By
Bankruptcy Attorney
Managing Client Expectations and Avoiding Fee Disputes
Presented at Ethics and Your Practice 2003, November 11, 2003.
Steven A. Mitchell Professionals Direct, Inc. Grand Rapids
I. Communication, Communication, Communication
A. Introduction
Communication—this is what managing client expectation is really all about. Lawyers are trained communicators who have it within their power to make certain that their clients understand what they need to understand in a timely fashion. In fact, communication is a lawyer’s professional obligation pursuant to MRPC 1.4. Effective communication between lawyer and client strengthens and solidifies the relationship, ensures that no misunderstandings arise and that the parties are not working at cross-purposes. Perhaps more importantly, it protects the lawyer from fee disputes, grievances and malpractice claims.
B. Begin the Representation with a Written Fee Agreement
A written fee agreement is the lawyer’s best evidence of fulfillment of the separate duty to keep the client reasonably informed pursuant to MRPC 1.4. In addition to setting forth and describing the scope of the representation, the agreement should:
set forth the objectives of the representation;
describe the general means through which the objective(s) will be pursued;
estimate the likelihood of success, disclaiming any particular result;
detail the method or basis for calculating the fee and costs;
provide an estimate of the time to be expended upon the task(s), including an estimate of the fees and costs; and
offer an open and continuing invitation to the client to inquire if any questions arise concerning the handling of their matter.
C. Define and Limit the Scope of the Representation
A written fee agreement, carefully drafted, reviewed by the client, and executed at or near the commencement of the representation is the lawyer’s best opportunity to define and limit the scope of the representation. Limiting the scope of the representation is permissible pursuant to MRPC 1.2, and under certain circumstances, it is necessary. In Formal Ethics Opinion, R-11, the syllabus provides in pertinent part:
“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 notice of appeal of a client’s case at the client’s request, as long as the appeal is not frivolous and does not assist fraudulent or illegal act of the client.
Where a contingency fee agreement is silent or ambiguous concerning an additional fee for taking an appeal, a lawyer may not charge an additional fee for taking the appeal.”
Therefore, what is set forth in a written fee agreement regarding what you do not agree to do, is as important as setting forth what you do agree to do.
In contingent fee cases, plaintiff’s lawyers may wish to break the representation into even more discreet segments. In most cases, plaintiff’s lawyers fulfill their ethics responsibility by entering into a written contingent fee agreement at the commencement of the representation. Contingent fee agreements require a written contract pursuant to MRPC 1.5 (c). While this is professionally responsible, it may not be a good business practice. Often, at the time the agreement is entered into, the lawyer only has the client’s side of the story. Investigation must be performed to learn the weaknesses of the merits of the case, as well as to determine potential damages. A case that looked promising when the fee agreement was signed, may turn out to be without merit for economic reasons, or even frivolous. Yet, from the client’s perspective, the lawyer has agreed to “take” the case. To the client, this usually means that the lawyer has agreed to file suit on their behalf, and indeed that is what the client expects.
In order to avoid an economic trap and potential misunderstanding between lawyer and client, the lawyer can conduct the representation in stages, or make clear in the contingent fee agreement that the decision to file suit is discretionary upon timely completion of the initial investigation. Of course, if the latter course is chosen, it requires diligence and timely follow up by the lawyer, as well as subsequent communication informing the client of the lawyer’s decision in the matter. This communication should be in writing if the lawyer decides not to file suit.
On the other hand, if the representation is conducted in stages, it affords the lawyer an opportunity to determine the merits of the case as well as the potential damages without committing the lawyer to filing suit. Separate and discreet fee agreements or a mixed fee agreement may be appropriate in these circumstances. Mixed fee agreements, that is agreements that provide for some combination of an hourly rate or flat fee or percentage of an anticipated net recovery must clearly set forth the basis for calculating the fee in writing. See Informal Ethics Opinion, RI-6 in this regard. The rationale behind requiring a writing for such fee agreements is that the calculation of the fee can be somewhat complex in relation to the relative level of sophistication between the lawyer (and probable drafter of the agreement) and the client. However, these techniques must be considered on a case by case basis, since the process of investigation may be impacted by a pending statute of limitations.
