73 J. Kan. Bar Assn. 8, 6-8, 36-41 (2004). Attorney Fees: Where are We in Kansas?.

• Author: By Philip Ridenour

Kansas Bar Journals

Volume 73.

73 J. Kan. Bar Assn. 8, 6-8, 36-41 (2004).

Attorney Fees: Where are We in Kansas?

Kansas Bar Journal73 J. Kan. Bar Assn. 8, 6-8, 36-41 (2004)Attorney Fees: Where are We in Kansas?By Philip RidenourIf properly structured, Kansas lawyers are ethically permitted to charge clients nonrefundable, flat, minimum, and retainer fees. However, if the fee agreement contemplates future services to be performed by the lawyer, the "up front" payments do not belong to the lawyer until the services are rendered, and, upon completion of the assignment or termination of the representation, any unused portion of the fee must be refunded to the client.

"A lawyer's fee shall be reasonable." Thus begins Rule 1.5 Fees, of the Kansas Rules of Professional Conduct (KRPC), which then proceeds to enumerate eight nonexclusive factors that may be considered in determining the reasonableness of a fee.

Rule 1.5 is silent about nonrefundable, flat, minimum, or retainer fees, but the Kansas Comment to Rule 1.5 states,

Terms of Payment

A lawyer may require advance payment of a fee, but is obligated to return any unearned portion. See Rule 1.16(d).

Additionally, KRPC 1.16 states as follows:

(d) Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client's interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee that has not been earned. ...

From these two provisions it is abundantly clear that if a lawyer has been paid a fee in advance then, upon the conclusion of the representation, the lawyer must return any unused or unearned portion of the advance fee. But, what about written fee agreements? Is it permissible for a lawyer to contract with a client to receive a flat fee, nonrefundable advance fee, or a minimum fee that the lawyer may permissibly and ethically retain regardless of the amount of work or the services performed by the lawyer? The KRPC contain no specific provisions or guidelines that address these issues, but Kansas case law drawn from lawyer disciplinary cases supplies most of the answers.

Flat or Fixed Fees

The "flat" fee is also known as a "fixed" or "task-based" fee. The lawyer agrees to do a specific task in exchange for the payment by the client of a specified fee.

Example I: Able Lawyer agrees, for the flat fee of $1,250, to draft the articles of incorporation for a new corporation and file them with the secretary of state, meet with the incorporators and prospective shareholders, and discuss how the corporation will operate; draft the by-laws and initial meeting minutes, which will include a banking resolution, medical reimbursement plan, and buy-sell agreement; prepare the opening balance sheet; and issue the stock.

Under the flat fee arrangement, the lawyer assumes the risk for the task consuming more time than estimated. The flat fee, like all fees, must also be reasonable under the requirements of KRPC 1.5. As long as the fee remains reasonable, then the lawyer reaps the benefit of streamlining the process and office efficiencies used in providing the service.(fn1)

The KRPC, following the American Bar Association's (ABA) Model Rules of Professional Conduct (MRPC), specifically approves of fixed or flat fees as one of the eight factors under KRPC 1.5 that may be considered in determining whether a fee is reasonable:

The factors to be considered in determining the reasonableness of a fee include the following:

(8) Whether the fee is fixed or contingent.(fn2)

In its only ethics opinion to consider flat fees, the ABA has approved fixed or flat fees in the areas of legal work on tax matters and tax litigation:

There is nothing improper in a lawyer charging and being paid a fixed fee in advance for legal work on tax matters or litigation before the Tax Court if the client and the lawyer choose to do so and it is fully understood that the fixed fee embraces all work to be done, whether it be relatively simple and of short duration, or complex and protracted.(fn3)

The Kansas comment to KRPC 1.5 clearly approves flat or fixed fees:

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. [Emphasis added.](fn4)

Flat or fixed fees have been discussed on several occasions by the Kansas Supreme Court. In re Rathbun(fn5) involved two flat fees, one being a "minimum" flat fee while the other was a flat fee in a custody matter. The Court was not troubled by the flat fee as such, but found a violation of (1) KRPC 1.5 when the attorney deposited the flat fee into his operating account instead of his trust account prior to rendering the services covered by the fee and (2) KRPC 1.15 when the lawyer failed to return the portion of unearned flat "minimum" fee when his representation was terminated early. The Court has heard several other disciplinary cases in which the respondent attorney charged a "flat" fee. While the Court has found violations in the manner in which the flat fee was handled, including lack of communication regarding the fee, depositing the fee to the operating account instead of the trust account until the fee was earned, and failure to refund the unearned portion of the fee when the lawyer was discharged before completion of the services covered by the flat fee, none of the cases disapprove of the flat fee as such.(fn6)

Perhaps the most comprehensive analysis of flat fees is found in In re Carson,(fn7) where the attorney quoted the client a flat fee of $800 to handle a child support matter and the client signed a promissory note for that amount. The client made periodic payments totaling $360 and was billed an additional $460. While handling the child support matter, the client decided to seek a change in child custody and visitation and agreed to pay an additional fee for that work, but no fee was agreed upon. Respondent filed suit to collect an $800 fee from his client, allegedly for additional work on the support matter, but his ledger reflected no additional work was performed.

The hearing panel of the Kansas Board of Discipline of Attorneys concluded that respondent's flat fee was not in fact a flat fee but rather a fee that could be raised based solely upon respondent's judgment as to how much work was performed by the attorney. The Court found it troubling that the flat fee could be raised by respondent but declined to find a violation of KRPC 1.5, doubtlessly because respondent and his client had agreed upon additional work to be performed beyond that work agreed covered by the quoted flat fee. Nevertheless, the importance of Carson is its specific approval by the Court of a flat fee:

The problem with respondent's fee setting is not that it is a flat fee, as such would obviously be within the rule. Rather, the problem is that respondent has reserved the right to set a fee higher than the flat fee whenever, in his estimation, the time spent on the case is more than usual.(fn8)

Despite the peculiar facts in Carson, neither it nor KRPC 1.5 can be read as authorizing an attorney unilaterally to increase a quoted flat fee if the attorney decided time had been spent beyond what was anticipated would be required when the fee agreement was made. Also, as discussed below, KRCP 1.16(d) requires the lawyer to return any unsecured portion of the flat fee if representation is terminated before the tasks are completed.(fn9)

Example II: Shirley Wright is approached by a client accused of embezzlement of an employer's money. Shirley agrees to represent the client at the preliminary hearing through any trial that might result for the flat fee of $10,000 to be paid up front before representation begins. The client pays the $10,000, which Shirley properly deposits into her escrow account.

First Scenario: Client terminates Shirley's representation after the preliminary hearing; Shirley must refund to the client the unused portion of the fee, with the amount to be retained by Shirley calculated at her usual hourly rate or on some other reasonable basis as may be agreed upon with the client.

Second Scenario: The preparation for trial proves to be far more time consuming than Shirley anticipated. Shirley cannot ethically seek additional fees from the client and must perform the services agreed upon pursuant to the flat fee agreement.

Flat or fixed...