethical rules and was misconduct 23

24 Reasonableness versus Conscionability California s Rule (Fees for Legal Services) uses a different standard that: A member shall not enter into an agreement for, charge, or collect an illegal or unconscionable fee. Client Disclosures Occasionally it is either necessary or desirable to disclose a client s name, and furtherance of the interests of the client may also require disclosure. In addition, the Firm would like to be able to identify [NAME OF CLIENT] on its list of representative clients. You understand and agree that the Firm may so identify [NAME OF CLIENT]. Advance Waivers Given the scope of our business and the scope of our client representations through our various offices in the United States and abroad, it is possible that some of our present or future clients have or will have matters adverse to [NAME OF CLIENT] while we are representing [NAME OF CLIENT]. We understand that you have no objection to our representation of parties with interests adverse to [NAME OF CLIENT] s and waive any actual or potential conflict of interest as long as those other engagements are not substantially related to our services to [NAME OF CLIENT]. 24

25 Advance Waivers (cont d) We agree, however, that your consent to, and waiver of, such representation shall not apply in any instance where, as a result of our representation of [NAME OF CLIENT], we have obtained proprietary or other confidential information of a non-public nature, that, if known to such other client, could be used in any such other matter by such client to [NAME OF CLIENT] s material disadvantage or potential material disadvantage. By agreeing to this waiver of any claim of conflicts as to matters unrelated to the subject matter of our services to [NAME OF CLIENT], you also agree that we are not obliged to notify you when we undertake such a matter that may be adverse to [NAME OF CLIENT]. PA Rule 1.7 (a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if: (1) the representation of one client will be directly adverse to another client; or (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer. (b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if: (1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; (2) the representation is not prohibited by law; (3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and (4) each affected client gives informed consent. Controversy The advance waiver is not dispositive. Consider also the reaction of the client and other political issues and what message is sent 25

26 PA Rule 1.7 Comment 22 Consent to Future Conflict (22) Whether a lawyer may properly request a client to waive conflicts that might arise in the future is subject to the test of paragraph (b). The effectiveness of such waivers is generally determined by the extent to which the client reasonably understands the material risks that the waiver entails. The more comprehensive the explanation of the types of future representations that might arise and the actual and reasonably foreseeable adverse consequences of those representations, the greater the likelihood that the client will have the requisite understanding. Thus, if the client agrees to consent to a particular type of conflict with which the client is already familiar, then the consent ordinarily will be effective with regard to that type of conflict. If the consent is general and open-ended, then the consent ordinarily will be ineffective, because it is not reasonably likely that the client will have understood the material risks involved. On the other hand, if the client is an experienced user of the legal services involved and is reasonably informed regarding the risk that a conflict may arise, such consent is more likely to be effective, particularly if, e.g., the client is independently represented by other counsel in giving consent and the consent is limited to future conflicts unrelated to the subject of the representation. In any case, advance consent cannot be effective if the circumstances that materialize in the future are such as would make the conflict nonconsentable under paragraph (b). Screening Issues PA Rule 1.10 (b) When a lawyer becomes associated with a firm, the firm may not knowingly represent a person in the same or a substantially related matter in which that lawyer, or a firm with which the lawyer was associated, had previously represented a client whose interests are materially adverse to that person and about whom the lawyer had acquired information protected by Rules 1.6 and 1.9(c) that is material to the matter unless: (1) the disqualified lawyer is screened from any participation in the matter and is apportioned no part of the fee therefrom; and (2) written notice is promptly given to the appropriate client to enable it to ascertain compliance with the provisions of this rule. Screening: Sample Language Similarly, new lawyers frequently join our firm. These lawyers may have represented parties adverse to [NAME OF CLIENT] while employed by other law firms or organizations. We assume, consistent with ethical standards, that you have no objection to our continuing representation of [NAME OF CLIENT] notwithstanding our lawyers prior professional relationships. 26

