Note: All information found within the below may be outdated. Readers are strongly encouraged to recheck rules, cited sources, ethics opinions, etc.

Ethics Articles: Legal Fees and Ethics

Focus on Professional Responsibility
MBJ July, 1999
Thomas K. Byerley, Regulation Counsel

Legal Fees and Ethics

    The Ethics Helpline receives numerous inquires concerning a lawyer's ethical obligations and rights concerning fees for legal services. This article will address the most frequently asked ethics questions regarding legal fees.

    Must fee agreements be in writing? Rule 1.5(b) of the Michigan Rules of Professional Conduct provides:

      "When the lawyer has not regularly represented the client, the basis or rate of the fee shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation."

    The comments to this rule add: "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."

    Contingent fee agreements, however, must be in writing to be enforceable. MRPC 1.5(c) provides, in part, that:

      "[a] contingent-fee agreement shall be in writing and shall state the method by which the fee is to be determined. Upon conclusion of a contingent-fee matter, the lawyer shall provide the client with a written statement of the outcome of the matter and, if there is a recovery, show the remittance to the client and the method of its determination."

    Similarly, MCR 8.121(F) requires that all contingency fee agreements be in writing.

    In ethics opinion RI-184, it was opined that when a contingency fee agreement is silent or ambiguous, the terms should be interpreted to the advantage of the client. Also, formal ethics opinion R-011 states that where a contingency fee agreement is silent or ambiguous concerning the taking of an appeal, a lawyer in a contingent fee matter is required to file a notice of appeal if the client requests, as long as the appeal is not frivolous or otherwise barred.

    Therefore, there is no formal requirement that the fee agreement in a non-contingency-fee case be in writing. However, MRPC 1.5(b) expresses a preference for a writing and good office management practices may dictate that a written fee agreement is preferable for both the lawyer and the client.

    May a legal fee be shared with others? MRPC 1.5(e) provides:

      "A division of a fee between lawyers who are not in the same firm may be made only if:

      (1) the client is advised of and does not object to the participation of all the lawyers involved; and

      (2) the total fee is reasonable."

    The division of a reasonable attorney fee between lawyers is therefore permitted under the rules, as long as the client consents. Prior to the division of a fee between lawyers who are not in the same law firm, the client must be advised of the identity of the lawyers who will divide the fee, which lawyer the client should contact for information on the case, what services each lawyer will be providing on the case, and which lawyer or lawyers will be responsible for the matter. RI-234.

    Ethics opinion RI-234 also states that both the referring lawyer and the receiving lawyer have the obligation to properly advise the client of the fee sharing arrangements and to make sure the client does not object to the participation of the lawyers. The lawyers involved in the fee sharing arrangement may contract to divide the fee in a variety of ways, including on a percentage basis.

    Legal fees may not be shared with individuals who are not lawyers. However, a law firm may pay a legal assistant employee compensation based upon a set salary and a percentage of the net profits of the practice area in which the legal assistant is employed. RI-143. Also, a lawyer may pay a referral fee (either a flat fee or a percentage) to a nonprofit lawyer referral service. RI-032.

    Are non-refundable retainers permitted? Ethics opinions allow "non-refundable" retainers if the lawyer and the client reach that understanding and agreement. In ethics opinion RI-010, the ethical requirements for an enforceable non-refundable retainer contract are listed. The required considerations are:

      "1. the complexity of the case and its likelihood of preempting the lawyer from other work is apparent to the client at the outset,

      2. the retainer agreement is in writing, clearly identifies the client's expectations in hiring the lawyer, and unambiguously articulates that the lump sum purchases something in addition to a fixed amount of lawyer hours,

      3. the client is of sufficient intelligence, maturity, and sophistication to understand the agreement and that the fee is nonrefundable, and

      4. the lawyer in fact sets aside a block of time, turns down other cases, and marshals law firm resources in reliance on the fee agreement."

    Once a lawyer receives a non-refundable retainer, the lawyer is considered to have "earned" the fee. Therefore, the earned fee should not be deposited in the lawyer's trust account but should be deposited into the lawyer's general business account. RI-069 and R-007.

    May fees be advertised or discounted? Lawyers may advertise the fees the lawyer actually charges for enumerated services. Characterizations of fees, such as "affordable", are also permitted, provided that the characterization is not misleading. See RI-244.

    A lawyer may advertise that if a client wishes to leave a testamentary bequest to a particular organization the lawyer will prepare the will and bequest without charge. In this circumstance, the lawyer should disclose to the prospective client any relationship the lawyer has to the beneficiary organization. RI-164.

    An advertisement for legal services may also specify that a portion of the lawyer's fee will be donated to a religious or charitable organization. RI-163.

    May fees be secured by filing liens or mortgages? MRPC 1.8(a) provides:

      "A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security, or other pecuniary interest adverse to a client, unless:

        (1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner that can be reasonably understood by the client;

        (2) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and

        (3) the client consents in writing thereto." [emphasis added].

    In ethics opinion RI-040, it was opined that a lawyer may obtain a mortgage on a client's property provided the lawyer complies with MRPC 1.8(a) and the property which the mortgage secures is not the subject matter of litigation the lawyer is conducting for the client. In that opinion, it is stated that it is not unethical to recover lawyer fees in a judicial foreclosure of a fee-based mortgage if the requirement to pay lawyer fees incurred in the foreclosure proceeding is made part of the mortgage, the mortgage is obtained in compliance with MRPC 1.8, and the amount of the lawyer fees are approved by the trial court.

    What factors go into setting a reasonable fee for my practice? MRPC 1.5(a) sets forth the criteria to be used by a lawyer when setting a fee for legal services. That rule provides:

      "A lawyer shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee. A fee is clearly excessive when, after a review of the facts, a lawyer or ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee. The factors to be considered in determining the reasonableness of a fee include the following:

        (1) the time an labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;

        (2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;

        (3) the fee customarily charged in the locality for similar legal services;

        (4) the amount involved and the results obtained;

        (5) the time limitations imposed by the client, or by the circumstances;

        (6) the nature and length of the professional relationship with the client;

        (7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and

        (8) whether the fee is fixed or contingent."

    For a more in-depth analysis of the ethics of legal fees, lawyers can find and review all of the applicable ethics opinions on the State Bar of Michigan's website.