I. FEES
As agents of their clients, and subject to any agreement between them, lawyers are legally entitled to compensation for services they render to clients.1 Even in the absence of an agreement on the express terms for determining the amount of compensation, the lawyer agent is legally entitled to the value of services provided for the principal.2
A fee agreement between a lawyer and a client is not an ordinary business contract, however, and the legal profession "has both an obligation of public service and duties to clients which transcend ordinary business relationship[s] and prohibit the lawyer from taking advantage of the client."3 Thus, ethical and statutory principles underlie and place significant limitations on the general agency and contract principles.
In recognition of this heightened professional duty, RPC 1.5 imposes a fundamental ethical obligation that the fees and costs charged by lawyers be reasonable. This ethics rule also contains other important requirements discussed in this chapter, including specific rules governing contingent fees and the division of fees between lawyers. Additional ethics rules touching on lawyers' obligations in charging fees and costs include RPC 1.8(a) (business transactions with clients), RPC 1.8(e) (financial assistance to clients), RPC 1.8(f) (accepting compensation from one other than the client), RPC 1.8(i) (acquiring a proprietary interest in a cause of action), RPC 1.15A and 1.15(B) (trust-account obligations), RPC 1.16(d) (obligations upon termination of representation), RPC 5.4 (prohibiting fee sharing), RPC 7.1 (prohibiting false or misleading communication about the lawyer or the lawyer's services), and RPC 8.4(c) (prohibiting conduct involving dishonesty, fraud, deceit, or misrepresentation).4
Importantly, the Washington Supreme Court has held that the entrepreneurial aspects of law practice, including "how the price of legal services is determined, billed, and collected," are subject to the Washington Consumer Protection Act (CPA).5 This statute prohibits "unfair or deceptive acts or practices in the conduct of any trade or commerce," and provides for the recovery of an increased amount of damages as well as attorney fees.6
The discussion that follows will occasionally make reference to the report of the Novack Commission, which was formed by the Washington Supreme Court in the late 1980s and performed the most comprehensive evaluation of the ethics rules for fees in this state's history.7 Although few of the Novack Commission's recommendations were ever adopted in any form, the report is an important resource for those doing research into the "legislative history" of RPC 1.5 in Washington state.
A. Fee Agreements and Their Modification
Of course, agreements with clients regarding the terms of legal representation must comply with applicable contract law,8 including requirements for consideration and applicable statutes of frauds.9 RPC 1.5(b) sets forth the ethical requirement to communicate with the client regarding fee matters:
The scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation except when the lawyer will charge a regularly represented client on the same basis or rate.
RPC 1.4(b), requiring a lawyer to "explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation," also applies in the fee context.10 The fee agreement should also set forth how fees will be billed and the terms of payment, including providing for the payment of interest or finance charges on delinquent accounts if desired.11 The client should also be informed in the written fee agreement when there is a right to judicial review of the lawyer's fee, such as in probate, guardianship, and personal injury proceedings.12
Although there is no general requirement that noncontingent fee agreements with clients be in writing, the commentary to RPC 1.5 points out that it is generally desirable
to furnish the client with at least a simple memorandum or copy of the lawyer's customary fee arrangements that states the general nature of the legal services to be provided, the basis, rate or total amount of the fee and whether and to what extent the client will be responsible for any costs, expenses or disbursements in the course of the representation.13
The Washington Supreme Court has also stressed the importance of written fee agreements:
Even in those situations where no written fee agreement is required, in order to avoid confusion or later dispute, it is always wise to have one and, if a written fee agreement is used, it should be written in clear language that the client can understand.14
And as a matter of risk management and loss prevention, a written engagement agreement is crucial.15 In any event, RPC 1.5(b) requires a lawyer to put the basis or rate of the fee in writing upon request by the client.16
The Washington version of RPC 1.5 stresses the importance of written fee agreements by including as a consideration in determining reasonableness of the fee under RPC 1.5(a) "the terms of the fee agreement between the lawyer and the client, including whether the fee agreement or confirming writing demonstrates that the client has received a reasonable and fair disclosure of the material elements of the fee agreement and of the lawyer's billing practices."17
The factor in RPC 1.5(a)(9) is not listed in MRPC 1.5(a) and was included in Washington to encourage lawyers "to use written fee agreements that fully and fairly disclose all material terms in a manner easily understood by the client."18 Washington courts have noted that this reference to a fee agreement in RPC 1.5(a) is particularly important in situations when the lawyer has charged fees that were alleged to be outside of those agreed upon by the parties in their fee agreement.19
| Author's Commentary | We believe that RPC 1.5 should be amended to require that all fee agreements be in writing. Although there are legitimate reasons to permit lawyers and clients to create business relationships informally, these considerations are overwhelmed by the fiduciary obligations that govern lawyer-client relationships, the ease of communicating electronically in the 21st century, and the desirability of avoiding misunderstandings in the fee context. The vast majority of lawyers now use written engagement letters as a client intake and risk management practice. Requiring written confirmation of what the client will be charged for the legal work contemplated, as is now required for contingent fee agreements and agreements for prepaid flat fees to become the lawyer's property upon receipt, would serve the public interest without imposing an undue burden on lawyers. |
The Restatement of the Law Governing Lawyers makes clear that lawyers will bear a greater burden to justify the fee when the contract is made sometime after the formation of the lawyer-client relationship or the agreement is finalized after the lawyer has performed the legal services in question.20
Modifications of fee agreements are generally subject to the same legal and ethical requirements as the original contracts, including the requirement of reasonableness discussed in detail in Section I.B., below.21 In addition, RPC 1.5(b) provides that any changes in the basis or rate of the fee or expenses must be communicated to the client. The best practice is to include the possibility the lawyers' hourly rates may increase in the original fee agreement and then give reasonable advance notice to the client (in writing) of the change when it occurs. There is little doubt that a modified fee, otherwise meeting the reasonableness requirement of RPC 1.5(a), would violate the rule "if it was imposed without warning, under circumstances giving the client little choice but to acquiesce in what was ‘communicated' by fiat."22
The Washington Court of Appeals has noted that, as a legal matter, the modification of a fee contract resulting in an increase in compensation must be supported by new consideration.23 Courts in this context also sometimes find that fiduciary duty principles are implicated. For example, after stating that renegotiation of a contingent fee after settlement "must be carefully scrutinized," the Washington Supreme Court held that a lawyer breached his fiduciary duty when he renegotiated a contingent fee agreement with his client after the settlement of a dispute.24
The ABA/BNA Lawyers' Manual on Professional Conduct summarizes courts' attitude with regard to lawyers changing fees in midstream:
After the attorney-client relationship has commenced, and the lawyer has thereby assumed fiduciary duties to act in the client's best interests, the circumstances of the representation may change (additional legal services are needed, for example) such that the lawyer believes it necessary to alter the original fee agreement or to make a new one. However, because the client has placed her trust and confidence in the lawyer and expects the lawyer to represent the client's interests, the situation is fraught with the potential for conflicts of interest and for taking undue advantage of the client when the lawyer urges a change in the fee arrangements. Therefore, post-retainer modifications to a fee contract are viewed with great suspicion by judges and ethics committees, and the usual rule is that such changes to the fee contract are presumed to be fraudulent and unenforceable unless the lawyer proves that the modification was the result of fair dealing rather than a reluctant agreement extracted from a client acting under pressure or with only a vague idea of what impact the modification will have.25
These authorities strongly suggest that the Washington Supreme Court...