Accordingly, lawyers have it within their control to define and limit the scope of the representation in the written fee agreement. It is an opportunity to establish good communication with the client, ensuring that their expectations remain reasonable, and that the outcome will at least be understandable and acceptable, favorable or otherwise.
D. Explaining the Fee (and Explaining It Again)
Be direct, explicit and thorough when explaining the basis of your fees to the client. Although this seems self-evident, many lawyers are uncomfortable about discussing fees, and attempt to avoid the discomfort by neglecting to tackle the issue head on. This is a mistake. Anticipate and discuss every aspect of any cost and expense that you expect to levy against the client. If you charge a contingent fee, explain to the client the concept of shared risk in relation to the number of hours you expect to invest in their cause. If you charge an hourly rate, explain the rate in relation to your level of education, skill and experience in handling the matter. If you charge a minimum or rounded fee in increments of tenths of hours for certain services, be sure to explain that to the client. If you anticipate flying to Miami or elsewhere to conduct a witness deposition, be sure that the client understands that they will be responsible for the cost of travel, if that is expected. If the witness is an expert, be certain that the client understands that they will be responsible for compensating them for their expertise. If you pass on elements of your business overhead to the client, make sure that it is adequately explained in the fee agreement, and is not a separate profit center for the business. In other words, if copies will be billed to the client at the rate of .10 cents per page, it had better cost you no less than .10 cents per page. It is unethical to seek to make a profit on this aspect of the fee agreement, except in very limited circumstances. See Informal Ethics opinion, RI-241 in this regard.
Send bills to clients on a monthly basis. This ensures monthly contact with the client concerning a frequent problem area in the lawyer-client relationship. Use detailed, line item billing summaries. Inform the client of any time you spend working on their matter that you did not bill them for. Always invite the client to contact you should they have any questions or concerns about the bill. This promotes the relationship and cuts down on receivables.
II. Anatomy of a Model Fee Agreement
A. Introduction
There are many kinds of fee agreements and many ways to draft them. ICLE’s Attorney Fee Agreements in Michigan, (2nd Ed. 2002) is the definitive resource for this purpose. There is detailed discussion regarding the rules of conduct and ethics opinions with pertinent citations to authority. Plus, there are forms with a computer disk for loading the forms into your word processor. However, each representation is different and a “one size fits all” approach is not prudent in the use of fee agreements. Therefore, even the forms need to be tailored to each client’s circumstance and care must be taken to customize each and every fee agreement. With the sophistication of today’s computer programs there is no excuse for using a fill-in-the-blank form. However, if you do use such a form, make sure the blanks are all filled in.
B. Non-Refundable Fee Agreements (The Fee Agreement You Should Generally Not Use)
Every lawyer would like to receive their fee up front. Indeed, there are certain situations where the failure to obtain the fee up front virtually guarantees that the lawyer will not get paid. Lawyers in these situations, and others, are tempted to resort to the practice of utilizing what are erroneously referred to as non-refundable fee agreements. However, there is a great distinction between receiving the entire fee as a deposit in trust, to be debited as and when earned, and the payment of already earned fees for services not yet performed. This latter practice of accounting for the fee is fraught with peril to the unwary practitioner’s license to practice law.
Non-refundable fee agreements are characterized by the complexity of the matter and likelihood that the representation will cause the lawyer to turn down new work, as well as prevent the lawyer from performing work on behalf of other existing clients. Essentially, the lawyer is being compensated for time that can not be recaptured to take on other matters. Such an agreement must set forth the client’s specific expectations as well as a description of what the lawyer is providing in addition to a fixed number of hours. A non-refundable fee must not be placed in the lawyer’s trust account. The ability to enter into such an agreement presupposes that the client is of sufficient intelligence and maturity to understand the agreement as well as the fact that the fee is non-refundable. Finally, the lawyer must in fact set aside a block of time, turn down other work, and otherwise, martial the resources of the firm in reliance on a non-refundable retainer agreement. Otherwise, this type of fee agreement may not be employed. If challenged, the lawyer will be required to demonstrate that the fee in fact fulfills the requirements of a non-refundable agreement as described in Informal Ethics Opinions, RI-10 and RI-69. At least one lawyer has been suspended for the inappropriate use of a so-called non-refundable fee agreement. See ADB Case No. 96-236-GA (1999).
