Good Fee Agreements Make Good Clients

By Douglas W. Salvesen

November 2002

Napoleon once observed that he spent 10% of his time fighting his enemies and 90% fighting with his allies. Lawyers should carefully manage the relationships with their clients to avoid such battles. Most misunderstandings can be avoided by ensuring that there are regular communications with the client. The client should receive copies of all documents that his or her lawyer receives or sends out. An informed client, who understands the work that his or her lawyer is putting into the representation, can better assist the lawyer and is less likely to complain about the lawyer's fees.

A key to establishing and maintaining a good attorney-client relationship is to ensure that the client has appropriate expectations. You want to avoid the "expectorating" client -- the client that complains "I didn't expect you to bill me for travel time," "I didn't expect to be charged for two lawyers at the hearing," or "I didn't expect that your hourly rates would be raised at any point during the representation."  The simplest way of controlling the client's expectations is to provide the client with a written fee agreement that sets forth the relevant terms of the representation in plain English.

Identity of the Client

As an initial matter, the fee agreement should clearly identify who the client is and who, in addition to the client, is responsible for paying the attorney's fees. In some circumstances, where the client is a small business, it may be appropriate to have both the business entity and its principals be liable for the attorney's fee. Similarly, it may be advisable to have both the individual client and his or her spouse personally liable for the attorney's fees. Where the attorney undertakes a joint representation of more than one client, the attorney should determine whether a potential conflict of interest exists between the clients. In all such cases, the attorney should explain the nature of the actual or potential conflict to the clients in writing and obtain their written consent to the joint representation after being advised on their right to consult independent counsel.

Scope of Representation

The fee agreement should clearly state the subject matter and the scope of the representation, including, if appropriate, what work will not be included in the representation. The agreement should specify at what point the representation is expected to terminate, for instance, whether the representation is to continue beyond a trial to include an appeal.

Hourly Rates
If the client is being charged by an hourly rate, the agreement should specify what the hourly rates are for the various attorneys and paralegals who will be expected to work on the client's matter. The agreement should also state the firm's policy for reviewing and changing its hourly rates. If the attorney and client have agreed to an alternative billing structure, that should be clearly articulated in the fee agreement.

Referral Fees

Referral fees are prohibited in a number of jurisdictions. If they are permitted in your jurisdiction, and you have agreed to pay a referral fee, the better practice is to disclose the existence of the fee to the client.

Costs and Expenses

The fee agreement should explain what out-of-pocket and other costs will be passed through to the client. If the firm's policy is to bill the client for Westlaw charges, mailing costs, facsimile charges, filing fees, process servers, couriers, travel fees, copy charges, expert fees, all such charges should be identified to the client in the agreement.

Retainer

Unless the client is a regular client, it is common to request that the client provide a retainer. The retainer should be large enough to cover a few months of expected bills. Paying a retainer makes the client understand the seriousness of what he or she is about to undertake. The agreement should specify whether the retainer is an "evergreen" retainer -- meaning that the client is expected to pay bills on an ongoing basis without drawing on the retainer which is used to pay the final bill. The retainer could also be drawn on by the lawyer to pay bills as they become due with or without being replenished at some future time. In either case, the fee agreement should clearly articulate the parties' agreements with respect to the retainer.

Client Bills

The agreement should specify that the lawyer will provide the client with bills on a monthly basis and should clearly state when payment is expected from the client on those bills. The bills themselves should be written in plain English, and not attorney shorthand. The additional time required to explain exactly what the attorney is doing is well worth the effort. Clients who understand their bill have fewer reasons to raise objections to it. The cover letter to the bill should again specify when payment is due and should request that the client immediately contact the attorney should the client not understand any part of the bill or object to any entry.

Termination of Relationship

The fee agreement should clearly explain to the client that the lawyer will discontinue the attorney-client relationship if the attorney's bills are not paid on a timely basis. The agreement should also clearly state that the client has the right to terminate the attorney-client relationship at any time, though he or she will be liable for any fees or costs incurred.

Handling Fee Disputes

Mandatory arbitration clauses are often included in fee agreements to resolve fee disputes. Many states have fee arbitration boards sponsored by the state's bar association or other entity. Similarly, attorneys may want to include a choice of law provision as well as a jurisdictional provision.

Reprinted from Modern Practice, FindLaw's Law Practice and Technology Magazine, Nov. 2002.

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