Notices
| Citation | Vol. 17 No. 2 Pg. 0078 |
| Pages | 0078 |
| Publication year | 2011 |
Notices
FORMAL ADVISORY OPINION NO. 11-1
ISSUED PURSUANT RULE 4-403(d)
Pursuant to Bar Rule 4-403(d), the Formal Advisory Opinion Board has issued Formal Advisory Opinion No. 11-1. The second publication of Formal Advisory Opinion No. 11-1 appeared in the June 2011 issue of the Georgia Bar Journal, which was mailed to members of the State Bar of Georgia on or about June 6, 2011. The opinion was filed with the Supreme Court of Georgia on June 23, 2011. No review was requested within the 20-day review period, and the Supreme Court of Georgia has not ordered review on its own motion. Following is the full text of the opinion.
STATE BAR OF GEORGIA
ISSUED BY THE FORMAL ADVISORY OPINION BOARD
PURSUANT TO RULE 4-403 ON APRIL 14, 2011
FORMAL ADVISORY OPINION NO. 11-1
QUESTION PRESENTED:
Ethical Considerations Bearing on Decision of Lawyer to Enter into Flat Fixed Fee Contract to Provide Legal Services.
OPINION:
Contracts to render legal services for a fixed fee are implicitly allowed by Georgia Rule of Professional Conduct (Ga. R.P.C.) 1.5(a)(8) so long as the fee is reasonable. It is commonplace that criminal defense lawyers may provide legal services in return for a fixed fee. Lawyers engaged in civil practice also use fixed-fee contracts. A lawyer might, for example, properly charge a fixed fee to draft a will, handle a divorce, or bring a civil action. In these instances the client engaging the lawyer's services is known and the scope of the particular engagement overall can be foreseen and taken into account when the fee for services is mutually agreed. The principal ethical considerations guiding the agreement are that the lawyer must be competent to handle the matter (Ga. R.P.C. 1.1) and the fee charged must be reasonable and not excessive. See Ga. R.P.C. 1.5(a).
Analysis suggests that the ethical considerations that bear on the decision of a lawyer to enter into a fixed fee contract to provide legal services can grow more complex and nuanced as the specific context changes. What if, for example, the amount of legal services to be provided is indeterminate and cannot be forecast with certainty at the outset? Or that someone else is compensating the lawyer for the services to be provided to the lawyer's client? It is useful to consider such variations along a spectrum starting from the relatively simple case of a fixed fee paid by the client who will receive the legal representation for a contemplated, particular piece of legal work (e.g., drafting a will; defending a criminal prosecution) to appreciate the growing ethical complexity as the circumstances change.
1. A Sophisticated User of Legal Services Offers to Retain a Lawyer or Law Firm to Provide It With an Indeterminate Amount of Legal Services of a Particular Type for an Agreed Upon Fixed Fee.
In today's economic climate experienced users of legal services are increasingly looking for ways to curb the costs of their legal services and to reduce the uncertainty of these costs. Fixed fee contracts for legal services that promise both certainty and the reduction of costs can be an attractive alternative to an hourly-rate fee arrangement. A lawyer contemplating entering into a contract to furnish an unknown and indeterminate amount of legal services to such a client for a fixed fee should bear in mind that the fee set must be reasonable (Ga. R.P.C. 1.5(a)) and that the lawyer will be obligated to provide competent, diligent representation even if the amount of legal services required ultimately makes the arrangement less profitable than initially contemplated. The lawyer must accept and factor in that possibility when negotiating the fixed fee.
This situation differs from the standard case of a fixed-fee for an identified piece of legal work only because the amount of legal work that will be required is indeterminate and thus it is harder to predict the time and effort that may be required. Even though the difficulty or amount of work that may be required under such an arrangement will likely be harder to forecast at the outset, such arrangements can benefit both the client and the lawyer. The client, by agreeing to give, for example, all of its work of a particular type to a particular lawyer or law firm will presumably be able to get a discount and reduce its costs for legal services; the lawyer or law firm accepting the engagement can be assured of a steady and predictable stream of revenue during the term of the engagement.
