Oregon State Bar Bulletin — OCTOBER 2002

Bar Counsel
Written Fee Agreements
An idea whose time has come?
By Sylvia E. Stevens

Misunderstandings about fees are probably the single most frequent basis of client complaints, whether framed as fee disputes, disciplinary complaints or malpractice claims. Many of the misunderstandings could be avoided if there were a written agreement about the fees.1 As with the old adage about the cobbler’s children going barefoot, lawyers all too often fail to heed the advice they would always give a client in similar circumstances: 'put it in writing.'

Only a few jurisdictions require written fee agreements or letters of engagement. New York’s supreme court recently adopted a court rule2 requiring lawyers to provide clients with a 'written letter of engagement.' The letter of engagement must be given to the client before the representation commences or, if that is 'impracticable' or if the scope of services cannot be determined at the commencement of the representation, within a reasonable time thereafter. The letter of engagement must be updated if there is a significant change in the scope of services to be provided. The letter must explain the services to be performed, the fees and expenses and the lawyer’s billing practices and, where applicable, the client’s right to arbitration under New York court rules. A written retainer agreement can substitute for the written letter of engagement if it contains the requisite information. A written letter of engagement is not required if the anticipated fees are less than $3000, if the services are of the same general kind previously rendered to and paid for by the client, or in a domestic relations matter subject to separate regulations.

The New York rule is the last of a series of reforms generated by the 1995 Report of the Commission on the Profession and the Courts. It was adopted over the 'vehement opposition' of the bar as 'yet another unnecessary piece of paperwork,' according to Steven C. Krane, president of the New York State Bar Association.3 It is not part of the Code of Professional Responsibility and there are no sanctions for noncompliance.4 However, the purpose of the rule is to prevent fee disputes and miscommunication, and despite its objections, the New York State Bar Association has prepared a sample letter of engagement designed to meet the requirements of the rule.

The other jurisdictions that require written fee agreements (Connecticut, District of Columbia, New Jersey, Pennsylvania and Washington) have the requirement in their disciplinary rules. In those jurisdictions, the writing is required only if the lawyer has not 'regularly represented' the client. In Washington, the writing is also required if the current fee arrangement is substantially different from previous agreements or if the client requests the agreement in writing. The ABA House of Delegates recently rejected a proposal of the to incorporate such a requirement into the ABA Model Rules. However, the comment to MR 1.5 reminds lawyers that '[a] written statement concerning the fee reduces the possibility of misunderstanding.'

Whether or not Oregon should require written fee agreements remains a matter of some debate. When the issue has come up in the past, the reaction of many bar members has been similar to that in New York. While no one doubts the theoretical value of written fee agreements, opponents object to the imposition of more rules and argue that time-sensitive client needs may make it impractical to comply, thereby exposing lawyers to sanctions for serving their clients efficiently.

Although sensitive to the concerns of practitioners, I support the idea of mandating written fee agreements or letters of engagement.6 As noted in New York, much of the opposition to rules of this sort is that they are unnecessary, and that 'good' lawyers know how to prevent fee disputes and conflicts with clients. While that may be true for some lawyers, it is clearly not true for all lawyers. Rules, disciplinary or otherwise, create a minimum standard for the protection of the client in the event their lawyer is not one of the 'good' ones.7

Most of the misunderstandings between lawyers and clients that I see seem to arise from two principal causes: a pervasive disinclination on both sides to speak frankly about money matters, and the fact that what lawyers say is often incomprehensible to clients who have little or no experience with the legal system and who don’t understand the basic assumptions on which the lawyer is operating. For example, a client who hears that a case is 'simple' or that issues are 'clear-cut' may not understand that resolution of it will still require pleadings, negotiations, discovery, etc. or that the lawyer is billing based on time spent, not results obtained. The result is that the lawyer talks about fees, but there is no real agreement as to what the lawyer will do and what the client will pay.

Recognizing that it will be a long time (if ever) before Oregon lawyers are required to have written fee agreements, I can only encourage their use. I like to think of it as a kind of enlightened self-interest; the time spent preparing an effective fee agreements will not only reduce the risk of misunderstandings and complaints, but can also go a long way to preventing unfavorable outcomes.

As reflected in the New York rule, the agreement must do more than merely record the details of the lawyer’s compensation. It must also express the parties’ expectations and obligations arising from the representation, consistent with the goal of disciplinary rules to promote harmony and avoid misunderstanding in the professional relationship.

Although there is no one single form or style of fee agreement that will work in every case, there are some things that should be considered essential elements in any fee agreement or engagement letter:

Disciplinary rules and other regulations mandating written fee agreements may be intended to protect the public, but they offer significant benefits to lawyers as well in the prevention or avoidance of fee disputes, bar complaints and malpractice claims. We should not discount and oppose such mandates as unnecessary and unwelcome intrusions into the practice of law without carefully weighing the benefits they offer;

ABOUT THE AUTHOR
Sylvia Stevens is assistant general counsel of the Oregon State Bar. She can
be reached by regular mail at 5200 S.W. Meadows Road, Lake Oswego, Ore. 97035, or by e-mail at sstevens@osbar.org.

© 2002 Sylvia E. Stevens

ENDNOTES

1. ORS 9.400 requires written fee agreements in contingent fee cases involving personal injury or death claims; a fee agreement that does not comply with the statute is voidable.

2. New York Comp. R. & Regs. 22, §1215.1-2 (effective March 4, 2002).

3. Quoted in ABA/BNA Lawyers’ Manual on Professional Conduct Current Reports, Vol. 18, No. 6, p. 170 (March 13, 2002)

4. However, a lawyer could be sanctioned for repeated refusals to comply or even for a single egregious instance of noncompliance, according to the executive assistant to the chief administrative judge.

5. See, 'DR News,' Oregon State Bar Bulletin, Vol. 62, No. 6 (April 2002).

6. My opinion is admittedly of the 'do as I say, not as I do' school, as I did not always see the need to memorialize my fee agreements while in private practice. However, 10 years of fielding inquiries from lawyers and clients, along with several years administering the Fee Arbitration Program and the Client Security Fund have made me a believer.

7. This is not to suggest that lawyers who have fee disputes with clients are 'bad' lawyers, only that even the best lawyer may encounter fee disputes if there is not a clear understanding of the fee arrangement.

8. ABA Formal Opinion 02-425 holds that it is permissible to include a provision in a retainer agreement that requires binding arbitration of disputes concerning fees and malpractice claims, provided the client has been fully apprised of the advantages and disadvantages of arbitration and has given informed consent to the inclusion of the arbitration provision in the agreement. The opinion concludes that such a provision does not violate ABA Model Rule 1.8(h), which, like DR 6-102, prohibits a lawyer from prospectively limiting malpractice liability.


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