While lawyers must ensure their fee agreements comply with the Michigan Rules of Professional Conduct (MRPC), even well-drafted agreements can lead to fee disputes. This article addresses common legal fee issues based on frequently asked questions from the SBM Ethics Helpline.
FEE AGREEMENTS
MRPC 1.5(b) requires lawyers to communicate fee arrangements, preferably in writing, to clients at or shortly after the start of representation. Contingent fee agreements must be in writing and outline how the fee will be determined.1 While written fee agreements are not required in non-contingency cases, lawyers are encouraged to use them to prevent misunderstandings.
Under MRPC 1.4(b), lawyers must provide clients with the information needed to make an informed decision about the terms of the fee agreement. Since lawyers typically present the agreement, its terms are construed against lawyers in disputes. Ethics Opinions RI-184 and RI-10 state that ambiguous terms should be interpreted in the client’s favor.2
A few key points to consider:
Client identity
Identifying the client is crucial for lawyers to conduct conflict checks and fulfill their ethical duties, especially in business litigation and when representing fiduciaries, as misunderstandings can lead to ethical breaches.3
Scope of representation
Lawyers must make clear which legal services they will and will not provide. “[A]n unclear scope of representation is all too likely to end poorly.”4 Lawyers should ensure that clients understand the parameters of representation.5 Appeals are included unless specifically excluded.6 In domestic matters, providing tax advice and drafting qualified domestic relations orders are often excluded from the scope of representation.
File retention policy
Lawyers are required to have a written file retention policy and convey that policy to clients.7
Third-party payor
The client must consent to receipt of legal fees from a third party under MRPC 1.8(f)(1). Additionally, lawyers should consider including in the agreement that payors will not interfere with the lawyer’s independent professional judgment or attorney-client relationship, and to whom a refund will be provided if a refund is appropriate.8
Multiple representation and conflicts of interest
When representing multiple parties, lawyers must manage conflicts of interest and obtain informed consent for both known and potential conflicts, avoiding general or advance waivers.9 It is also recommended that lawyers define payment responsibilities and appoint communication contacts.
Trust account obligations
Under MRPC 1.15, when receiving fees for services to be provided in the future, clients should be advised that lawyers are required to maintain client funds in a lawyer trust account until the funds are earned.10
Billing practices
Fee agreements should include frequency of billing, expectations regarding timeliness of payments, and policies on late fees or interest on unpaid balances.
WHAT MAY NOT BE INCLUDED IN WRITTEN FEE AGREEMENTS?
Lawyers may not circumvent their ethical duties. For example, lawyers may not:
- request, at the outset of representation, that clients sign a stipulation for withdrawal for unpaid legal fees;11
- prospectively limit legal malpractice liability;12
- acquire a proprietary interest in the cause of action or subject matter of litigation except in specific situations;13 or
- attempt to avoid depositing advanced payments into a lawyer trust account.14
WHAT FACTORS ARE CONSIDERED WHEN DETERMINING WHETHER FEES ARE REASONABLE?
Lawyers may not charge fees that are clearly excessive.15 A fee is considered clearly excessive when a lawyer of ordinary prudence would consider it to be in excess of what is reasonable.16 MRPC 1.5 lists several factors to consider when determining whether a fee is reasonable.17 Further, it is considered unethical for lawyers to bill more than one client at a full rate for the same period.18
WHAT ARE REASONABLE COSTS AND EXPENSES?
Lawyers may charge clients for the actual costs and expenses of providing the service, but upcharges are not ethical.19 For example, credit card surcharges can be passed on to clients only for the amount paid to the credit card company.20 It is inappropriate to charge clients more than the expense actually paid or incurred by the lawyer.21
CONTINGENT FEE AGREEMENTS
Under MRPC 1.5(a), contingency fees, like other attorneys’ fees, cannot be excessive.22 Further, contingent fees are not allowed in domestic relations matters or criminal matters.23 Additional safeguards are in place to protect clients who retain lawyers on a contingent basis. For example, in a personal injury, wrongful death, or no-fault benefit matter, the fee is capped by court rule at one-third of the total recovery.24
Contingency fees must be in writing as dictated by both the Michigan Court Rules and the MRPC. Lawyers must provide in the agreement with clients the basis for how fees will be calculated. Ambiguities in fee agreements are construed in favor of the client; if a contingency fee agreement fails to delineate how fees will be calculated, lawyers have the choice of seeking judicial clarification or calculating the fee by the means most favorable to the client.25
Lawyers should also consider including the following provisions in fee agreements: disposition of possible court-ordered sanctions; in the event of an installment payment award, if the fee is computed based upon present value of future payments or taken from cash portions of the award;26 priority for payments;27 and information regarding payment of the quantum meruit value of services if the lawyer is discharged during representation.28
REFERRAL FEES
MRPC 1.5(e) allows lawyers in separate firms to split fees only if the client is advised and does not object and the total fee is reasonable.29 The MRPCs do not require disclosing the amount of fees to be divided.30 That is a matter of contract between the lawyers.31 The client must be advised of the identity of each lawyer involved in the fee division, the client’s primary contact for case information, the services each lawyer will provide, and the lawyer ultimately responsible for the matter.32 Both the lawyer offering the referral and the lawyer receiving the referral are obligated to advise the client of the fee-splitting arrangement and ensure that the client consents.33 While not required, including this information in the fee agreement helps in potential future disputes.
Legal fees, including referral fees, may not be shared with non-lawyers except as outlined in RI-143, which allows salaried legal assistants to receive a percentage of net profits from their practice area in limited circumstances.
WHAT HAPPENS TO A REFERRAL FEE IF THE REFERRING LAWYER IS DISQUALIFIED FROM THE PRACTICE OF LAW OR DECEASED?34
Current ethics opinions provide that referral fees are earned at the time the referral is made.35 Therefore, if the referral occurred when the lawyer was qualified to practice, the referral fee may be paid. However, if the lawyer was disqualified and unable to practice law when the referral was made, the lawyer cannot “share in legal fees for legal services performed by another lawyer during the period of disqualification.”36 The lawyer “may [only] be compensated on a quantum meruit basis for services rendered and expenses” incurred before the disqualification took effect.
The estate of a deceased lawyer may receive legal fees paid after the lawyer’s death. This does not facilitate the practice of law by non-lawyers and presents minimal risk of interfering with the lawyer’s independent professional judgment.37
CONCLUSION
With the guidance of the Michigan Rules of Professional Conduct, their comments, and ethics opinions, the world of legal fees becomes more easily navigable.
This article provides general ethical guidance regarding legal fees based upon the Michigan Rules of Professional Conduct and ethics opinions. It is advisory in nature and not binding on the disciplinary authorities.