27 Confirm the Client Define up front who the client is Even if someone else pays, the client is the subject of the representation Master engagement letters may be used, and sub-engagement letters for specific affiliated entities General terms and conditions for different short form cover letters Sample Language This will also confirm our understanding that, unless we reach an explicit understanding to the contrary, we are being engaged by, and will represent [NAME OF CLIENT], and not any parent, subsidiary or affiliated entities of [NAME OF CLIENT], and that we are not being engaged to represent any officers, directors, members, partners, shareholders or employees of [NAME OF CLIENT]. But if Multiple Clients No separate privilege or secrets Full disclosure, informed consent Waiver of conflicts Escape hatch if inter-dispute, firm may either stay with one or bail out 27

28 Multiple Parties Recall need for specificity of client Some corporations identify various subsidiaries and affiliates for conflict purposes If only one client, confirm Warn that ideal way is for separate representation Advise that each has individual goals, and that joint representation means no one lawyer advocating that Multiple Parties (cont d) Advise that there are no confidences between the parties Confirm that potential conflicts of interest have been explained, and clients acknowledge that Also confirm that the lawyer has no confidential information regarding any of multiple parties that is inappropriate or requires disclosure Lateral Partners (Sample Language) If the firm decides that it cannot agree to the terms of representation that the lateral s client had with the prior firm, the firm may have to treat the new engagement as a business transaction with a client, making its engagement letter subject to the provisions of Rule of Professional Conduct 1.8. Rule 1.8 requires that the terms are fair and reasonable to the client and are fully disclosed in writing in a manner reasonably understood by the client; the client is advised in writing of the desirability of seeking and given a reasonable time in which to seek advice of independent counsel regarding the transaction ; and the client gives informed consent to the essential terms of the transaction in a writing signed by the client 28

29 Local Counsel We understand that our Firm s role in this representation will be as local counsel to [Name of Law Firm or Legal Department], which is primarily responsible for conducting the above-mentioned litigation. We will be happy to do so and look forward to the opportunity to work on this matter. As local counsel, we are obligated to make reasonable inquiry and determine that any pleading or brief to be signed by us is well grounded in fact and warranted by existing law or a good faith argument for its change. The law in this jurisdiction does not permit us to simply delegate to forwarding co-counsel our duty of reasonable inquiry. While we certainly will make every effort to move this matter forward with alacrity, the length of our inquiry necessarily will depend upon the complexity of the matters alleged and how well we have been informed of the facts at the time we receive the pleading. We ask that any papers to be filed with the court be prepared and sent to us in sufficient time for our review. Termination When What happens return of documents, others kept for compliance issues Firm retains its internal documents. ALTERNATE FEE ARRANGEMENTS ALTERNATE FEE ARRANGEMENTS 29

30 Alternate Billing Arrangements Pure and partial contingency fees Fixed or flat fees Negative contingency or defense success fee Success (bonus) fees Capped fees Fixed installment fee Annual retainers Partial hourly/success/blended fees Equity or ownership interest in client in lieu of monetary fee All subject to scrutiny and, ultimately, reasonableness and legality in the particular jurisdiction Others? Popularity 2011 Alman Weil survey large and midsize firms reports 81% of large firms have increase in AFAs since prior year. 95% firms use, but most reactive Flat Fees Entire engagement Phases Make certain carve out exceptions 30

31 Task/Unit Billing Each task has a charge E.g., half day court appearance, full day appearance Deposition Percentage Fees Different from contingency Based on schedule relating to amount at issue Retroactive Feees Set forth detailed factors that will go into establishment of fee at end of matter 31

32 Contingency Fees PA Rule 1.5(c) (c) A fee may be contingent on the outcome of the matter for which the service is rendered, except in a matter in which a contingent fee is prohibited by paragraph (d) or other law. A contingent fee agreement shall be in writing and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal, litigation and other expenses to be deducted from the recovery, and whether such expenses are to be deducted before or after the contingent fee is calculated. Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement stating the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination. Hybrid Blended hourly rates Honest disclosure of who does work Caps and floors Renegotiation on regular basis Fixed plus hourly Fixed plus success Hourly plus contingency Combinations Key Is Disclosure and Informed Consent Remember reasonableness If recovery completely disproportionate, subject to challenge Client buy in communication key 32

