Should Fixed Fees Paid Up-Front be Placed in Trust?

fee-moneyThat issue is currently under consideration by the LSBA Rules of Professional Conduct Committee. Under current Louisiana Rule of Professional Conduct 1.5(f)(2), a lawyer earns a fixed fee when the lawyer agrees to handle the client’s matter through completion. As a result, the rule 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.

That does not mean, however, that the fixed fee is “nonrefundable.” If the client discharges the lawyer or the lawyer otherwise terminates the representation, 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 occasional obligation to refund 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 client has fired a deadbeat lawyer after paying a fixed fee. In many cases, the client’s request for a post-discharge refund has been met with this reply: “No. I spent the money.”

Some of these problems could be avoided if the rules required a lawyer (1) to deposit a fixed fee into trust, and (2) to withdraw payments only as the lawyer’s work progressed or after the work was completed. Other jurisdictions require just this. For example, the District of Columbia Bar imposes the following obligations on a lawyer receiving a fixed fee:

Absent a contrary agreement, a lawyer must deposit a flat or fixed fee paid in advance of legal services in the lawyer’s trust account. Such funds must remain in the lawyer’s trust account until earned. The lawyer and client may agree concerning how and when the attorney is deemed to have earned some, or all, of the flat fee. Such an agreement must bear a reasonable relationship to the anticipated course of the representation and must avoid excessive “front-loading.”

See District of Columbia Bar Ethics Op. 355 (Jun. 2010).

Have an opinion one way or the other? Now is the time to voice it. Over the next several months, the LSBA Rules of Professional Conduct Committee will debate the issue and make recommendations to the LSBA House of Delgates and the Louisiana Supreme Court. The possibility of a change to Rule 1.5(f) is real. Speak up.

 

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