Rule 1.5 Fees

• Library: Minnesota Legal Ethics: A Treatise (MSBA) (2022 Ed.)

Rule 1.5—Fees

I. OVERVIEW

A. Limited Scope

The full range of Minnesota fee-related cases and commentary exceeds this author's grasp. Hence, the treatment of fees here, although lengthy, represents only a selection of all possible citation and discussion.

B. Frequency

Fee disputes are the most common subject of the general law of lawyering case law. Fee disputes are a common, though not leading, subject of discipline. Disciplines are fairly frequent for failure to meet several specific, formal requirements in Rule 1.5, including disclosures, signatures, absence of required words or writings, or use of forbidden words, e.g., "nonrefundable." Rule 1.5(b)(3). One report ranked fee issues as the third most common subject of advisory opinions. William J. Wernz, Advisory Opinion Service, BENCH & B. OF MINN., July 1986, at 11. Disciplines for failure to meet the basic requirement of Rule 1.5—that a fee not be "unreasonable"—are, however, infrequent. Rule 1.5(a). Disciplinary resources are insufficient for investigating and adjudicating the great majority of complaints about unreasonable fees.

C. The Primary Standard —"Not Unreasonable"

The primary standard for fees is that they must not be "unreasonable." Rule 1.5(a). The word "reasonable," and related words, appear seven times in Rule 1.5 and another nine times in the comments to Rule 1.5. Custom and practice play a large role in determining reasonableness. "'Reasonable' . denotes the conduct of a reasonably prudent and competent lawyer." Rule 1.0(i). The Office of Lawyers Professional Responsibility (OLPR) has stated, "This definition of 'reasonable' plainly views the term from a lawyer's perspective and not from that of a client." Martin A. Cole, Managing Expectations, BENCH & B. OF MINN. July 2012, at 14, 14. In addition, "the fee customarily charged" is one factor in determining reasonableness. Rule 1.5(a)(3). Although Rule 1.5(a) lists eight factors to be included in determining a fee's reasonableness, courts emphasize four of these factors—a lawyer's time, the lawyer's hourly rate, customary rates, and the results obtained.

D. Reasonableness and Client Autonomy

In its basic principles, Rule 1.5 is strongly oriented toward ratification of good lawyers' customary billing practices. Although the standard of reasonableness is primary, a client's freedom to contract for any fee is provided by statute. Minn. Stat. § 549.01. The freedom provided by statute and the reasonableness required by rule stand in a degree of tension. Case law deals with the tension by determining that unconscionable fees are not allowed, regardless of the statute. This subject is discussed further, below.

E. Secondary Standards—Technical Requirements

As explained below, Rule 1.5 also contains many technical, formal requirements, some of which involve departures from attorneys' customs, especially from earlier eras. For example, criminal defense attorneys once routinely called their fees "nonrefundable," but this label is now forbidden and said to be oxymoronic. Rule 1.5(b)(3); Kent A. Gernander, Nonrefundable Retainers & Other Oxymorons, BENCH & B. OF MINN., Feb. 2009, at 16. Another example of a formal requirement is that Rule 1.5(c) requires a contingent fee agreement to include "the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal."

F. Civil Standards

Fee disputes have resulted in numerous Minnesota court cases, many of which have reached the appellate level. The holdings in these cases affect interpretation of Rule 1.5, especially as to reasonableness. Although a survey of civil case law is beyond the scope of this treatise, many civil cases are cited.

G. OLPR Articles

OLPR has published many articles on Rule 1.5. Among the most important are Susan Humiston, Ethical Fee Agreements, BENCH & B. OF MINN., Jan. 2020; Patrick R. Burns, Fee Miscellany, MINN. LAW., Nov. 2, 2009, at 8; Edward J. Cleary, Summary of Admonitions, BENCH & B. OF MINN., Mar. 1998, at 19; Martin A. Cole, Fee Disputes, BENCH & B. OF MINN., Mar. 2011, at 14; Marcia A. Johnson, Dollars and Sense, BENCH & B. OF MINN., Nov. 1995, at 17; and Marcia A. Johnson, More Dollars & Sense, BENCH & B. OF MINN., Dec. 1995, at 14. Another article of interest is in an ABA publication, William J. Wernz, Getting Paid, 22 LITIG. 27 (1996).

H. Related Rules

Rules closely related to Rule 1.5 include Rules 1.1, 1.2, 1.4, 1.8(a), (e)-(f), (i), 1.15, 1.16(b), (d), 3.1, 5.1, 5.4(a), 5.5, and 8.4(c)-(d), (i). This large number of related Rules shows the regulatory importance of Rule 1.5. Rule 1.5 largely tracks Model Rule 1.5, but Minnesota Rule 1.5(b) adds lengthy provisions regarding advance fees, flat fees, availability fees, and nonrefundable fees. Fee standards are also stated in the Restatement of the Law Governing Lawyers §§ 34-40.