33 Pa Rule 1.5 and ABA Rule 1.5 Comment 5: lawyer cannot make an agreement that might induce lawyer to improperly curtail services Remember: if litigation, not always easy to get out Courts will say: if made a contingent deal and not profitable, too bad General Principles Essentially the Rule 1.5 reasonableness factors apply (and of course subject to rule or statutory restrictions, as in personal injury) Communication obligations Expedite litigation (Rule 3.2) versus not taking shortcuts that affect diligence No Contingent Fees (PA Rule 1.5(d)): (d) A lawyer shall not enter into an arrangement for, charge, or collect: (1) any fee in a domestic relations matter, the payment or amount of which is contingent upon the securing of a divorce or upon the amount of alimony or support; or (2) a contingent fee for representing a defendant in a criminal case. 33

34 Reverse Contingency Fees Billable hour alternative Based on savings to a client, rather than recovery; not applicable to criminal defendants ABA Formal Op (1993) (fee subject to reasonableness and amount saved is reasonably determinable, the fee is reasonable in amount under the circumstances, and the client s agreement to the fee arrangement is fully informed. ) Contingency Fees Often governed by rule as to amount and calculation Not applicable in certain types of cases More flexibility in commercial than personal injury cases Hybrid may be appropriate in some cases but should be documented and agreed by client Contingency Fees May be different rules for personal injury and commercial Informed consent of client and opportunity to retain lawyer on hourly basis 34

35 Commercial Case Contingent Fees (Sample Language) Fees. We will agree to handle [client s] matter on a contingent fee basis. In other words, our fee will depend upon whether or not [client] is able to recover any sums by way of [settlement or trial/completion of a transaction]. We have advised you that our fees are normally based on the time spent and the regular hourly rates of each attorney and legal assistant performing services on [client s] behalf regardless of the outcome. However, given the nature of [client s] cases, you have chosen to accept our offer to handle the matter on a contingency fee basis and you have rejected hourly rate representation. Accordingly, our fees will be based upon any [settlement or judgment/other(describe)] as follows: [ ] We agree that any amounts that [client] pays for expenses pursuant to the first paragraph of 2 below will be deducted from the recovery [before/after/or particular arrangement] calculating our % contingent fee. Address Settlement (Sample Language) Settlement. We will not settle your claims without your prior approval, and we will promptly communicate to you any settlement proposals. You retain the right to accept or reject any settlement proposal, but agree to give serious consideration to our advice and recommendations regarding settlement. You agree that you will not offer, accept or reject any settlement or compromise without first giving us reasonable notice and consulting with us. Personal Injury Contingent Fee (Sample Language) Fees. We will agree to handle [client s] cases on a contingent fee basis. In other words, our fee will depend upon whether or not [client] is able to recover any sums, either by way of settlement or trial. We have advised you that our fees are normally based on the time spent and the regular hourly rates of each attorney and legal assistant performing services on [client s] behalf regardless of the outcome. However, given the nature of [client s] cases, you have chosen to accept our offer to handle the matter on a contingency fee basis and you have rejected hourly rate representation. Accordingly, our fees will be based upon any settlement or judgment as follows: [EXPLAIN, BUT CHECK LOCAL LAWS AND RULES] In the event that there is a judgment and/or settlement, the defendants might be required to pay [client s] attorneys fees and costs. Any award of attorneys fees or costs will be included and counted as part of the recovery for purposes of calculating our % contingent fee. We agree that any amounts that [client] pays for expenses pursuant to 2 below will be deducted from the recovery before calculating our % contingent fee. 35

