1.8 Fees

• Library: The Virginia Lawyer: A Deskbook for Practitioners (Virginia CLE) (2018 Ed.)

1.8 FEES ⁵⁸

1.801 Reasonableness. A lawyer's fee must be reasonable. ⁵⁹ The Virginia Rules of Professional Conduct (the Rules) use the following criteria to evaluate the reasonableness of a fee:

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	1.	The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
2.	The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
3.	The fee customarily charged in the locality for similar legal services;
4.	The amount involved and the results obtained;
5.	The time limitations imposed by the client or by the circumstances;
6.	The nature and length of the professional relationship with the client;
7.	The experience, reputation, and ability of the lawyer or lawyers performing the services; and
8.	Whether the fee is fixed or contingent. 60

A fee arrangement must be evaluated both at the time it is entered into and at the conclusion of the matter. ⁶¹ A fee that is reasonable at the outset may become unreasonable in retrospect. ⁶² In each case, the question focuses on the value of the lawyer's services in the abstract, not their value to the particular client. A lawyer's duties with respect to fees also extend to expenses incurred on behalf of the client. ⁶³ A lawyer should beware of clients who seem unconcerned about fees as well as those who seem too concerned about fees, as each is a warning of potential future problems with the client. ⁶⁴

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A lawyer's fee must be adequately explained to the client. ⁶⁵ If the lawyer has not regularly represented the client, the amount, basis, or rate of the fee must be communicated to the client before or within a reasonable time after the commencement of the representation. ⁶⁶ The Commentary to Rule 1.5 elaborates on the type of communication required. It states:

It is not necessary to recite all the factors that underlie the basis of the fee, but only those that are directly involved in its computation. It is sufficient, for example, to state that the basic rate is an hourly charge or a fixed amount or an estimated amount, or to identify the factors that may be taken into account in finally fixing the fee.

The Commentary further notes that a letter, memorandum, receipt, or copy of a fee schedule may be a sufficient communication.

1.802 Contingent Fees. A lawyer may not charge a contingent fee for criminal defense and may only charge a contingent fee in domestic relations cases in rare instances. ⁶⁷ The Commentary to Rule 1.5 indicates that the "rare instances" requirement is met only when each of the following conditions is met:

	a.	The contingent fee is for the collection of, and is to be paid out of (i) accumulated arrearages in child or spousal support; (ii) an asset not previously viewed or contemplated as a marital asset by the parties or the court; (iii) a monetary award pursuant to equitable distribution or a property settlement agreement;
b.	The parties are divorced and reconciliation is not a realistic prospect;
c.	The children of the marriage are or will soon achieve the age of maturity [sic] and the legal services rendered pursuant to the contingent fee arrangement are not

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		likely to affect their relationship with the noncustodial parent;
d.	The client is indigent or could not otherwise obtain adequate counsel on an hourly fee basis; and
e.	The fee arrangement is fair and reasonable under the circumstances.

These conditions appear to supersede a number of LEOs issued under the Code of Professional Responsibility addressing contingency fees in domestic relations cases. ⁶⁸

If a contingent fee is permitted, there must be an agreement that states in writing the method by which the fee is calculated and specifically addresses the percentages that accrue to the lawyer, the expenses to be deducted from the recovery, and whether those expenses are to be deducted before or after the contingent fee is calculated. ⁶⁹ On the conclusion of a contingent fee matter, the lawyer must provide the client with a statement showing the fee and its calculation. ⁷⁰

There must be an element of uncertainty as to a client's recovery to justify a contingent fee. ⁷¹ Courts have upheld discipline imposed on lawyers for collecting contingent fees on accidental death benefits, ⁷² for collecting the inheritance of the sole beneficiary of an estate, ⁷³ and for collecting "med pay" insurance benefits ⁷⁴ where there was no real uncertainty as to collection. On the other hand, contingency fees on "med pay" claims against a tortfeasor's insurance have been permitted when the services of a lawyer were necessary to collect on the coverage. ⁷⁵

