Paradox rapped lightly on the door and was glad to see Ethox hanging up the telephone. “Paradox, my friend,” Ethox said, “You look confused. What is the problem?”
“ACME Products has demanded that we accept flat fees to handle small product-liability claims. Senior Litigator agreed to handle the work for $30,000 per case, and has now asked me to figure out how we should handle the flat-fee payments and to prepare a standard engagement form.” Paradox stopped and groaned softly. “I have done a bunch of research, and although I understand that ‘flat fees’ and ‘fixed fees’ are the same thing, everything else seems a bit confusing.”
“This is a great question,” Ethox responded. “After all, if we place client funds in our firm’s operating account too soon, the firm could get into serious trouble with disciplinary authorities. What has your research shown so far?”
“In the past, we always moved a flat payment into our operating account as soon as we started working on a matter,” Paradox answered. “But I just found a recent bar journal article that says such treatment may not be correct.”
“Oh, you must have found discussion of ethics opinions like the 2010 opinions D.C. Ethics Opinion 355 and Missouri Formal Opinion 128.” Ethox stopped and glanced at the article in Paradox’s hand. “Those and similar opinions say two
important things. First, a lawyer generally cannot have a truly ‘nonrefundable’ fee. If keeping an entire fixed-fee payment is not reasonable, the lawyer should return the unreasonable portion. After all, Rule 1.5(a) says a lawyer should not agree to, charge, or collect an unreasonable fee.”
“So, if the client hires the firm to handle the product-liability suit,” Paradox asked, “but the plaintiff dismisses it a week later, we may need to refund some or all of the fee?”
“Yes, that is how the D.C. and Missouri ethics authorities read Rule 1.5(a),” Ethox smiled. “But if the lawyer handles the full case, the lawyer will probably get to keep the whole fee under Rule 1.5, regardless of whether the case ends with a motion to dismiss with prejudice, or in settlement, or after a jury verdict.
Of course this presumes the fixed fee is reasonable.”
“Oh, I get that,” Paradox responded.
Read more...The Journal of the Section of Litigation (PDF)