Scruples. Fee Disputes with Clients

• Author: Michael Downey
• Pages: 64-64

Scruples

Published in Litigation, Volume 47, Number 1, Fall 2020. © 2020 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be

copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 64

MICHAEL DOWNEY

The author is a legal ethics lawyer at Downey Law Group LLC in St. Louis, Missouri.

Paradox spoke from the doorway of

Ethox’s office. “A former client is de-

manding that we return fees we think we

earned.” Paradox said. “Can you give me

some advice?”

“Absolutely,” Ethox responded. “What

is happening?”

“We agreed to handle what we thought

was a small litigation matter for a $20,000

fixed fee,” Paradox said. “The client ad-

vanced $10,000.

“The client proved difficult and the case

took far longer than expected,” Paradox

continued. “Then, right before we could

settle the case, the client fired us and de-

manded we refund the full $10,000 advance.

“If we had billed our time at normal

rates,” Paradox assured Ethox, “we would

have charged the client at least $40,000.

Do we really need to refund the $10,000

and waive any claim for fees?”

“No,” Ethox responded. “Section 37 of

the Restatement (Third) of the Law says

that sometimes lawyers may forfeit a

right to fees, by abandoning the client or

similar wrongdoing.”

“We did nothing wrong,” Paradox

interjected.

“Good. Then we should have a right to a

fee in quantum meruit, or whatever amount

we earned.”

“Isn’t quantum meruit determined by

taking the amount we worked and mul-

tiplying it by our normal hourly rate?”

Paradox questioned. “If so, we should get

the full $20,000 fee—and a lot more.”

“Unfortunately, that is probably not

the right method,” Ethox answered.

“Restatement section 40 directs that a law-

yer discharged mid-representation can

usually recover the lesser of either the ‘fair

value of the lawyer’s services’ or a ‘ratable

portion of the compensation provided by

an otherwise enforceable contract.’

“So we are probably going to recover only

a portion of the $20,000, the agreed fee,”

Ethox explained, “depending on what por-

tion of the representation we completed.”

“How much of the $20,000 will we get?”

Paradox asked.

“That depends on how much work we

performed, and also how close we were to

resolving the matter,” Ethox said. “If the

client discharged us at the end, basically

attempting to deprive us of a fee, we are

likely to get almost the entire agreed fee of

$20,000. But if significant work was still

required, we will probably get only a por-

tion of the $20,000.

“We can try to negotiate a resolution

with the client,” Ethox continued. “And if

that does not work, we can use a bar fee

dispute process or file a lawsuit.”

“So what do we do with the $10,000 we

are holding in trust?” Paradox asked.

“Under Model Rule 1.15(e),” Ethox an-

swered, “a lawyer is supposed to maintain

any funds subject to a dispute separate—

usually in the lawyer’s trust account—until

the dispute is resolved.

“However, Rule 1.15(e) also requires

a lawyer to distribute any portion of the

funds that are not subject to the dispute.

So if the client agrees we may keep some

portion of the $10,000 as attorney fees, or

that a third-party vendor should be paid

from the advance, we can and should make

those payments. Also, if we agree the client

should receive some amount in refund, we

need to refund that amount to the client.

We cannot hold all the money hostage, per-

haps to get leverage in the dispute.”

“What if the client never agrees to any-

thing?” Paradox pressed. “And what if a

lienholder also claims part of the advance?”

“Then we may need to file an interplead-

er action,” Ethox answered.

“An interpleader?” Paradox asked.

“Yes, the plaintiff sues all parties that

claim a right to property or money, pays

the money into the court registry, and then

lets the judge sort it out. We would likely

be the plaintiff and also a claimant.”

“This client is so difficult, I bet an in-

terpleader will be necessary,” Paradox

complained.

“That may be true,” Ethox assured

Paradox. “But why don’t I call the cli-

ent and see what I can work out first.

Sometimes getting another lawyer involved

to explain the firm’s position and let the

client vent proves an efficient way to re-

solve a dispute like this before it grows into

litigation.”

“That would be wonderful,” Paradox

said warmly. q

FEE DISPUTES WITH

CLIENTS