February 6, 2019, Julie Brook, Esq., CEB
Reprinted with permission.
Effective November 1, 2018, the State Bar of California has amended California Rules of Professional Conduct 1.15 (former Rule 4-100) to establish new rules on handling flat fees. Under Cal Rules of Prof Cond 1.15(a), all funds received or held by a lawyer or law firm for the benefit of a client must be kept in a trust account. But there are a couple of exceptions.
Exception #1: Notwithstanding the directive of Rule 1.15(a), Rule 1.15(b) permits lawyers or law firms to deposit into their operating accounts flat fees paid in advance for legal services, as long as the client is informed in writing of his or her right to
1. require that the fee be deposited in an identified trust account until the fee is earned; and
2. obtain a refund of any amount of the fee that is not ultimately earned by the attorney.
Such disclosures may be worded in if the fee agreement as follows:
Client will pay to Attorney the fixed sum of $_ _[amount]_ _ for attorney fees for the legal services to be provided under this agreement, payable as follows: _ _[Specify date(s) and amount(s)]_ _. The _ _[payment is/payments are]_ _ earned upon payment. Client is entitled to a refund of any amount of the fee that has not been earned in the event the representation is terminated before the services for which the fee has been paid are completed. [Client has a right to require that the flat fee be deposited in an identified trust account.]
If the flat fee exceeds $1000, then the client must sign the written disclosures described above before the fee may be deposited into an operating account instead of a designated trust account.
Exception #2: “True retainers” (i.e., fees a client pays to an attorney to ensure the attorney’s availability), aren’t compensation for legal services performed or to be performed and belong to the attorney when paid. For this reason, true retainers don’t need to be deposited into an attorney trust account. In fact, placing it in a trust account might raise the issue of whether it is, in fact, a refundable deposit, not a true retainer. Placing a true retainer in the trust account might also be considered commingling.
For sample fee agreements and checklists in limited scope representation, turn to CEB’s Fee Agreement Forms Manual, chap 9. And get more information on the new ethics rules on flat fees inMegan Zavieh’s blog post.