Sorted by Commenter - Ethics - State of California

RRC – Rule 1.5 [4-200]
E-mails, etc. – Revised (6/1/2010)
1. I generally agree with Randy's approach but wanted to point out that it will fall flat in
addressing the policy issue the criminal defense bar has raised, i.e., that if the fees are not
viewed as earned upon receipt, then they will be subject to seizure. The "earned upon
receipt," while magic words and meaningless if the facts don't support it, nevertheless
provides the criminal defense lawyers with some comfort and a defense against the
government's attempt to seize the client funds that were used to pay the fee.
MY SUGGESTED APPROACH IS TO ABANDON THE “EARNED ON RECEIPT”
CONCEPT AS NOT HELPFUL. UNDER MY SUGGESTED APPROACH, THE RULES
ARE SILENT AS TO THE DETERMINATION OF A LAWYER’S LEGAL ENTITLEMENT TO
A FLAT FEE. WHAT CRIMINAL DEFENSE LAWYERS HAVE AS COMFORT AGAINST
SEIZURE CONCERNS IS WHAT THEY HAVE ALWAYS HAD SINCE BARANOWSKI,
NAMELY THE OPTION OF NOT DEPOSITING AN ADVANCED FLAT FEE INTO THE
CLIENT TRUST ACCOUNT. IN ADDITION, THEY HAVE THE ABILITY TO USE ANY
CONTRACT LANGUAGE, OTHER THAN “NONREFUNDABLE” OR SIMILAR WORDS, TO
DESCRIBE HOW AND WHEN A FEE IS EARNED.
a. I'm not sure how to deal with this in light of the S.Ct.'s 5/11/1995 letter. In essence, we
have been saying in former (e)(2) (i.e., pre-Randy's proposed modifications) that the fee is
earned on receipt, . . . unless it is not. We don't say it quite that way; rather we achieve that
by expressly stating that the flat fee is earned on receipt but then caution that the lawyer
must explain in the fee K that the client might be entitled to refund if it turns out the agreed
upon legal services were not completed. The "earned upon receipt" language addresses
the seizure issue; the refund language -- and a refund can only be measured after the
services have been provided or not -- addresses the client protection issue and S.Ct.
concerns that a fee is not the lawyer's until earned.
THE HEART OF THE PROBLEM IS THE LEGAL ISSUE OF ENTITLEMENT TO A FEE. I
SUSPECT THAT THE COURT WILL WANT A HIGH LEVEL OF CERTAINTY THAT THE
RULE HAS IT RIGHT IF THE RULE ATTEMPTS TO ADDRESS THAT ISSUE. I AM NOT
CONFIDENT THAT A DISCIPLINARY RULE SHOULD OR COULD ADEQUATELY
ADDRESS THE ISSUE OF LEGAL ENTITLEMENT TO A FLAT FEE. THERE ARE TOO
MANY VARIABLES. HOWEVER, I DO BELIEVE THAT THE RULES CAN BAN CERTAIN
FEES AS A MATTER OF PUBLIC POLICY (SUCH AS A CONTINGENT FEE IN A
CRIMINAL MATTER).
MY SUGGESTED APPROACH WOULD BAN NONREFUNDABLE FEES BUT IT WOULD
NOT ADDRESS HOW OR WHEN FEES BECOME THE LAWYER’S PROPERTY. JUST
BECAUSE A FEE IS SUBJECT TO A CLAIM FOR A REFUND DOES NOT MAKE IT THE
CLIENT’S PROPERTY. IF I BUY A SHIRT AT NORDSTROM WHERE THERE IS A
LIBERAL RETURN/REFUND POLICY, THEN THAT SHIRT IS MINE AND THE MONEY I
PAID BELONGS TO NORDSTROM. LATER, IF I SEEK TO RETURN THE SHIRT AND
GET A REFUND, THEN THAT ACTION CHANGES OWNERSHIP AT THAT LATER TIME
BUT NOT PRIOR TO THAT TIME. MY APPROACH ASSUMES THAT ALL FEES ARE
SUBJECT TO REFUND BUT TO ME THAT IS A NEUTRAL FACTOR ON THE ISSUE OF
LEGAL ENTITLEMENT, ESPECIALLY UNDER EXISTING CALIFORNIA LAW THAT
PERMITS DEPOSIT IN AN ACCOUNT OTHER THAN THE CLIENT TRUST ACCOUNT.
b. Here is how Arizona has addressed the issue. Perhaps that is an approach we can
take:
(d) A lawyer shall not enter into an arrangement for, charge, or collect:
* * *
(3) a fee denominated as "earned upon receipt," "nonrefundable" or in similar terms
unless the client is simultaneously advised in writing that the client may nevertheless
RRC - 4-200 [1-5] - E-mails, etc. - REV (06-01-10).doc -147-
Printed: June 2, 2010