Let’s Crowdsource State Ethics Rules on Flat Fees for Lawyers (Part II)

Flat fees make life easy for clients.  No lengthy bills to review, no sticker shock about the ultimate cost.  Just one price for getting the job done.

But if flat fees are so easy, why aren’t the ethics rules that govern them? In Part I of this post  I tried to simplify the principles governing flat fees with limited success.  Even going to the source isn’t much help because the source is hard to find: or this post, I spent hours searching for ethics opinions and flat fees and managed to locate just 15 jurisdictions.  What’s more, all of the opinions and rules are five pages or more and therefore not well-suited for lawyers to actually read them.

Memo to bars: if you want more ethical lawyers, maybe make your ethics rules more user friendly, either with short, clear rules or examples. In the meantime, here’s a round-up of what I found.

I’m asked about flat fees so frequently – can you help me crowdsource them? If your state isn’t listed, can you fill out this quick form with the following information:

State Rules on Flat Fees

California Rule 1.15(b) provides:

Notwithstanding paragraph (a), a flat fee paid in advance for legal services may be deposited in a lawyer’s or law firm’s operating account, provided: (1) the  lawyer  or  law  firm  discloses  to  the  client  in  writing  (i)  that  the  client has a right under paragraph (a) to require that the flat fee be deposited in an identified trust account until the fee is earned, and (ii) that the client is entitled to a refund of any amount of the fee that has not been earned in the event the representation is terminated or the services for which the fee has been paid are not completed; and (2) if the flat fee exceeds $1,000.00, the client’s agreement to deposit the flat fee  in  the  lawyer’s  operating  account  and  the  disclosures  required  by paragraph (b)(1) are set forth in a writing signed by the client.

Also in California, flat fees (or portion thereof) must be refundable but no guidance on calculating refund of flat fee.

Colorado Rule 1.5(h) New Rule 1.5(h) defines a flat fee as “a fee for specified legal services for which the client agrees to pay a fixed amount, regardless of the time or effort involved.” Four requirements for flat fee to be put in writing:

(i)    A description of the services the lawyer agrees to perform;

(ii)    The amount to be paid to the lawyer and the timing of payment for the services to be performed;

(iii)    If any portion of the flat fee is to be earned by the lawyer before conclusion of the representation, the amount to be earned upon the completion of specified tasks or the occurrence of specified events; and

(iv)    The amount or the method of calculating the fees the lawyer earns, if any, should the representation terminate before completion of the specified tasks or the occurrence of specified events.

In Colorado, flat fees paid up front must go to trust account until earned. Colorado has a sample form for flat fee agreements here.

District of Columbia – Not sure what the applicable ethics rules are, but D.C. has caselaw In Re Mance which held that held that when an attorney receives a flat fee at the outset of the representation, those funds are deemed “unearned” fees and remain the property of the client until earned.  But D.C. does allow lawyers to establish milestones by which fees are deemed earned – though the milestones must have some relationship  to the fees paid and can’t be created solely to circumvent Mance.

Florida Rule 4-1.5  Defines flat fee as  “a sum of money paid to a lawyer for all legal services to be provided in the representation. A flat fee may be termed “non-refundable.”

A lawyer may require advance payment of a fee but is obliged to return any unearned portion. See rule 4-1.16(d). A lawyer is not, however, required to return retainers that, pursuant to an agreement with a client, are not refundable. A nonrefundable retainer or nonrefundable flat fee is the property of the lawyer and should not be held in trust.

Georgia Formal Advisory Opinion No. 91-2

A “flat” or “fixed” fee is one charged by an attorney to perform a task to completion, for example, to draw a contract, prepare a will, or represent the client in court, as in an uncontested divorce or a criminal case. Such a fee may be paid before or after the task is completed. A “prepaid fee” is a fee paid by the client with the understanding that the attorney will earn the fee as he or she performs the task agreed upon. Under these various definitions, one can reasonably take the position that “retainers” and “flat fees” may be placed in the general operating account when paid.

