|Oregon State Bar Bulletin DECEMBER 2008|
When fee disputes become ethical misconduct
By Helen Hierschbiel
By the time this column is published, the Oregon State Bar Fee Arbitration Program will have received approximately 120 requests for arbitration for 2008. This represents a 25 percent increase from the average number of requests in years past. Confusion and misunderstandings over fee arrangements are an obvious source of many of these arbitrations. Because fee disputes often go hand in hand with a general dissatisfaction with the quality of representation or results obtained, they also commonly trigger malpractice claims and complaints of ethical misconduct. In the last year, the bar’s Client Assistance Office received approximately 120 complaints where a fee dispute was identified as the primary complaint.
Much has been written about the ethical requirements of fee arrangements.1 What remains a mystery to many lawyers, however, is when a mere dispute over the reasonableness of fees becomes a matter of ethical misconduct.
The general rule regarding lawyer fees can be found in Oregon RPC 1.5(a), which prohibits lawyers from contracting for, charging, or collecting an illegal or clearly excessive fee. A fee is clearly excessive when a lawyer of ordinary prudence would have a firm conviction that the fee is in excess of a reasonable fee. RPC 1.5(b). In determining the reasonableness of a fee, lawyers should start by reviewing the eight nonexclusive factors listed at RPC 1.5(b):
1. the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
2. the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
3. the fee customarily charged in the locality for similar legal services;
4. the amount involved and the results obtained;
5. the time limitations imposed by the client or by the circumstances;
6. the nature and length of the professional relationship with the client;
7. the experience, reputation, and ability of the lawyer or lawyers performing the services; and
8. whether the fee is fixed or contingent.
Assessing the reasonableness of the fee must be done not only at the outset of the lawyer-client relationship, but at the time of billing, and again at the time of payment, as circumstances may change that could impact the reasonableness of the fee. See, e.g., In re Gastineau, 317 Or 545, 551 (1993)("excessiveness of the fee may be determined after the services have been rendered, as well as at the time the employment began"). Gastineau involved a fixed fee arrangement, that is, an agreement that a fixed dollar amount be paid for a specified service. Lawyers often refer to fixed fees as nonrefundable. However, if the representation ends before the lawyer has completed the agreed upon services, some portion of the fee has not been earned, and therefore must be refunded, notwithstanding the lawyer’s characterization of the fee as "nonrefundable." Id. See also OSB Formal Ethics Op 2005-151.
The amount that must be refunded when
a flat fee has not been fully earned depends not on
the hours that the lawyer expended on the matter, but
on the portion of the work that remains uncompleted,
in relation to the whole of the representation. Computing
the amount earned based on hours expended would deny
the client the benefit of the flat-fee arrangement,
and therefore result in a clearly
excessive fee. In re Balocca, 342 Or 279, 292 (2007).
Perhaps the most common "clearly excessive fee" is charging the client more than the originally agreed upon rate. See, e.g., In re Yacob, 318 Or 10 (1993); In re Kerrigan, 271 Or 1 (1975). Lawyers may not unilaterally increase their hourly rate or charge interest without their client’s consent. OSB Formal Ethics Op 2005-97. Thus, if your firm makes periodic adjustments to the lawyers’ hourly rates, this information must either be included in a written agreement or the clients must otherwise consent to the modification prior to the adjustment being made. See Tellam, "Increasing Hourly Rates," 52 OSB Bulletin 33 (July 1992).
A breakdown in the lawyer-client relationship often precipitates the lawyer charging clearly excessive fees. Client questions lawyer, implies that lawyer’s services were less than stellar and asks for a reduction in the recent bill. Lawyer responds with a lengthy and indignant defense of lawyer’s work, notifies the client that he will be withdrawing from further representation and then promptly re-bills the client, adding charges for responding to client’s insults and for drafting a motion to withdraw.
Whether lawyers may charge for preparing and presenting a motion to withdraw has yet to be directly addressed in Oregon. The North Carolina State Bar recently determined that it is improper for a lawyer to charge a client for time spent withdrawing from the case, except in the unusual circumstance where the withdrawal advances the client’s objectives. 2007 Formal Ethics Opinion 8. In Oregon, charging for services that solely benefit the lawyer, rather than the client, has been held to be a clearly excessive fee. See In re Paulson, 335 Or 436 (2003). Thus, lawyers should not charge clients for time spent responding to or negotiating a billing dispute or for time spent responding to an ethics complaint. See In re Benett, 331 Or 270 (2000); In re Klahn, 14 DB Rptr 65 (2000); OSB Formal Ethics Op 2005-78. Under the analysis of these cases, preparing and presenting a motion to withdraw could also be considered a service that solely benefits the lawyer, depending on the circumstances. Therefore, Oregon lawyers should think carefully before deciding to charge for such work.
Illegal lawyer fees are easier to identify because they are, quite simply, those that are prohibited by law. For example, charging a fee in a workers’ compensation case when the fee has not been approved by the referee or board is an "illegal fee." In re Sassor, 299 Or 570 (1985). Similarly, charging fees in certain bankruptcy cases without prior court approval and accepting fees from a probate estate when the fees have not been approved by the court are both considered illegal fees. See In re Montgomery, 16 DB Rptr 139 (2002) and In re Altstatt, 321 Or 324 (1995).
With limited exception, the Oregon Rules of Professional Conduct do not explicitly require that fee agreements be in writing. However, many misunderstandings over fees could be avoided with a well crafted written fee agreement or engagement letter. Further, Oregon RPC 1.4(b) does require that lawyers explain matters to clients "to the extent reasonably necessary to permit the client to make informed decisions regarding the representation." Expected fees and costs for the representation are matters that should be explained in advance to clients so that they can make informed decisions about how to proceed with their cases. When the explanation is given in writing, there is less room for confusion.
Providing clients with an outlet for airing their grievances about fees can also help to avoid frivolous disciplinary and malpractice complaints. The Fee Arbitration Program provides one such outlet that is relatively inexpensive and speedy. The OSB Fee Arbitration Program is voluntary at present. In most cases, it is the client who initiates the process. And unfortunately, in most cases, it is the lawyer who refuses to participate, leaving the client frustrated and grasping for other means to obtain some remedy. Contacting the OSB Client Assistance Office and/or the Professional Liability Fund is often the next step for these clients. Participating in fee arbitration certainly does not insulate lawyers against ethics complaints or malpractice claims. However, it can save lawyers considerable time in dealing with those complaints that turn out to be frivolous.
Lawyers frequently ask whether they are allowed to include a provision in their fee agreement that requires clients to arbitrate fee disputes. The answer is unequivocally yes. Lawyers may not enter into an agreement with a client that limits the rights of the client to file or pursue an ethics complaint against the lawyer. Oregon RPC 1.8(h)(4). And agreements with clients that settle malpractice claims or that require arbitration of such claims may only be made with the client’s informed consent, confirmed in writing. RPC 1.8(h)(2) & (3). However, the rules of professional conduct do not impose similar limitations or qualifications on provisions that require the client to arbitrate fee disputes. So for those lawyers who were thinking about adding a fee arbitration provision to their fee agreements, go for it!
1. Resources include the Oregon State Bar Fee Agreement Compendium (2007), and The Ethical Oregon Lawyer (Oregon CLE 2006).
ABOUT THE AUTHOR
Helen Hierschbiel is deputy general counsel for the Oregon State Bar. She can be reached at (503) 620-0222, or toll-free in Oregon at (800) 452-8260, ext. 361, or by e-mail at firstname.lastname@example.org.
© 2008 Helen Hierschbiel