36 Address Expenses Address client responsibilities Address handling larger expenses, consider thresholds Court Review General American rule: loser does NOT pay, and no recovery of attorney fees unless by statute, contract, sanction or some other specified legal basis Even where allowed, Courts employ variations of test that looks to levels of sophistication of issue, experience of attorneys, prevailing rates in the particular jurisdiction, and ultimately, reasonableness ABA Commission on the Billable Hour oolkit/bhcomplete.pdf It was not until the 1950s and 1960s that timekeeping became routine. Report discusses corrosive impact and why billable hours so entrenched 36

37 The Jedi Author/lawyer Scott Turow, The Billable Hour Must Die ( must_die/) my greatest concern is not merely that dollars times hours is bad for the lives of lawyers even though it demonstrably is but that it s worse for clients, bad for the attorney-client relationship, and bad for the image of our profession. Simply put, I have never been at ease with the ethical dilemmas that the dollars-times-hours regime poses, especially for litigators The IBA Proposal 10.1 General Principle A lawyer shall not contract for, charge or collect an unreasonable fee or an unreasonable amount for expenses. Such fee arrangements may include, where permitted by law or applicable rules of professional conduct, a contingent fee agreement. A lawyer shall not generate unnecessary work. IBA Guidelines (cont d) 2. Honesty, integrity and fairness A lawyer shall at all times maintain the highest standards of honesty, integrity and fairness towards the lawyer s clients, the court, colleagues and all those with whom the lawyer comes into professional contact. 37

38 International Context IBA Proposal 10.3 International Implications When engaging in cross-border practice, the lawyer should investigate whether arrangements on fees, payments of deposits and limitations of liability are permitted under all applicable rules and, if relevant, the rules which govern the responsibility for fees of other lawyers who may become involved. Common occurrences Different hourly rates for different clients what is standard and preferred? Something in between? Need for disclosure and beware of potential for misrepresentation. Minimum billable hours does it encourage padding? What is a real hour? Minimum blocks of time can a five minute phone call be a.3 (fifteen minute) charge? The.1 s add up. Fee Splitting The phrases fee sharing, fee splitting, division of a fee and referral fees are often used interchangeably and incorrectly. The following discussion distinguishes three basic fee splitting issues and addresses the rules of ethics that apply to each: (1) sharing legal fees with non-attorneys; (2) the division of a fee between lawyers who are not in the same firm; and (3) referral fees paid by attorneys to other attorneys and non-attorneys. 38

39 Sharing Fees with Non-Attorneys Subject to certain exceptions, ABA Model Rule 5.4(a) provides: A lawyer or law firm shall not share legal fees with a nonlawyer. E.g., no payments to non-attorney runner who solicits legal business for the attorney Division of Fees Among Lawyers in Multiple Firms ABA Model Rule 1.5(e) provides as follows: A division of a fee between lawyers who are not in the same firm may be made only if: 1. the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation; 2. the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and 3. the total fee is reasonable. Referral Fees Generally prohibited by ABA Model Rule 7.2(b) but jurisdictions may allow where referral is made by a non-specialist to a certified specialist. 39

40 The Brave New World of Third Party Funding Involves a party that has a meaningful claim against another party in the commercial area, but the party lacks the financial wherewithal to fund the litigation. The claim itself is not assigned, but the third party funder takes a percentage of the recovery. The issue with third party funding raises concerns that the lawyer is improperly funding a litigation, or that the third party funder may direct the lawyer in ways inconsistent with the client s best interests, or there may be a breach of attorney-client privilege, among other things. Third Party Funding (cont d) There remains resistance in some quarters to third party funding agreements. See, e.g., Johnson v. Wright, 682 N.W.2d 671 (Minn. Ct. App. 2004)( Note is a valid agreement between the parties, and therefore respondent is entitled to full payment on the Note. The assignment agreements, under which respondent financed appellant's legal action in exchange for a percentage of the proceeds if the action were successful, however, are champertous, and void as against public policy. ). An example of a third party funding assignment that was litigated and enforced, see Dopp v. Yari, 927 F. Supp. 814 (D.N.J. 1996) (court rejected claims of usury, finding that interest rates higher than the lawful amount can be sustained when collection of the entire principal amount due is contingent. It found the agreement had consideration and was a legitimate division of proceeds from a joint undertaking.) Bar Association Views Ky. Bar Ass n Ethics Comm., Formal Op. E-432 (2011) ( [a]lthough the lawyer may, at the request of the client, help identify presettlement lenders, the lawyer should advise the client of the possible disadvantages of such transactions and the lawyer should make clear that he is not endorsing a particular lender. The lawyer must honor the ethical rules about clear and transparent communication with the client as to the manner in which the third party funding works, to the extent the lawyer is assisting in or facilitating the obtaining of the third party funding. There can be no infringement on the lawyer s independent duty to the client, and the client needs to be alerted to potential issues regarding waiver of attorney client privilege. 40

