Sorted by Commenter - Ethics - State of California

RRC – Rule 1.5 [4-200]
E-mails, etc. – Revised (6/1/2010)
While your crystal ball is as good as mine, I doubt if your proposal will be deemed to address
"the concerns of the opposition comments" any better than what I propose. At least what I
propose can be defended on the bases I set forth in my email since it relies upon something that
the opposition comments indicate is currently "widely used."
May 26, 2010 Difuntorum E-mail to Sondheim, cc RRC:
To me, trying to key off Mr. Tarlow's approach is inherently flawed because it is a magic words
approach. The Supreme Court's letter can fairly be read as a criticism of any magic words
approach to regulating advance fees. As Mark points out, "no advance fee paid by a client is
the lawyer's property unless and until the fee is earned and that includes fixed or flat fees."
Using contract terms that say "earned on receipt" do not make the fee actually earned and will
involve, as Raul emphasizes, issues such as a failure of consideration. It is fact dependent.
For example, a failure of consideration could occur in circumstances not covered by your
proposed language for (iii). A lawyer may fully perform and not withdraw before services are
completed but the client may discover subsequently that a serious violation of ethics occurred
(ala Pringle v. La Chappell), such as a fee split or a conflict, and that may void some or all of the
lawyer's entitlement to the fee. It is problematic to try to craft a rule that comprehensively
captures all possible situations where a purported "earned on receipt" fee must be refunded.
Instead, a rule on flat fees paid in advance could avoid the magic words approach and attempt
to add client protection by: (1) taking the term "nonrefundable" out of the fee agreement lexicon;
(2) requiring a writing (under penalty discipline unlike the State Bar Act provisions); and (3)
requiring notice to clients that a flat fee paid in advance does not alter the client's right to
terminate a representation and does alter the client's right to claim a refund (with the issue of
whether a refund actually is warranted to be determined by the facts of the particular situation).
My redraft attempts to redirect the rule to this type of client protection and steer away from the
challenge of explicating the difficult oxymoron of the refundable earned on receipt fee. My
approach will not satisfy Mr. Tarlow but it will undercut his complaint that a rule of discipline is
tackling the legal issue of fee entitlement in an incomplete and confusing manner.
By the way, the sample written fee agreements are not a held out by the State Bar as a "gold
standard." To the contrary, there is an express disclaimer stating that: "This sample written fee
agreement form is intended to satisfy the basic requirements of Business & Professions Code
Section 6147 but may not address varying contractual obligations which may be present in a
particular case. The State Bar makes no representation of any kind, express or implied,
concerning the use of these forms." Mr. Talow, however, cites the Bar's sample fee agreement
language because it fits his magic words approach to flat fees paid in advance.
Lastly, if there is no Commission consensus on revising the current proposed rule, then I
recommend that the Commission reconsider the ABA approach of requiring all advance fees to
be placed in a client trust account until earned, including fixed/flat fees consistent with the
interpretation in some jurisdictions.
May 26, 2010 Difuntorum E-mail to RRC:
I have revised my suggested redraft to clarify that true retainers and flat fees are not
"exceptions" to the prohibition against nonrefundable fees. I also fixed some nits and added a
new comment which explains the prohibition against a "nonrefundable" fee by citing Matthew v.
State Bar. Changes are highlighted.
RRC - 4-200 [1-5] - E-mails, etc. - REV (06-01-10).doc -144-
Printed: June 2, 2010