C. Elements of a Model Fee Agreement
Each written fee agreement should:
clearly identify the client(s);
identify the lawyer primarily responsible for handling the file and the person responsible for handling billing questions or concerns;
set forth in detail the nature and the scope of the representation;
detail the objectives of the representation;
describe the basis for calculating the fee;
describe and delineate the responsibility for paying costs;
describe the method, manner and frequency of billing, including the disposition of any pre-paid funds in trust;
estimate the amount of fees, costs, and the likelihood of success;
make disclaimer as to any guarantee of results;
set forth the process for dealing with unpaid bills, including possible termination of the representation;
inform the client of the manner, method and timing of file storage and disposition at the conclusion or termination of the representation; and
invite the client to call or contact the responsible handling lawyer at any time with any questions or concerns.
There are certain provisions that can be included in a fee agreement that a lawyer may or may not want to utilize for personal or professional reasons. These include provisions for charging interest on unpaid balances, the use of security to protect fees, and the use of an arbitration clause to resolve fee disputes. To be sure, if these types of provisions are contemplated, they must be in writing, and additional disclosures must be made, including the right to seek independent counsel.\ before entering into the agreement.
III. Terminating the Lawyer-Client Relationship
A. Introduction
Termination of the lawyer-client relationship is commonplace. However, it is not an uncomplicated process, and ill done, can result in harmful consequences for the lawyer.
B. Lawyer Initiated Termination
A lawyer may seek termination of the relationship for any number of reasons. Once the decision to terminate a client has been made, the lawyer must take great care to be certain that the relationship is severed correctly. The lawyer-client relationship is more than merely contractual. The lawyer owes a duty of loyalty to the client; and in fact, the lawyer is the client’s fiduciary. Kukla v. Perry, 361 Mich 311 (1960); Rippey v. Wilson, 280 Mich 233 (1937).
The Michigan Rules of Professional Conduct, Rule 1.16(b) sets forth the circumstances under which a lawyer may withdraw from the relationship:
“(b) Except as stated in paragraph (c), a lawyer may withdraw from representing a client if withdrawal can be accomplished without material adverse effect on the interests of the client, or if:
(1) the client persists in a course of action involving the lawyer’s services that the lawyer reasonably believes is criminal or fraudulent;
(2) the client has used the lawyer’s services to perpetrate a crime or fraud;
(3) the client insists upon pursuing an objective that the lawyer considers repugnant or imprudent;
(4) the client fails substantially to fulfill an obligation to the lawyer regarding the lawyer’s services and has been given reasonable warning that the lawyer will withdraw unless the obligation is fulfilled;
(5) the representation will result in an unreasonable burden on the lawyer or has been rendered unreasonably difficult by the client; or
(6) other good cause for withdrawal exists.”
Although the rule is written broadly, careful analysis must be undertaken with respect to the particular facts and circumstances regarding each client’s situation. Generally, withdrawal is permissible if it “can be accomplished without material adverse effect on the interests of the client”. But even if it cannot, there is a list of criteria under which withdrawal can be legitimately accomplished alternatively. MRPC 1.16 (b). In any event, one should analyze the potential for adverse effect upon a particular client’s interests, and perhaps even document an analysis which concludes that no material adverse consequences will flow from the withdrawal before terminating the relationship.
Of course, if the client is involved in criminal or fraudulent behavior, or uses the lawyer’s services to perpetrate those ends, withdrawal can (and should) be effected. No lawyer should permit themselves to be used in such a fashion.
The lawyer may also consider termination of the relationship when the client “insists upon pursuing an objective that the lawyer considers repugnant or imprudent”. But what is a repugnant or imprudent objective? The “objectives” of representation are discussed in MRPC 1.2 (a), Scope of Representation:
“(a) A lawyer shall seek the lawful objectives of a client through reasonably available means permitted by law and these rules...”
The comments to the rule distinguish the “objectives” of representation from the “means” used to attain those objectives.