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In addition to satisfying the requirement of uncertainty of recovery, contingent fees must satisfy the reasonableness standard applied to other fees. ⁷⁶ The amount of time involved, the difficulty of the legal issues involved, and the benefit to the client are relevant factors. LEO 365 states that it is improper to use a contingent fee structure that requires the client, who refuses to accept a recommended settlement and later recovers less than the recommended settlement at trial, to pay a fee equal to the higher of 20 percent of the rejected settlement or 25 percent of the trial verdict. In the case of fees set by a state agency, it is improper for a lawyer to enforce a private contingent fee agreement to recover fees in excess of those awarded by the agency. ⁷⁷

The American Bar Association Committee on Ethics and Professional Responsibility addressed a number of issues raised by contingent fees in Formal Opinion 94-389, holding that contingent fees are proper in cases where a client can afford to pay and when liability is clear as long as the amount of recovery is uncertain. Escalating and contingent percentages are also approved, as are arrangements based on early settlement offers, although a flat percentage arrangement for all stages of a case may raise reasonableness questions. The opinion emphasizes that in all cases, the size of the fee must be reasonable and appropriate notwithstanding the manner of its calculation.

1.803 Fiduciary Compensation. In 2016, the Judicial Council of Virginia approved the "Guidelines for Fiduciary Compensation," which had been prepared by its Standing Committee on Commissioners of Accounts. ⁷⁸ These guidelines have since been approved by most circuit courts and are now in general use. The guidelines answer many questions concerning fiduciary compensation that have been a source of concern to the commissioners of accounts and that had not previously been uniformly addressed. The guidelines are not law and are not intended as a substitute for the analysis that a commissioner must undertake to determine "reasonable compensation" in an individual case. Section 64.2-1208 of the Virginia Code and court decisions continue to guide this decision.

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Virginia has traditionally measured fiduciary compensation on a percentage basis. While the Virginia Code provides for reasonable compensation for fiduciaries, ⁷⁹ the Virginia Supreme Court has also approved a percentage of the amount coming into the hands of the fiduciary as an appropriate measure of compensation. In general, the court has approved five percent as an appropriate measure of fiduciary compensation, but it has not hesitated to use either a higher or lower amount in the proper circumstances. ⁸⁰

When the compensation of an institutional fiduciary is specified under the terms of the trust or will by reference to a standard published fee schedule, the commissioner may not reduce the compensation below the amount specified unless there is sufficient proof that (i) the settler or testator was not competent when the trust instrument or will was executed or (ii) the compensation is excessive in light of the compensation institutional fiduciaries generally receive in similar situations. ⁸¹

1.804 Hourly Fees. Courts and other authorities have challenged fees based on hourly rates when the fees charged were excessive.

An hourly rate fee arrangement produces an economic incentive for a lawyer to be less than candid with the client as to the amount of time actually spent on the client's case. ⁸² Commentators have enumerated several types of abuse of hourly rate fee structures, including make-work, double or triple billing clients for the same period of time, arbitrary time charges for telephone calls, and billing of personal time. ⁸³

The ABA Committee on Ethics and Professional Responsibility addressed the subject of hourly billing in Formal Opinion 93-379, which held that if a lawyer and client have agreed that the lawyer will be compensated on an hourly basis, the lawyer may only charge the client for time actually spent on the client's work. Multiple clients may not be billed for the same work or for the same period of time. Billing one client for travel while billing

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another for work actually performed during the travel is disapproved. Billing a client based on the amount of time it took to complete the work on behalf of another client is not permissible. Any economies realized as the result of multiple client relationships must be passed on to the clients. Churning and make-work are disapproved, as the lawyer may only charge the client for the time reasonably required to complete the task at hand. Lawyers cannot charge their clients for general overhead expenses, but they may charge their clients for specific disbursements on the client's benefit. Absent an agreement to the contrary, a lawyer may not charge a client more than the actual out-of-pocket costs for such items as copies, travel, telephone calls, and similar items. ⁸⁴ A surcharge may not be placed on these charges. While a lawyer can suggest possible fee enhancement to the client, it is improper for the lawyer to unilaterally...