October 31, 2014

American Bar Association Issues Formal Ethics Opinion Regarding Fee Arrangements

On August 4, 2011, the ABA released an ethics opinion, Formal Opinion 11-458, which discusses Changing Fee Arrangements During Representation:

Modification of an existing fee agreement is permissible under the Model Rules, but the lawyer must show that any modification was reasonable under the circumstances at the time of the modification as well as communicated to and accepted by the client. Periodic, incremental increases in a lawyer’s regular hourly billing rates are generally permissible if such practice is communicated clearly to and accepted by the client at the commencement of the client-lawyer relationship and any periodic increases are reasonable under the circumstances. Modifications sought by a lawyer that change the basic nature of a fee arrangement or significantly increase the lawyer’s compensation absent an unanticipated change in circumstances ordinarily will be unreasonable. Changes in fee arrangements that involve a lawyer acquiring an interest in the client’s business, real estate, or other non-monetary property will ordinarily require compliance with Rule 1.8(a).

Comment [16] to Rule 1.8 advises that when a lawyer acquires by contract a security interest in property other than that recovered through the lawyer’s efforts in litigation (e.g., a contingent fee agreement), such an acquisition is a business or financial transaction with a client and is governed by the requirements of Rule 1.8(a). When it applies, Rule 1.8(a) requires that:

  1. the terms of the transaction are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client;
  2. the client is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent counsel; and
  3. the client gives informed consent to the essential terms of the transaction and the lawyer’s role in the transaction in a writing signed by the client.

Compliance with Rule 1.8(a) is appropriate in such situations to protect clients from potential overreaching by lawyers. When the client takes advantage of the advice to consult independent counsel, it also provides an opportunity for a neutral evaluation of the reasonableness of a fee that may be paid or secured by non-monetary property.

Click here to read the full opinion.

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