FEE AGREEMENTS: THE NEW WRITING REQUIREMENT AND OTHER OBSERVATIONS

• Jurisdiction: United States

Ethics And Professional Responsibility In The New Millennium
(2000)
CHAPTER 7A
FEE AGREEMENTS: THE NEW WRITING REQUIREMENT AND OTHER OBSERVATIONS
Alexander R. (Alec) Rothrock, Esq.
Burns, Figa & Will, P.C.
Englewood, Colorado 80111

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Legal fee agreements are unique in the law of contracts. They are subject to the law of contracts but trumped by the law of legal ethics. Lawyers cannot contract around or away the rules of legal ethics, and even attempting to do so may have disciplinary ramifications. On the other hand, some lawyers are not aware of the contract law protection to which they are entitled within the rules of ethics. This article discusses various issues in the gray zone between the law of contracts and the law of legal ethics.

Contract Formation: Arm's Length

At the formation of an attorney-client relationship, the parties deal at arm's-length. The agreement is, for the most part, treated and construed like other contracts.ⁱ Despite the inherent conflict of interest between the lawyer's and client's pecuniary interests, lawyers are not subject to Colo. RPC 1.7 dealing with conflicts of interest or Colo. RPC 1.8(a) governing business transactions with a client.ⁱⁱ

It is different when, in the fee agreement, the lawyer acquires an "ownership," "possessory," "security" or "other pecuniary interest" adverse to the client. In this context the lawyer must follow Colo. RPC 1.8(a), which requires the terms of the transaction to be fair, reasonable and fully disclosed to the client in writing. It requires the lawyer to inform the client in writing that use of independent counsel is advisable. Also, any fee paid in property instead of money may be subject to special scrutiny because of questions concerning the value of the property and the lawyer's special knowledge thereof.ⁱⁱⁱ

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For example, in lieu of a fee, a lawyer may acquire stock in a client organization, provided the lawyer complies with Colo. RPC 1.8(a) and does not thus acquire a proprietary interest in the cause of action or subject matter of litigation contrary to Colo. RPC 1.8(j).^iv Colo. RPC 1.8(j)(i) prohibits lawyers from acquiring this proprietary interest in the cause of action or subject matter of litigation that the lawyer is conducting for the client, except for a "lien granted by law to secure the lawyer's fee or expenses"—i.e., charging and retaining liens.^v Although it is not necessary for the client to consent to such liens, since they exist by law, it may be prudent to disclose these statutory rights in the fee agreement. Similarly, obtaining a promissory note, whether unsecured or secured (often by a deed of trust), as part of the initial fee arrangement should be treated as a "security" or "pecuniary interest adverse to a client," requiring compliance with Colo. RPC 1.8(a).^vi

Contract Law Meets Ethics Law

The rules of ethics alter the rules of contract in respect to legal fee agreements. A lawyer cannot recover consequential damages from a client for breach of a fee agreement; recovery of such damages would chill the client's absolute right, under Colo. RPC 1.16(a), to discharge the attorney.^vii A fee agreement cannot impair a client's right, under Colo. 1.2(a), to make settlement decisions, for example, by giving the attorney a right to withdraw if the client, in a contingent fee case, refuses a reasonable settlement offer.^viii Absent the assertion of a retaining

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lien, a fee agreement cannot restrict the client's right, under Colo. RPC 1.16(d), to the return of the file.^ix Other ethics rules regulate the sharing of legal fees with nonlawyers^x or with lawyers not in the same firm,^xi and prohibit referral fees.^xii

However the fee agreement may set the basis or rate of the fee, fees are subject to the...