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