Updated September 6, 2022
Note: Since this post was originally published, some states have FINALLY revised their ethics rules to allow more flexibility to deposit an advance payment of flat fees to an operating account. Take a look at this recent roundup. Nevertheless, cases like this one are useful in giving insight into regulators’ concerns about up front payment of flat fees so the post is still worth a read.
Back in 2016, I posted about a Kansas Supreme Court decision issuing a public censure to a criminal defense attorney, finding that he violated various ethics rules in failing to deposit a flat fee for legal services into his trust account and neglecting to track his time in connection with the matter. According to the opinion, the attorney’s representation agreement contemplated a flat fee of $30,000 for defense in a 7-count felony complaint involving three minors, with $20,000 due at the outset of the case and the remaining $10,000 balance to be paid in installments over a six month period. The flat fee did not cover a jury trial or appeal. Three months after the agreement was signed and a preliminary hearing took place, the case was set for trial, and the client was notified that an additional $25,000 would be due. When the client failed to pay for the second phase of representation, the attorney withdrew from the matter and the ethics complaint ensued.
Today’s Courts Do Not Understand How Attorney Flat Fees Work
The court found several ethics violations. Some of the ethics violations could have been avoided by a better representation agreement , while others betray the court’s utter lack of understanding of what a flat fee is. For example, the court faulted the attorney for failing to deposit the flat fee into his trust account where it should have remained until the case concluded. However, in many jurisdictions, attorneys can provide in a representation agreement that a flat fee is deemed earned at certain milestones, and thus can be withdrawn from the trust account.
Next, the court admonished the attorney for failing to provide an accounting to the client of the number of hours worked after he withdrew from the case. Of course, the very point of the flat fee is to eliminate the need for tracking hours by putting the focus on the value provided rather than time spent, and rewarding the attorney for efficiency. But instead, the court examined how many hours the attorney estimated he spent on the case — at that point, it was 70 hours at $250/hour — and required a refund.
How Attorneys Can Improve Their Flat Fee Agreements to Avoid Bar Discipline
That’s not to say that the attorney was blameless. He had two disciplinary offenses in the five years preceding this matter, thus making his conduct suspect. But more significantly, the attorney’s representation agreement (at least what was quoted in the opinion) failed to describe the “deliverables” (i.e., work that would be performed) in exchange for the fee. Had the representation agreement stated “In exchange for the flat fee of $30,000, the firm will (a) research and analyze viable legal grounds for dismissal of complaint; (b) identify adverse witnesses and investigate background for purposes of cross-examination; (c) obtain and review all documents relevant to charges; (d) interview witnesses identified by client; (e) prepare strategic plan for case…you get the idea. Asking someone to pay $30,000 for an intangible product, while ethical, fails to appropriately convey the value to the client.
Ultimately, though, it’s not the attorney’s oversight but rather, the court’s conduct that burns me up. Here’s why. If this attorney had offered his services through Avvo Legal Services, the client would have paid the fee up front and it would have gone into Avvo’s pocket, not a trust account. Not only would Avvo earn the time-value of the advance payment, but it would also take a marketing fee for sending the case to the attorney. By contrast, because regulators won’t allow lawyers to accept flat fees without putting them into trust accounts, lawyers are placed at a disadvantage to a non-lawyer provider.
The solution here isn’t to shut down or impose onerous regulation on legal services platforms or other online matching services. Let 1000 legal providers bloom, I say. But at the very least, we need to establish a level field so that both lawyers and non-lawyer providers have the opportunity to thrive.