I. Rule 1.8(a)

In connection with fees, lawyers should be mindful of Rule 1.8(a). Rule 1.8(a) provides that security for fees may be arranged only by meeting several formal requirements, in addition to the substantive requirements of reasonableness and fairness. In addition, "[A] fee paid in property instead of money may be subject to the requirements of Rule 1.8(a) because such fees often have the essential qualities of a business transaction with the client." Rule 1.5 cmt. 4. The chapter of this treatise on Rule 1.8(a) discusses these issues.

II. THE OLD STANDARDS

A. Major Changes

The basic standards regulating fees have changed enormously in recent decades. In general, the prohibition against "an unreasonable fee," in effect since 1985, provides a standard much more favorable to clients than prior standards. Rule 1.5(a). Also, in general, the formal requirements of Rule 1.5 provide clients with much more disclosure and protection. Before 1985, there were almost no formal requirements for fee agreements. Even such current material requirements as communicating the scope of representation and the basis or rate of the fee date only from 1985.

B. Not a "Mere Money-Getting Trade," But Not Much Regulation

Over a century ago, Canon 12 of the ABA Canons of Professional Ethics (1908) stated as axiomatic, "it should never be forgotten that the profession is a branch of the administration of justice and not a mere money-getting trade." However, notwithstanding this and other high-flown rhetoric, yesteryear's professional regulations and customs were far less strict than today's standards, and tended to favor lawyers.

C. A Century or Two Ago—Dishonorable "Underbidding"

In the early nineteenth century, a Baltimore lawyer, David Hoffman, drafted "Resolutions in Regard to Professional Deportment." These were included in his treatise, DAVID HOFFMAN, A COURSE OF LEGAL STUDY ADDRESSED TO STUDENTS AND THE PROFESSION 752 (Philadelphia, Thomas, Cowperthwait & Co. 2d ed. 1836), which influenced the later development of ABA model standards. Hoffman resolved, "As a general rule, I will carefully avoid what is called the 'taking of half fees.' And though no one can be so competent as myself to judge what may be a just compensation for my services,—yet, when the quiddam honorarium has been established by usage or law, I shall regard as eminently dishonourable all underbidding of my professional brethren. On such a subject, however, no inflexible rule can be given to myself, except to be invariably guided by a lively recollection that I belong to an honourable profession." Id. at 763. Nearly a century later, the ABA echoed Hoffman, "In fixing fees, lawyers should avoid charges which overestimate their advice and services, as well as those which undervalue them." ABA Canons of Professional Ethics Canon 12 (1908). Since the 1970's, however, "underbidding" has not been regarded as unprofessional.

D. Flat Fees, Lawyer's Retrospective Determination

Another resolution was, "I will charge for my services what my judgment and conscience inform me is my due, and nothing more." DAVID HOFFMAN, A COURSE OF LEGAL STUDY ADDRESSED TO STUDENTS AND THE PROFESSION 762 (Philadelphia, Thomas, Cowperthwait & Co. 2d. ed. 1836). This seminal authority described a billing practice that prevailed for centuries. After a lawyer performed services, he determined the appropriate fee and informed the client in summary fashion. The author's father-in-law, Stephen A. Hart, Jr., was a lawyer in Davenport, Iowa, from approximately 1950 to 1980. He followed the standard billing customs of his era. For many task-specific representations, such as closing a real estate deal or forming a corporation, he charged the fees prescribed by bar association schedules. For clients who were represented on several matters, after year-end, he would send a "Statement for Professional Services in 19XX ... $750." The statement did not itemize services or hours, and was likely based on such factors as memory, sense of value, past practice, and ability of the client to pay. The lawyers of yesteryear regarded their own professional judgment and bar association schedules as the touchstones of proper client billing.

E. "Flagrantly Excessive" or "Clearly Excessive"

The leading mid-twentieth century commentary on legal ethics stated, "There is no ethical question involved unless fees are flagrantly excessive." HENRY S. DRINKER, LEGAL ETHICS 174 (1953) (footnote omitted). Echoing Drinker, the Code of Professional Responsibility, in effect in Minnesota from approximately 1970 to 1985, provided, "A lawyer shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee." Minn. Code of Prof'l Resp. DR 2-106(A).

F. Fee Schedules

One important qualification to the Hoffman billing method came to be that lawyers followed bar association fee schedules. As early as 1927, the Hennepin County Bar Association had adopted a minimum fee schedule. MINN. STATE BAR ASS'N, FOR THE RECORD: 150 YEARS OF LAW AND LAWYERS IN MINNESOTA 76 (1999). In 1961, the Minnesota State Bar Association Practice of Law Committee opined, "it is...