Iowa (from Trust Account guidance document; see also Iowa Judicial Branch):

If a flat fee is paid prior to performance of the services, it must be deposited in the trust account. Iowa Ct. R. 45.10(2). Contracts providing for nonrefundable flat fees are unethical and void.  Absent an agreement with the client to the contrary, an attorney is entitled to the flat fee when the contemplated services have been completed. However, the attorney and client may agree regarding when and how much of the flat fee will be earned and may be withdrawn as the work progresses to completion. The agreement must reasonably protect the client’s right to a refund of the unearned portion of the flat fee in the event the client engages new counsel or the attorney fails to complete the work. Iowa Ct. R. 45.10(3). Any withdrawal of a portion of the flat fee from the trust account requires notice and accounting to the client under rule 45.7

Maryland [Could not locate specific rule on flat fees but this would appear to apply]

Advanced fees are presumed to be the property of the client, but can be agreed to be the property of the attorney with the informed consent of the client. Comment 3 to Rule 1.15 (“Section (c) of Rule 19-301.15 (1.15) permits advances against unearned fees and unincurred costs to be treated as either the property of the client or the property of the attorney.”) That Comment goes on to instruct that “advances against fees that have not been incurred must be returned to the client as provided in Rule 19-301.16 (d) (1.16).”

Massachusetts Rule 1.15 [2A] : The Rule [requiring unearned fees to be placed in a trust account] does not require flat fees to be deposited to a trust account, but a flat fee that is deposited to a trust account is subject to all the provisions of this Rule, including paragraphs (b)(2) and (d)(2). A flat fee is a fixed fee that an attorney charges for all legal services in a particular matter, or for a particular discrete component of legal services, whether relatively simple and of short duration, or complex and protracted. For the obligation to refund an unearned fee in the event of a discharge or withdrawal, see Rule 1.16(d).

General refund rules in Massachusetts apply to flat fees but no guidance on calculation.

 Montana Opinion 080711 (2008) Montana Rule of Professional Conduct (MRPC 2004) Rule 1.5 permits a lawyer to charge a fixed or flat fee, provided that the agreement meets other obligations of professional conduct, including full disclosure to the client, reasonableness of fees, refund obligations, and depositing funds. The use of the terms “nonrefundable” and “earned on receipt” are discouraged.

Absent an agreement to the contrary, an advance payment for services to be rendered belongs to the client until earned by the lawyer….The reasonable client’s expectation is that advance payments belong to the client until they are earned by the lawyer and will be initially deposited in trust and withdrawn by the lawyer as they are earned. If an agreement diverges from this expectation, therefore, the lawyer must disclose those fee terms fully and in a manner that can be reasonably understood by the client. See MRPC1.5(b).

New York Rule 1.5 and NYSBA Op. 1202  The Rules permit advance payment of fees. See Rule 1.5, Cmt. [4] (a lawyer may require advance payment of a fee). See also N.Y. State 816 (2007) (discussing, under the Code of Professional Responsibility (the “Code”), whether such payments constitute funds of the lawyer or client); N.Y. State 983 (2013) at note 1 (concluding there is no reason that the Rules would lead to a different result).

Rule 1.5(d)(4) prohibits a non-refundable retainer fee. See also Rule 1.5, Cmt. [4] (a lawyer may require advance payment of a fee, but is obliged to return any unearned portion). See Matter of Cooperman, 83 N.Y.2d 465 (1994). See generally N.Y. State 599 (1989) (discussing the prohibition against non-refundable fees under the Code and distinguishing between non-excessive minimum fees and non-refundable retainers). N.Y. City 2015-2 (fees paid to a lawyer in advance are nonrefundable only to the extent they have been earned by the lawyer).

Nevertheless, Rule 1.5(d)(4) also permits a lawyer to enter into a retainer agreement containing “a reasonable minimum fee clause if it defines in plain language and sets forth the circumstances under which such a fee may be incurred and how it will be calculated.”