There are, moreover, structural features in this arrangement that tend to harmonize the interests of the client and the lawyer. A lawyer or law firm contemplating such a fixed fee agreement will presumably be able to consult historical data of the client and its own experiences in handling similar matters in the past to arrive at an appropriate fee to charge. And the client who is paying for the legal services has a direct financial interest in their quality. The client will be the one harmed if the quality of legal services provided are inadequate. The client in these circumstances normally is in position to monitor the quality of the legal services it is receiving. It has every incentive not to reduce its expenditures for legal services below the level necessary to receive satisfactory representation in return. Accordingly, such fixed-fee contracts for an indeterminate amount of legal services to be rendered to the client compensating the lawyer for such services are allowable so long as the fee set complies with Ga. R.P.C. 1.5(a) and the lawyer fulfills his or her obligation to provide competent representation (Ga. R.P.C. 1.1) in a diligent manner (Ga. R.P.C. 1.3), even if the work becomes less profitable than anticipated.
2. A Third-Party Offers to Retain a Lawyer or Law Firm to Handle an Indeterminate Amount of Legal Work of a Particular Type for a Fixed Fee for Those the Third-Party Payor is Contractually Obligated to Defend and Indemnity Who Will Be the Clients of the Lawyer or Law Firm.
This situation differs from the last because the third-party paying for the legal services is doing so for another who is the client of the lawyer. An example of this situation is where a liability insurer offers a lawyer or law firm a flat fee to defend all of its insureds in motor vehicle accident cases in a certain geographic area. Like the last situation, there is the problem of the indeterminacy of the amount of legal work that may be required for the fixed fee; and, in addition, there is the new factor that the lawyer will be accepting compensation for representing the client from one other than the client.
Several state bar association ethics committees have addressed the issue of whether a lawyer or law firm may enter into a contract with a liability insurer in which the lawyer or law firm agrees to handle all or some portion of the insurer's defense work for a fixed flat fee. With the exception of one state, Kentucky,[1] all the other state bar associations' ethics opinions have determined that such arrangements are not per se prohibited by their ethics rules and have allowed lawyers to enter into such arrangements, with certain caveats.[2] It should be noted that all of the arrangements approved involved a flat fee per case, rather than a set fee regardless of the number of cases.
Although the significance of this fact was not directly discussed in the opinions, it does tend to reduce the risks arising from uncertainty and indeterminacy. Even though some cases may be more complex and time-consuming than the norm, others will be less so. While the lawyer will be obligated under the contract to handle each matter for the same fixed fee, the risk of a far greater volume of cases than projected is significantly reduced by a fixed fee per case arrangement. The lawyer or law firm can afford to increase staff to handle the work load, and under the law of large numbers, a larger pool of cases will tend to even out the average cost per case.
In analyzing the ethical concerns implicated by lawyers entering into fixed-fee contracts with liability insurers to represent their insureds, several state bar association ethics opinions have warned of the danger presented if the fixed fee does not provide adequate compensation. An arrangement that seriously under-compensates the lawyer could threaten to compromise the lawyer's ability to meet his or her professional obligations as a competent and zealous advocate and adversely affect the lawyer's independent professional judgment on behalf of each client.
As Ohio Supreme Court Board of Commissioners Opinion 97-7 (December 5, 1997) explains it:
If a liability insurer pays an attorney or law firm a fixed flat fee which is insufficient in regards to the time and effort spent on the defense work, there is a risk that the attorney's interest in the matter and his or her professional judgment on behalf of the insured may be compromised by the insufficient compensation paid by the insurer. An attorney or law firm cannot enter into such an agreement.
The same point was echoed in Florida Bar Ethics Opinion 98-2 (June 18, 1998) in which the Florida board determined that such flat fixed-fee contracts are not prohibited under the Florida Rules but cautioned that the lawyer "may not enter into a set fee agreement in which the set fee is so low as to impair her independent professional judgment or cause her to limit the representation of the insured."
In addition to the Georgia Rules referenced above, a Georgia lawyer considering entering into such an agreement should bear in mind Ga. R.P.C. 1.8(f) and 5.4(c) as well as Ga. R.P.C. 1.7(a) and its Comment [6].
Rule 1.8(f) cautions that "A lawyer shall not accept compensation for representing a client from one other than the client unless. . . (2) there is no interference with the lawyer's independence of...
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