Sorted by Commenter - Ethics - State of California
Sorted by Commenter - Ethics - State of California Sorted by Commenter - Ethics - State of California
RRC – Rule 1.5 [4-200] E-mails, etc. – Revised (6/1/2010) 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. 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. 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 discharge the lawyer at any time and in that event may be entitled to a refund of all or part of the fee based upon the value of the representation pursuant to paragraph (a). I think an important point in the Arizona language is the client's right to discharge the lawyer. One of the key rationales in New York's Cooperman opinion that rejected the concept of a nonrefundable fee was that it interfered with the client's absolute right to discharge the lawyer (sure, the client can discharge the lawyer, but if the client has already paid a multi-K nonrefundable fee, can the client afford to do so?) Accordingly, I also think that the "unless the lawyer withdraws" language in the form fee agreement and cited to by the criminal defense bar is wrong. The issue is not whether the lawyer "withdraws," the issue is the client's right to discharge the lawyer. The client should be entitled to a refund whether the lawyer withdraws or the client fires the lawyer before the lawyer has completed the agreed upon services. c. As I mentioned in an earlier e-mail, we seem to be dealing with a condition subsequent, an event that might occur to discharge a previously-incurred obligation (e.g., no work done discharges the client's obligation to pay). We seem to contemplate this concept in the second sentence of our paragraph (b), which provides: Unconscionability of a fee shall be determined on the basis of all the facts and circumstances existing at the time the agreement is entered into except where the parties contemplate that the fee will be affected by later events. Perhaps we can highlight that sentence by referring back to it in a comment. 2. Paragraph (e). I would not change the language as Randy suggests (substituting "enter into" for "make") unless we make the same change in paragraph (a). RRC - 4-200 [1-5] - E-mails, etc. - REV (06-01-10).doc -145- Printed: May 26, 2010 84
RRC – Rule 1.5 [4-200] E-mails, etc. – Revised (6/1/2010) 3. Paragraph (f)(1) [Formerly (e)(1)]. I'm not sure why Randy changed proposed (e)(1). Was it only to shorten or simplify it? I'm fine with that but I thought we had adopted the definition in 1.5(e)(1) as a more complete explanation of a true retainer than is currently found in the California rules. Note that we removed the definitions of true retainer from Rules 1.15 and 1.16. 4. Paragraph (f)(2). I'm not sure I agree with the deletion of "if the agreed-upon legal services have not been completed" at the end of (f)(2). 5. Comment [10]. Whether comment [10] is deleted depends upon how the Commission resolves item #1, above. 6. Summary. As Harry and Randy have observed, this journey began with the Commission's decision to prohibit "non-refundable" fees. As you might recall, the initial public comment version did not have all the bells and whistles re true retainers and flat fees. That came after public comment was received from the criminal defense bar and Raul discovered the proposed Washington Rule 1.5(f). We incorporated those changes but have not assuaged the concerns of the criminal defense bar. I don't agree with Mark that "our proposed rule serves a different purpose than Washington by allowing lawyers to contract with clients to deem a flat fee paid in advance to be the lawyer's property whether or not the lawyer actually earns the fee." I think that what we wrote addressed the seizure issue and was not simply intended to provide criminal defense lawyers with a way to make an advance fee their property. However, I think Randy has made great strides in resolving the earned upon receipt vs. refund conundrum. We will have to decide, however, whether we need to address the seizure issue. RRC - 4-200 [1-5] - E-mails, etc. - REV (06-01-10).doc -146- Printed: May 26, 2010 85
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RRC – Rule 1.5 [4-200]<br />
E-mails, etc. – Revised (6/1/2010)<br />
viewed as earned upon receipt, then they will be subject to seizure. The "earned upon receipt,"<br />
while magic words and meaningless if the facts don't support it, nevertheless provides the<br />
criminal defense lawyers with some comfort and a defense against the government's attempt to<br />
seize the client funds that were used to pay the fee.<br />
a. I'm not sure how to deal with this in light <strong>of</strong> the S.Ct.'s 5/11/1995 letter. In essence, we<br />
have been saying in former (e)(2) (i.e., pre-Randy's proposed modifications) that the fee is<br />
earned on receipt, . . . unless it is not. We don't say it quite that way; rather we achieve that <strong>by</strong><br />
expressly stating that the flat fee is earned on receipt but then caution that the lawyer must<br />
explain in the fee K that the client might be entitled to refund if it turns out the agreed upon legal<br />
services were not completed. The "earned upon receipt" language addresses the seizure issue;<br />
the refund language -- and a refund can only be measured after the services have been<br />
provided or not -- addresses the client protection issue and S.Ct. concerns that a fee is not the<br />
lawyer's until earned.<br />
b. Here is how Arizona has addressed the issue. Perhaps that is an approach we can take:<br />
(d) A lawyer shall not enter into an arrangement for, charge, or collect:<br />
* * *<br />
(3) a fee denominated as "earned upon receipt," "nonrefundable" or in similar<br />
terms unless the client is simultaneously advised in writing that the client may<br />
nevertheless discharge the lawyer at any time and in that event may be entitled<br />
to a refund <strong>of</strong> all or part <strong>of</strong> the fee based upon the value <strong>of</strong> the representation<br />
pursuant to paragraph (a).<br />
I think an important point in the Arizona language is the client's right to discharge the lawyer.<br />
One <strong>of</strong> the key rationales in New York's Cooperman opinion that rejected the concept <strong>of</strong> a nonrefundable<br />
fee was that it interfered with the client's absolute right to discharge the lawyer<br />
(sure, the client can discharge the lawyer, but if the client has already paid a multi-K nonrefundable<br />
fee, can the client afford to do so?) Accordingly, I also think that the "unless the<br />
lawyer withdraws" language in the form fee agreement and cited to <strong>by</strong> the criminal defense bar<br />
is wrong. The issue is not whether the lawyer "withdraws," the issue is the client's right to<br />
discharge the lawyer. The client should be entitled to a refund whether the lawyer withdraws or<br />
the client fires the lawyer before the lawyer has completed the agreed upon services.<br />
c. As I mentioned in an earlier e-mail, we seem to be dealing with a condition subsequent, an<br />
event that might occur to discharge a previously-incurred obligation (e.g., no work done<br />
discharges the client's obligation to pay). We seem to contemplate this concept in the second<br />
sentence <strong>of</strong> our paragraph (b), which provides:<br />
Unconscionability <strong>of</strong> a fee shall be determined on the basis <strong>of</strong> all the facts and<br />
circumstances existing at the time the agreement is entered into except where the<br />
parties contemplate that the fee will be affected <strong>by</strong> later events.<br />
Perhaps we can highlight that sentence <strong>by</strong> referring back to it in a comment.<br />
2. Paragraph (e). I would not change the language as Randy suggests (substituting "enter<br />
into" for "make") unless we make the same change in paragraph (a).<br />
RRC - 4-200 [1-5] - E-mails, etc. - REV (06-01-10).doc -145-<br />
Printed: May 26, 2010<br />
84