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January 16, 2011 in
Current Disciplinary Rule 1.14 requires a Texas lawyer to hold property “belonging in whole or in part to clients” separate from her own property. Current Disciplinary Rule 1.05(d) requires her to “refund[] any advance payments of fee that has not been earned” when discharged. The State Bar’s position is that each of these lawyers in each of her cases—more than ten thousand lawyers, millions upon millions of cases—has violated Rule 1.14, and that in every case in which a lawyer was discharged before the case was complete and refunded nothing—probably millions of cases—the lawyer has violated Rule 1.05(d).
Yet I know of no case (there is no court decision, and the State Bar does not make decisions of grievance committees searchable) in which a Texas criminal-defense lawyer has been disciplined for charging a conscionable contractual flat fee and either failing to keep it separate from her own property or failing to refund a portion of it when discharged.
For as long as there has been a criminal-defense bar in Texas, Texas lawyers have been charging flat fees in criminal cases and not placing them in trust, and not refunding any money if they are discharged before the case is complete. (Smart criminal-defense lawyers, when discharged, will sometimes refund reasonable portions of fees, but this is a matter of prudence and personal ethics rather than law.) Why the disconnect between what the State Bar wants the law to be, and the longstanding practice of thousands of highly ethical criminal-defense lawyers?
The State Bar’s position—or, more accurately (as I shall discuss tomorrow) the position of some nonpracticing ethics experts, which they haven’t yet managed to get any court to sign off on—is that a) until representation is complete, a fee may be refundable; b) if a fee may be refundable, it is unearned; and c) if a fee is unearned or may be refundable, it belongs to the client.
In order for the State Bar to be right about generations of Texas criminal-defense lawyers acting unethically, they must be right on all three propositions. If any of the three is untrue, the State Bar’s position fails. They are wrong on all three propositions.
Saying that a fee is refundable if representation is incomplete begs the question. If the parties contract for a nonrefundable fee, there has to be good reason to consider it otherwise. Under current Texas disciplinary law, if a fee is unconscionable; if there was fraud in the inducement; or if the lawyer somehow breached her contract, the fee is refundable. None of these situations depends on whether representation is complete; incomplete representation is neither sufficient nor necessary to a fund’s refundability. If the parties agree (as in Cluck, and as the State Bar sneakily suggests in its A Lawyer’s Guide to Client Trust Accounts booklet) that the fee is in fact an advance fee to be billed against, rather than a contract fee, then the fee is refundable until earned even if it is called “refundable.” Why? Because it can’t be both and the ambiguity should be resolved in the client’s interest.
Where the parties agree that a fee is earned upon receipt, does the fact that it may be refundable make it unearned? No, of course not. Again, contract principles apply unless there is good reason to ignore them. There is, at least until the statute of limitations expires, the possibility that a fee will be refundable. That has nothing to do with whether it is earned or not.
The State Bar’s first two propositions are nonsense. With the third, they are on a little bit firmer footing, but are still wrong. They say that the changed disciplinary rule will not affect Texas lawyers because it says the same thing—if a fee belongs to the client, they suggest, it must be held separately, and “belonging to the client” means the same as “refundable.” But a fee could be refundable, and not belong to the client.
Those in the State Bar who think that flat fees are unethical want people to be able to change lawyers; that’s a worthy aim, but if a defendant can’t afford to hire a lawyer in the first place, it doesn’t do him any good to be able to change lawyers—the defendant whose resources have been exhausted with the first lawyer can’t change lawyers freely. Neither, though, can the indigent defendant who has been appointed counsel, nor the client who has been tapped out by an hourly-fee lawyer. That defendants should be able to change lawyers at will is not a principle; it’s a nice goal, but there’s no reason it should control over the principle that the parties to a contract should be able to choose its terms, or the principle that private criminal-defense services should be accessible to more than only the very wealthy.
Society needs criminal-defense lawyers. Forbidding flat fees in Texas criminal cases will be the beginning of the end of the criminal-defense bar: when the private criminal-defense bar is eviscerated, the existence of any criminal-defense bar will “depend on the largesse of the government. The day they cut off the fee spigot, there will be no more criminal defense lawyers.“
[…] We’re on Texas” category: the big story setting the blawgosphere ablaze this week was started by Mark “Texas Tornado” Bennett, writing about a change proposed by the Texas Bar that […]
Mr. Bennett,
I’m afraid you are mixing apples with oranges. It is a complete non sequitur to say that because the Bar says advance flat fees may to go into a trust account until earned, the Bar is outlawing flat fees. It simply doesn’t follow.
For the Bar, under the current and proposed rules, flat fees are fine. As you amply demonstrate, flat fees are good in most cases.
The issue is, where must advance flat fees go: into the lawyer’s pocket or a trust account. That’s it.
The proposed Rule merely states the proposition that unearned fees have to go into a trust account until earned. There is nothing in the rules that says you can’t charge an advance flat fee and designate, say, the first court appearance as the point at which the fee is “earned.”
So, enough with the hyperbole. You don’t want to have to put advance flat fees into an trust account. I get it. However, defeating proposed Rule 1.15 will not change the requirement that unearned fees must be kept separate.
I also get your point that while a fee may be refundable (say, if unreasonable, or the lawyer violates her fiduciary duties to the client), that does not necessarily make it “unearned” and destined for a trust account. However, as you note, that is a legal issue and the Texas courts have not given us a clear answer on this question.
But, that’s not the fault of the ethics rules. The proposed rule explicitly says in comment 12 that when a fee is earned is a legal, not an ethical question. You guys are shooting the messenger.
