Sorted by Commenter - Ethics - State of California

RRC – Rule 1.5 [4-200]
E-mails, etc. – Revised (6/1/2010)
Regarding the client protection side of the equation, I strongly recommend that you visit the
Client Security Fund (CSF) page at the Bar's website where the CSF Annual Reports are
archived.
(Go to: http://calbar.ca.gov/state/calbar/calbar_generic.jsp?cid=10486&id=1382 )
At this page you can review CSF reports from 2000 to 2009 and if you look at each report you
will see that the category of "unearned fees" regularly accounts for either (or in some years,
both) the largest number of applications paid or the highest dollar amounts of payouts from the
fund. In 2009, for example, 59.6% of applications paid were for "unearned fees" (the #1
category) and $1,305,829.00 were paid out for "unearned fees" (the #2 category,
misappropriation was #1). While I recognize that all of this misconduct may not be the result of
advance fees that are unavailable for a required refund (see p. 2 of the 2009 report outlining the
various types of "Dishonest Conduct" that qualify for CSF payout), some change in the law is
needed to address this trend. As I stated in a prior message, if a compromise cannot be
reached on Rule 1.5, 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.
Attached:
RRC - 4-200 [1-5] - Rule - DFT12.3 (06-01-10)RD - Cf. to DFT11 (12-14-09).doc
June 1, 2010 Tuft E-mail to Difuntorum, cc RRC:
Two questions, Randy (even though I continue to be opposed to this rule): (1) why is revised
comment [6] not limited to flat or fixed fees and (2) if a lawyer is permitted to claim that the fee
belongs to the lawyer prior to earning the fee, why shouldn't the client be required to
acknowledge the transfer of rights to the money in writing? It seems to me we are getting very
close to a rule 1.8(a) situation. I believe lawyers will find it difficult to distinguish between
agreements that result in an ownership or possessory interest in client property and this rule.
Your statistics are compelling and I agree that we should join the rest of the country in requiring
advance fees be placed in a client trust account if we are unable to provide adequate client
protection in rule 1.5.
June 1, 2010 Difuntorum E-mail to Tuft, cc RRC:
Good questions, here are some thoughts.
1) We could limit the ban on the designation "nonrefundable" to flat/fixed fees paid in advance
but this has two downsides. First, it could feed the perception that the Commission is targeting a
particular segment of the Bar for regulation. Second, the resultant public protection would be
too limited since even lawyers who purport to charge "true retainers," "hybrid fees," or
"evergreen deposits" can fall into a trap by overly relying on the term "nonrefundable." I know it
is quite optimistic but taking "nonrefundable" out of fee agreements might help prevent a
lawyer's misunderstanding of fee arrangements and avoid the In re Fonte, Matthew v. SB, and
In re Lais outcomes.
2) Paragraph (f)(2) would require a writing for a flat fee paid in advance and this writing
requirement would augment the existing statutory obligations. Still, you correctly point out that
this doesn't go as far as the 1.8(a) protocol. Perhaps a cross reference to proposed Rule 1.8.1
RRC - 4-200 [1-5] - E-mails, etc. - REV (06-01-10).doc -158-
Printed: June 2, 2010