Under existing law, a lawyer earns a fixed fee at the commencement of the representation. As a result, current Louisiana Rule of Professional Conduct 1.5(f)(2), permits the lawyer to deposit the fixed fee into the lawyer’s operating account upon receipt:
(2) When the client pays the lawyer all or part of a fixed fee or of a minimum fee for particular representation with services to be rendered in the future, the funds become the property of the lawyer when paid, subject to the provisions of Rule 1.5(f)(5). Such funds need not be placed in the lawyer’s trust account, but may be placed in the lawyer’s operating account.
This rule does not mean, however, that a fixed fee paid in advance is “nonrefundable.” If the lawyer-client agreement terminates prematurely, the lawyer must return any unearned portion of the fee. After all, keeping an unearned fee would violate Louisiana Rule 1.5(a), which prohibits a lawyer from charging or collecting an “unreasonable fee.”
The obligation to refund an unearned portion of a fixed fee after payment has caused problems in practice. The Client Assistance Fund and the Office of Disciplinary Counsel have reported instances in which a lawyer has died prior to completing the work promised. They have also reported instances in which a client has fired a deadbeat lawyer after paying a fixed fee. In such cases, the client’s request for a post-discharge refund all too often has been met with this reply: “Sorry, the money’s all gone.”
May 2017 LSBA Proposal
To address this problem, in May 2017 the LSBA recommended to the Louisiana Supreme Court that it amend Rule 1.5(f)(2) to allow fixed fees only when a lawyer obtains “the informed consent of the client in a writing signed by the client.” More particularly, the amended rule would have provided as follows:
(f) Payment of fees in advance of services shall be subject to the following rules: . . .
(2) A lawyer may charge a fixed or minimum fee for specified legal services, which fee may be paid in whole or in part in advance of the lawyer providing the services. With the informed consent of the client in a writing signed by the client, and subject to the provisions of Rule 1.5(f)(5), the funds may be used by the lawyer when paid and, need not be placed in the lawyer’s trust account. The written fee agreement shall include the following:
(i) the scope of services to be provided;
(ii) the total amount of the fee and the terms of payment;
(iii) that the funds will be used by the lawyer when paid and will not be placed in a trust account;
(iv) that the fee agreement does not alter the client’s right to terminate the client-lawyer relationship; and
(v) that the client may be entitled to a refund of a portion of the fee if the agreed-upon legal services have not been completed.
See Resolution 2, LSBA House of Delegates (May 6, 2016) (approved by the LSBA House of Delegates on June 9, 2016, and the LSBA Board of Governors on June 10, 2016).
This was a compromise proposal. It addressed some of the problems associated with fixed fees,1 but it did not take the controversial step of requiring a lawyer to place a fixed fee in trust until the conclusion of a matter. 2
Court Rejects LSBA Proposal
The Louisiana Supreme Court, however, rejected the proposal. In a letter dated May 19, 2017, the court noted that it appreciated “the hard work the Rules of Professional Conduct Committee has done in proposing this amendment, we do not believe it presents an adequate solution to the problem presented.” See LASC Letter to Stanley (May 19, 2017). As a result, it asked the committee “to continue its work on this issue and propose a solution that will better protect clients in the event the attorney is unable to complete the matter contracted for.” Id.
The LSBA Tries Again
In response to the court’s request, the LSBA Rules of Professional Conduct Committee went back to work. On November 21, 2017, the committee proposed a sweeping revision to the rules governing fixed-fees to address the court’s concerns. See Stanley Letter to LASC (Nov. 21, 2017). Among other things, the committee’s new proposal:
- Recommends a revision to Rule 1.5(a) that expressly prohibits the designation of any payment (of fees or costs) as “nonrefundable.” Id.
- Recommends a revision to Rule 1.5(f)(2) that would require fixed-fee and minimum-fee agreements to be “set forth with specificity in a writing signed by the client,” and that would require the lawyer to provide a copy of the signed agreement to the client. Id.
- Recommends a revision to Rule 1.5(f)(2) that would require fixed fee and minimum fee payments to be “placed in the lawyer’s trust account until earned.” However, it would permit the lawyer, “with the informed consent of the client,” to “set reasonable milestones occurring during the representation to allow these funds to be transferred from the trust account to the operating account as fees are earned.” Such transfers would be permissible “without further authorization from the client for each transfer,” subject to “periodic accounting in writing to the client for these funds as is reasonable under the circumstances.” Id.
Is This a Good Proposal?
Yes. The November 21, 2017, LSBA proposal reasonably accomodates the interests of both clients and lawyers. As to clients, it assures that any unearned portion of a fixed-fee or minimum-fee payment will be available to the client if the lawyer-client relationship terminates by death or discharge prior to substantial completion of the services called for by the lawyer-client agreement. As to lawyers, it assures fair compensation for legal services without unreasonable delay. As to both, it assures that the terms of the engagement and scope of legal services are not only clear at the outset of a representation, but also memorialized in writing to resolve disputes that arise later. The court should adopt the proposal.
- For example, it would have required the lawyer and client to agree upon the scope of the lawyer’s services at the commencement of the representation—something that is often a point of confusion. It also would have required formal notification to the client of the right both to terminate the lawyer’s services and to demand the refund of any unearned portion of the up-front fee. ↩
- The imposition of such a requirement was vehemently opposed by the criminal defense bar. ↩