A minimum fee could also be justified by a description of services to be performed at the outset of the representation, for which the lawyer claims immediate entitlement to payment, even before the work is commenced or completed, subject to the lawyer’s obligation to refund any portion the lawyer does not ultimately earn. See Rule 1.16(e)

Allows advance flat fees with “minimum fee clause” that can be treated as earned on receipt. Also must be refundable.

North Carolina 97-Formal Ethics Op. 4  A flat fee is usually collected at the beginning of the representation, treated by the lawyer as money to which the lawyer is immediately entitled, and deposited into the lawyer’s general operating account or paid to the lawyer. See RPC 158 and Revised Rule 1.5(c).

Ohio 2016-1 It is proper for a lawyer to enter a flat fee agreement requiring a client to pay a fixed amount in advance of representation. Under Prof.Cond.R. 1.15(c), a lawyer is required to deposit flat fees and expenses paid in advance for representation into an IOLTA account, unless designated as “earned upon receipt” or similarly, and may withdraw the fee only as it is earned or the expense as it is incurred. If a lawyer designates a fee “earned upon receipt,” “nonrefundable,” or similarly, the client must be advised in writing that the client may be entitled to a refund under Prof.Cond.R. 1.16(e) for any part of an unearned flat fee paid in advance of representation

Pennsylvania/Philadelphia Joint Ethics Opinion 2022-300: Ethical Considerations of Handling Flat Fee

When there is a “flat fee” arrangement, the lawyer should specifically state whether the fee is intended to be non-refundable and earned upon receipt. See, ODC v. Ostrowski, 135 DB 2008 (2009) (holding that because disclosure of fee as a “flat fee” was insufficient to transform the retainer automatically into lawyer’s personal property, the fee should not have been deposited into the attorney’s operating account; the disclosure failed to specify that the funds were nonrefundable and earned upon receipt).

Sample language for flat fee from Pennsylvania:  Lawyer and client agree that the fee in this matter (1) is a flat, non-refundable fee which is earned upon receipt and covers the following work (insert scope of the engagement), (2) will not be deposited into an attorney IOLTA or other Trust account to be billed against, and (3) will be deposited in the lawyer’s operating account.”

Virginia LEO 1606   The term fixed fee is used to designate a sum certain charged by a lawyer to complete a specific legal task. Because this type of fee arrangement provides the client with a degree of certainty as to the cost of legal services, it is to be encouraged.

   A fixed fee is an advanced legal fee. It remains the property of the client until it is actually earned and must be deposited in the attorney’s trust account. If the representation is ended by the client, even if such termination is without cause and constitutes a breach of the contract, the client is entitled to a refund of that portion of the fee that has not been earned by the lawyer at the time of the termination. LE Op. 681. In such circumstances, what portion of the fee has been earned requires a quantum meruit determination of the value of the lawyer’s services in accordance with Heinzman and County of Campbell v. Howard, 133 Va. 19 (1922).

Washington State RPC 1.5 –   A lawyer may charge a flat fee for specified legal services, which constitutes complete payment for those services and is paid in whole or in part in advance of the lawyer providing the services. If agreed to in advance in a writing signed by the client, a flat fee is the lawyer’s property on receipt, in which case the fee shall not be deposited into a trust account under Rule 1.15A….

A statement in substantially the following form satisfies this requirement:

[Lawyer/law firm] agrees to provide, for a flat fee of $__________, the following services: _____________________________________. The flat fee shall be paid as follows: _____________________________. Upon [lawyer’s/law firm’s] receipt of all or any portion of the flat fee, the funds are the property of [lawyer/law firm] and will not be placed in a trust account. The fact that you have paid your fee in advance does not affect your right to terminate the client-lawyer relationship. In the event our relationship is terminated before the agreed-upon legal services have been completed, you may or may not have a right to a refund of a portion of the fee.