41 Two More N.Y.C. Bar Ass n Comm. on Prof l and Judicial Ethics, Formal Op (2011) states that third party funding is not per se unethical, and raises similar concerns that need to be dealt with. Florida s Bar Association as well has found that a lawyer may facilitate third party funding agreements upon informed consent of the client. The lawyer may honor such a written assignment of claim but not issue a letter of protection to the third party funding company. See Prof'l Ethics of the Florida Bar, Op (2002). Pennsylvania Opinion 99-8 assuming full disclosure to the client of the advantages and disadvantages of this transaction to the client including, in particular, the risk of waiver of the attorney-client privilege (and the potential ramifications thereof), as well as the attorney's financial interest in the additional fee from the lender, the contemplated transaction does not violate the current Rules. Common Interest Doctrine Devon IT v. IBM (ED PA): common interest doctrine applied to confidential information shared with TPLF entity. 41

42 Settlement Address in the agreement with the third party funder Client is the client: needs to be made clear Client-TPF issues are between them Choice of Law Rules on limitations on damages and other relief Recovery of attorney's fees and costs Privilege: substantive versus procedural? Choice of forum issues ABA Model Rule 8.5 (a) Disciplinary Authority. A lawyer admitted to practice in this jurisdiction is subject to the disciplinary authority of this jurisdiction, regardless of where the lawyer's conduct occurs. A lawyer not admitted in this jurisdiction is also subject to the disciplinary authority of this jurisdiction if the lawyer provides or offers to provide any legal services in this jurisdiction. A lawyer may be subject to the disciplinary authority of both this jurisdiction and another jurisdiction for the same conduct. (b) Choice of Law. In any exercise of the disciplinary authority of this jurisdiction, the rules of professional conduct to be applied shall be as follows: (1) for conduct in connection with a matter pending before a tribunal, the rules of the jurisdiction in which the tribunal sits, unless the rules of the tribunal provide otherwise; and (2) for any other conduct, the rules of the jurisdiction in which the lawyer's conduct occurred, or, if the predominant effect of the conduct is in a different jurisdiction, the rules of that jurisdiction shall be applied to the conduct. A lawyer shall not be subject to discipline if the lawyer's conduct conforms to the rules of a jurisdiction in which the lawyer reasonably believes the predominant effect of the lawyer's conduct will occur. 42

43 ABA 2020 R&R 107D: Amends rule 8.5 comment regarding designation of choice of law for purposes of applicable law governing discipline; rule always subjects lawyer to home jurisdiction s discipline, but lawyer can also be subject to discipline in other jurisdiction. Rule provides that in cross-border situations where lawyer in arbitration/court, that place s jurisdiction applies, and in other conduct, look to area of predominant effect and no discipline there if lawyer followed rules and had belief that he/she was complying with jurisdiction where predominant effect of the conduct would be. Comment added to state that factor in reasonable belief would be a choice of law provision in written agreement with client (e.g., engagement letter). The Final.1 Always consult the rules in the particular jurisdiction Utilize a transparent engagement letter that the client signs Disclosure and reasonableness are key Common sense: don t charge client for the $2.00 soda at the conference when sending a $35,000 bill for fees (taken from a true story) 43