(In fact, there are some bankruptcy opiinions in Texas that say an advanced fee is is not part of the client’s estate becuase he loses an interest in the fee when paid. But these cases may be wrong or apply only in the bankruptcy context.)
You note that there appear to be no cases where a Texas lawyer was disciplined for keeping a “non-refundable” advance fee, flat or otherwise. You may be right, although lawyers are getting whacked all the time for charging unreasonable fees and comingling lawyer and client funds. Also, a lot of the lawyer-client fee fights are dealt with by local fee dispute committees. Their decsions are not reported. Certainly, Texas criminal defense lawyers can take heart in the fact that the Bar has not been going after them. There is no indication that that will change. Perhaps the Bar is waiting for some clearer law on when a fee is earned.
Finally, I think it irresponsible to vote against ALL of the changes based upon your opposition to one rule. The ballot has 6 qeustions. Why throw the baby out with the bath water? If you actually look at some of the other proposals, you might find you agree with them.
Fred Moss
Short answer (about more, perhaps more later): if you read carefully, you would see that the State Bar has been going after criminal-defense lawyers on flat fees. That’s why we have Professor Schuwerk’s testimony.
You suggest making fees earned on first appearance. “Earned on first court appearance” makes no more logical sense than “earned upon receipt”—by the time I get paid, I have done some work on the case, and may have done the heavy lifting of discovering the defense that will eventually win the case.
And what if a reasonable fee for a murder case, say, is more than the reasonable fee for a first appearance on a murder case? Perhaps you can begin to see how that hampers the setting and paying of flat fees? The State Bar in its booklet suggests setting landmarks for payment; a landmarked fee is not a flat fee.
The current requirement is not that “unearned” fees be kept separate—though that is what you and Professor Schuwerk and the State Bar would like the law to be. The current requirement is that “property belonging to clients” be kept separate. This is why it’s important to those who would do away with true flat fees: when I take $50,000 on a murder case in an agreed-to contract fee, while it is true that some of that may be refundable and it might be true that some of it is unearned, it is not true that any of it still belongs to the client. The State Bar isn’t waiting for clearer law; the State Bar is trying to regulate new law so that “unearned” fees must go into trust.
Before you comment again, please read the rest of my posts on the subject and be prepared to comment specifically on a) CFLD v. Looney; and b) the public-policy issue: that people who can afford a flat fee often can’t afford to deposit in trust the money necessary to cover an hourly or staged fee.
Finally, please don’t come into my house insulting me by suggesting ulterior motives. Your resume shows no qualification to do so.
And that is, believe it or not, the short answer.
Mr. Bennett,
Well, I fulfilled your assignment and tracked down and read your discussion of Looney and the public policy issue. Excellent information. Well done.
Let me try to engage you a little further on this, even though you think I’m not qualified to speak about it.
First, many big Texas law firms are now using flat fees. Their clients see the value in them just as your clients do. There is no way the State Bar would ever try to ban flat fees, up front or otherwise. Not when the Board of Directors’ firms use them. Bottom line: proposed 1.15 doesn’t attempt to ban flat fees. If it did, the lawyers in the tall glass boxes downtown would be standing shoulder to shoulder with you.
You say that a flat fee and a “landmarked fee” anr two different animals. I disagree. A lawyer can take the total flat fee in advance, put it into a trust account, and move portions to his operating account when the agreed to “landmarks:” are hit. That is not as convenient as putting the entire amount in the operation account at the start, but they are not inconsistent with one another. I know some criminal defense attoneys in Dalls who do just that.
Finally, I don’t think you are saying that if you receive $50,000 from a client to represent him at 9 a.m., and if that client fires you at 10. a.m.that day, you can keep the entire $50K because you and the client agreed that it was “non-refundable.” I think you agree with me that to do so would result in your having charged an “unconscionable” fee, and a court or the bar would make you give some or all of it back (Looney to the contrary notwithstanding: see In re Wells, 2008 WL 4375919 (5th Cir. ’08)(held: a bankrupt criminal defense lawyer charged an unconsionable “nonrefundable” fee of $300,000.)
Assuming you agree, the question is where must the refund come from? The lawyer’s personal or operating account, or a trust account? I think you say, from the lawyer’s personal or operating account. Here is where you and the bar disagree.
Fred Moss
If you think a landmarked fee is a flat fee, then your definition of a flat fee is different than that of every criminal defense lawyer I’ve ever known, and I understand why you think the State Bar is not trying to outlaw flat fees. We really are discussing two different things.
If I take a $50k fee at 9 and get fired at 10, the fee is not necessarily unconscionable. By taking the client’s case, I may have (for example) created immediate conflict problems for myself (because a codefendant might want to hire me), as well as greater long-term conflict problems. I also may have done considerable work on the case in the first hour, or even before being hired, including creatively discovering and conveying to the client the novel defense that most lawyers would never have thought of but that will win the case for him.
That’s orthogonal, though; there are circumstances in which I might concede that such a fee was unconscionable, even though agreed to by the client. The current state of the law, however (and I hope we can agree, as a matter of legal philosophy, that “law” includes the DRs) is that Texas criminal defense lawyers are legally in the right, and have been for over a century: possible refundability notwithstanding, the flat fee, once paid, does not “belong to” the client, and so does not have to be placed in trust.
The State Bar thinks that the refund must come from the trust account and I think it may come from the operating account. Only if the State Bar succeeds in regulating a change to the law (by making the operative question whether a fee is “earned” rather than who it “belongs to”) might the State Bar be right and I wrong.
That’s what this skirmish is about.
(I apologize for the “bucket of warm spit” comment; I edited it out of my last response to you after it posted.)