Mcle Self-study Article Retainer Agreement Basics

By Patrick Maloney, Esq.

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Carefully prepared retainer agreements reduce the likelihood of disputes with clients. Unfortunately, many attorneys default to a “one size fits all” retainer agreement and fail to tailor the agreement to each engagement. Or, if they take the time to customize their standard form, in the rush to sign the client, latent ambiguities creep into the document, only to surface at a later date. An attorney’s failure to prepare a proper fee agreement may result in her fee being determined by what is “reasonable,” rather than what was agreed upon.¹

When preparing a fee agreement, counsel should be cognizant of the applicable rules and carefully tailor the agreement to the particulars of the proposed representation. The minimum requirements for a fee agreement may be found in the California Business & Professions Code, as well as the California Rules of Professional Conduct. Reported decisions from the California courts, as well as ethics opinions produced by the California State Bar and local bar associations, provide additional guidance.

While the types of fee arrangements that an attorney and his or her client may agree upon vary, the California legislature has recognized just two broad categories of fee agreements: contingent fee agreements and fee agreements that are not contingent. California Business & Professions Code § 6148 sets out the basic requirements for non-contingent legal fee agreements. Business & Professions Code § 6147 outlines the requirements for contingent fee agreements, which are required in all instances in which an attorney’s fee will be contingent on the occurrence of a future event.²
When proposing and documenting a fee agreement, the attorney must determine whether statutory or public restrictions limit the available fees or fee structure. For example, California Business & Professions Code § 6146 limits the contingent fee an attorney may recover in medical malpractice actions. Similarly, contingent fees are not allowed in certain family law matters,³ probate matters,⁴ and criminal matters.⁵

Once an attorney and the prospective client reach agreement on the fee structure, their arrangement should be carefully documented. By statute, all contingent fee agreements must be written. Non-contingent fee agreements should also be written, though a writing is not required in certain circumstances, including when the fees are not expected to exceed $1,000, when the client is a corporation, where the services are provided on an emergency basis, or when the attorney previously provided similar services to the client.⁶

Sometimes it is not clear whether a fee structure reflects a contingent or non-contingent fee.⁷ Thus, any time an attorney and client agree upon a fee structure that includes a bonus, a percentage payment, or unique fee structure depending on future event, the parties’ agreement should meet the requirements of both Section 6147 and Section 6148. In all instances, counsel must provide a duplicate copy of the fee agreement to the client at the time of execution.⁸

Agreements for non-contingent matters governed by Business & Professions Code § 6148 must state:

1. Any basis of compensation including, but not limited to, hourly rates, statutory fees or flat fees, and other standard rates, fees, and charges applicable to the case.
2. The general nature of the legal services to be provided to the client.
3. The respective responsibilities of the attorney and the client as to the performance of the contract.

To ensure compliance with Section 6148, the retainer agreement should list the applicable hourly rates by each individual who it is contemplated will work on the client’s matter. If it is contemplated that the hourly rates may increase, the fee agreement should indicate when and how that may occur and the manner in which the attorney will provide the client notice of the fee increase.

If the firm departs from billing in minimum increments of one-tenth of an hour, the fee agreement should identify those circumstances and specify how clients will be charged. For example, if the attorney charges a minimum fee for certain tasks, the fee agreement should contain a schedule of those tasks and the resulting minimum charges.

In addressing costs, the fee agreement should identify the types of out of pocket expenses that will be charged to the client. When a firm passes along costs that may be viewed as “overhead,” such as telephone carrier charges, those cost categories should be specifically identified. Similarly, if a firm imposes a markup on expenses, the retainer agreement should so indicate. The fee agreement should also identify the circumstances under which the lawyer may advance costs and when the client will be required to advance costs.

It is also important to carefully delineate the scope of the representation. By way of example, if the lawyer is hired to handle a trial, but not appellate work, the retainer agreement should specifically identify this limitation on the services to be provided.

Contingent fee agreements governed by Business & Professions Code § 6147 must include at least the following provisions:

1. A statement of the contingency fee rate that the client and attorney have agreed upon;
2. A statement as to how disbursements and costs incurred in connection with the prosecution or settlement of the claim will affect the contingency fee and the client's recovery (e.g., whether the costs are paid from the client’s portion, the attorney’s portion, or “off the top”);
3. A statement as to what extent, if any, the client could be required to pay any compensation to the attorney for related matters that arise out of their relationship not covered by their contingency fee contract; and
4. In cases other than medical malpractice actions, a statement that...