The Fee Agreement: Five Things to Consider
The Law Firm of J.W. Stafford | March 23, 2018
The last thing many Maryland attorneys want to think about is contracts, especially when it comes to sensitive matters like client fees. But written contracts are a necessary evil in this business. If you do not spell out the exact relationship between you and your client, it can easily come back to bite you. We have all dealt with problem clients who dispute every line item of every bill.
While Maryland does not require a written fee agreement (except in cases of a contingency fee agreement), it is a recipe for disaster for the attorney not to have one in place with every client. Having a well-drafted fee agreement in place can help avoid major issues and protect your interests in the event the client files a formal complaint against you.
While there is no one-size-fits-all fee agreement for Maryland lawyers, here are five basic areas you should always try to cover:
The Scope of Representation
It often does not occur to lawyers to actually state the precise scope of work they intend to perform for the client. Setting such expectations up front and in writing can save your practice a lot of trouble. Just because a client hires you to draft some legal papers–say, documents to incorporate a business–does not mean you agree to represent them if they are sued on an unrelated matter a year from now. To avoid any misunderstandings, it is a good idea for your fee agreement to specify the exact scope of your representation.
Another mechanism to avoid any misunderstanding about the scope of representation is for you to timely and consistently send out termination of representation letters. A termination of representation letter reinforces the scope of the representation and makes absolutely clear to the client that their lawyers’ representation has ceased for a particular matter. This letter can be critical to minimizing your potential malpractice exposure, especially when you are representing the client in litigation. For example, if you agreed to represent the client only through trial but no agreement has been reached between you and the client about representation in an appeal, it is good practice for you to timely issue a termination of representation letter immediately after the trial so that the client is not under the mistaken belief that you are filing any of the required paperwork needed to preserve their right to appeal.
Under Rule 1.5 of the Maryland Lawyers’ Rules of Professional Conduct, an attorney must charge “reasonable” fees. Of course, the rule does not provide an exact definition of “reasonable,” but rather lists eight factors that should be considered:
- How much “time and labor” is required to handle the client’s legal problem, taking into account the “novelty and difficulty of the questions involved” and the attorney’s relative skill level;
- How likely it appears to the client that taking on this particular case will “preclude other employment of the lawyer”;
- How much other attorneys in the same area charge for “similar legal services”;
- The amount of money or property involved in the controversy and the size of the final award obtained;
- What time limits, if any, are imposed by the client or the circumstances of the matter;
- How long the client and attorney have been involved professionally;
- The overall “experience, reputation, and ability” of the lawyer or law firm; and
- Whether the fee itself is “fixed or contingent.”
Keep in mind that if your firm changes its rates periodically, you must communicate those rate changes to the client.
Special Requirements for Contingency Representations
Contingency fees refer to situations in which an attorney agrees to forego any upfront or hourly fees in exchange for a percentage of any final award obtained for the client. Contingency fee agreements must always be in writing and signed by the client. The contingency fee agreement must specify the exact percentage the lawyer will receive, as well as whether any litigation expenses and costs will be deducted prior to or after the contingent fee is calculated. Additionally, the contingent fee agreement must notify the client of any expenses for which the client will be responsible whether or not the client is the prevailing party in a case.
The contingent fee representation also requires the attorney to provide an itemization to the client at the end of the representation. Specifically, Rule 1.5 requires that at the conclusion of the contingent fee matter, the attorney must provide the client with a written statement describing the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination. If you handle contingent fee matters, it is good practice to have the client sign and date the itemization that you drafted so as to avoid any claims by the client that they were never shown the itemization.
There are occasions in which different lawyers from separate practices need to work together on a case. Under Rule 1.5, it is permissible for lawyers not in the same firm to split fees, provided any division is proportional to the services provided or each attorney assumes joint responsibility for the representation, the client agrees to the arrangement in writing, and the total fee is reasonable. Keep in mind, a lawyer may not accept a shared or split fee for simply referring a client to another attorney.
Forum Selection Provision
No matter how well drafted a fee agreement may be, there will still be times when a client has an issue. To avoid potential litigation over a fee dispute, you and the client may agree to refer the matter to arbitration. The Maryland State Bar Association and the Bar Association of Baltimore City both maintain a Fee Dispute Resolution Program–essentially, binding arbitration. While you cannot force the client into arbitration, you can include a forum selection provision in your fee agreement identifying the Fee Dispute Resolution Program as an alternative to litigation.
Speak With a Maryland Professional Licensure Attorney
A clear fee agreement can be critical to minimizing disputes with clients and reducing your risk of a malpractice claim or issues with Bar Counsel. If you have questions about your firm’s fee agreements, do not hesitate to contact the Law Firm of J.W. Stafford, L.L.C. Contact us at 410-514-6099 to schedule a confidential consultation with our team today.
(image courtesy of Ryan Johns)