The Basics of Fee Agreements
By Gina Hendryx, OBA Ethics Counsel
The written fee agreement is the first and most practical opportunity to define not only what the cost of the legal representation will be but also to discern what services the lawyer will provide and what is expected from the client. Oklahoma Rule of Professional Conduct (ORPC) 1.5 governs fees and fee agreements. Oklahoma does not require all fee agreements to be in writing. Only the contingent fee agreement must be in writing.1 However, it is always the better practice to memorialize all fee agreements in writing to reduce the possibility of misunderstandings and to clearly identify the scope of the representation.
The Contingent Fee
Rule 1.5 provides that a fee may be contingent on the outcome of the matter and that such a fee arrangement shall be in writing. The rule further provides that:
- The agreement shall state the method by which the fee is to be determined. For example, the contract should spell out at what stages the fee percentage increases. Does it increase in event of settlement, trial or appeal? Is the attorney fee deducted from the “gross” or “net” recovery? How do you determine “net” recovery?
- The agreement shall state whether the client will be responsible for litigation and other expenses.
- The agreement shall also indicate if expenses will be deducted before or after the fee is calculated.
- Upon conclusion of the matter, the client shall be provided a written statement indicating the outcome of the matter and detailing the distribution of the recovery between attorney and client.
- The contingency fee agreement is improper for domestic relations matters other than actions to collect past due alimony or child support. It is also improper to have a contingent fee arrangement for representation of a defendant in a criminal case.
Rule 1.5 specifies the minimum requirements for a contingent fee agreement. Courts have held that an attorney must provide these details even if the lawyer regularly represents the client on similar matters and the client understands the process.2
The contingent fee, as with all fees, shall be reasonable. It is acceptable for a lawyer to charge a higher percentage as different stages of the representation is reached. For example, the fee will be 25 percent of the gross recovery if settled before trial and 33 percent of the gross recovery if settled during trial or by judgment.3 The specific percentage and triggering event should be spelled out in the fee agreement, and it is also good practice to give the client notice when the increases go into effect.
Whether you are representing a client on an hourly basis, billing against a retainer or charging a flat fee, the written fee agreement affords your client the early opportunity to fully understand the fee structure and what she is getting for her money. This will help avoid differing memories about fee discussions and representation issues. Even in the most routine of legal representations, the written fee agreement can deter many common problems that arise between lawyer and client.
Areas that should be addressed in the fee agreement include the following:
1) The compensation agreement between the lawyer and the client. First and foremost, this is the primary reason for the fee agreement. The document should spell out what the charge is for the services and how it is to be paid. “At the outset of the representation the lawyer should make disclosure of the basis for the fee and any other charges to the client. This is a two-fold duty including not only an explanation at the beginning of engagement of the basis on which fees and other charges will be billed, but also a sufficient explanation in the statement so that the client may reasonably be expected to understand what fees and other charges the client is actually being billed.”4
2) A clear identification of who is the client. This is especially important when the lawyer meets with more than one person about a representation. Problem areas include advising multiple shareholders of a corporation, giving advice to both employer and employee, and advising parents and their adult children especially in guardianship and family law matters.
3) What services will be performed by the lawyer. The fee agreement should indicate what services the lawyer will perform for the client. If you agree to only “negotiate” the claim but not file suit, then you should specify how far into the process you are agreeing to go. For example, do you agree to file and prosecute any appeal that may result from the representation? Do you agree to prosecute or defend the appeal for the fee that has been paid? This can become a contemptuous matter between lawyer and client when the appeal was not contemplated by the lawyer and the client believes otherwise.
4) What is expected of the client. The client should be made aware of what expectations that lawyer has of the client. The client should keep the lawyer informed of changes in address, telephone number, emergency contacts, etc. If the client is difficult to reach, you may include instructions in the agreement for routine contact from the client.
5) Intent to charge interest on unpaid bills. If you intend to assess interest charges on unpaid client balances, then you should include this information in the written fee agreement. The notice should include the amount of interest and how and when it accrues.
These are just a few of a myriad of issues that may be addressed in a written fee agreement. The lawyer should craft the agreement to meet the needs of the client and the subject of the representation. It is best to use clear and concise language. Avoid ambiguous terms and use specific dates, amounts and directions. Spell out a client’s responsibilities regarding payment of fees, costs and expenses. Always, you and the client sign the agreement and provide the client with a copy of the signed document.
Have an ethics question? It’s a member benefit, and all inquiries are confidential. Contact Ms. Hendryx at firstname.lastname@example.org or (405) 416-7083; (800) 522-8065.
1. ORPC 1.5(c).
2. Statewide Grievance Comm. v. Dixon, 772 A.2d 160 (Conn. App. Ct. 2001).
3. ABA Formal Ethics Opinion 94-389.
4. ABA Formal Ethics Op. 93-379 (1993).
Originally published in the Oklahoma Bar Journal -- Feb.10, 2007 -- Vol. 78; No.5