“A clear distinction between objectives and means sometimes cannot be drawn, and in many cases the client-lawyer relationship partakes of a joint undertaking...” MRPC 1.2 Comment
Furthermore, the objectives to be attained may be limited by agreement, usually set forth expressly in the fee agreement. Usually, the objectives of the representation deal with its overall purpose. The means to be employed in attaining those objectives usually refer to the tactics employed by the lawyer to attain the objectives. Accordingly, the repugnance or imprudence considered by the lawyer in an analysis of MRPC 1.16(b)(3) relates to the overall purpose of the representation, which is a more general concept, than the employment of particular tactics or techniques used by the lawyer to attain those objectives.
Although the words “repugnant” and “imprudent” are not defined in the rules, their use for subjective consideration by the attorney considering withdrawal appears to encompass that degree of unprofessionalism or lack of wisdom that would cause a reasonable lawyer to hesitate to act under the circumstances given. In other words, a lawyer may not withdraw from representation simply because the client refuses to follow the lawyer’s advice on the issue of settlement of a civil lawsuit. In the criminal law context, a lawyer may not withdraw simply because the client refuses to follow the lawyer’s advice regarding the entry of a plea, the waiver of a jury trial, or the client’s right to testify. MRPC 1.2 (a).
The foregoing examples are not insignificant issues that arise during the course of a representation. They explicitly recognize the right of the client to make decisions, even tactical ones, in the face of the lawyer’s advice to the contrary. Accordingly, the line to be drawn in determining where and when a breakdown in the relationship takes place is blurred. It is clear, however, that the rule does not permit a lawyer to withdraw in each case where the client refuses to follow the advice of the lawyer.
“In, most if not, all attorney-client relationships, decision-making authority ultimately rests with the client. A client may, in apparent good faith, insist upon pressing the claim although the attorney has explained that it has no chance of succeeding. An attorney’s ability to withdraw from representation is limited if the client objects.” Friedman v. Dozorc, 412 Mich 1, 57; 312 N.W. 2d 585 (1981)
This analysis aside, a lawyer may withdraw for “good cause”. What constitutes “good cause”? In Ambrose v. Detroit Edison Company, 65 Mich App 484; 237 N.W. 2d 570 (1976), the Michigan Court of Appeals found that “a client’s total failure to cooperate is sufficient ‘good cause’ to allow an attorney to discontinue representing” the client. There, the court recounted two examples where the client refused to make decisions which he was legally obligated to do in spite of contrary advice from his lawyer, and refused to accept a settlement offer which constituted essentially all of the relief he was demanding in his complaint, and without expressing any rational reason for refusing to act.
Although “good cause” was found in this case, permitting the lawyer to withdraw, the court cautioned that the Ambrose scenario was one “embodying extreme circumstances”; and the court “emphatically” reasserted the precept that the client has control over the representation and its objectives, particularly as it pertains to the acceptance or rejection of a settlement offer. Ambrose, supra, 237 N.W. 2d at p. 523.
Accordingly, care must be taken in deciding whether good cause exists for termination of the representation without the permission of the court or client.
C. Client Initiated Termination
Generally, if the lawyer is “discharged” the lawyer must withdraw. Unfortunately however, that alone does not end the analysis. If the client is being represented in court, the lawyer must nevertheless seek leave to withdraw from the court in question. The decision to permit withdrawal lies within the court’s discretion, and the lawyer must take great care not to reveal information or material protected by MRPC 1.6. However, as a practical matter, if the client no longer wants the lawyer, the court will not force the issue.
Even after the termination of the representation, a lawyer must “take reasonable steps to protect a client’s interests”. These steps include providing reasonable notice, allowing time for the employment of new counsel, turning over files and client property, and refunding any unearned fees. Under certain circumstances, a lawyer may assert a lien as to certain client property, but such rights are separate and distinct from a lawyer’s continuing obligation to make certain that the termination causes no “material adverse effect” upon the client’s interests.
As this discussion demonstrates, it is not an uncomplicated matter to sever the lawyer-client relationship. Analysis of the particular facts and circumstances within the context of the lawyer’s needs, as well as the lawyer’s duties to the client both during, at, and after termination pursuant to the parameters of MRPC 1.16 must all be taken into account in order to avoid subsequent problems for the lawyer. Otherwise, the termination of the relationship between a lawyer and a “problem client” may not be the end of the lawyer’s problem.
