Freedom to Contract and Flat Fees

 Posted on January 15,2011 in Uncategorized

Furthering my discussion of the proposed amendments to the Texas Disciplinary Rules of Professional Conduct...

If you want to give me a very large gift, you may. The government will not, as a general rule, interfere. If you have giver's remorse, neither law nor equity will require that I return the gift except in narrow circumstances-where I have defrauded you or taken advantage of some particular vulnerability of yours, for example.

If you don't want me to represent you, you don't have to have me represent you. The government will not force you to, except in narrow circumstances.

If I want to work for you for free, I may. The government will not, as a general rule, interfere. If I change my mind and demand payment, neither law nor equity will require that you pay me for my time.

If I don't want to work for you at all, I don't have to. The government will not (again, as a general rule) force me to.

These general rules are the foundations of freedom to contract: we can do what we want with our property and our precious time. If you can give me a very large gift, you can pay me a very large sum to work for you, a very small one, or anything else we agree on. If I can work for you for free or refuse to work for you at all, I can demand any payment I like for my services. And if you don't have to have me represent you, you can decline to pay whatever I demand for my services.

Generally. You may not defraud me or hire me to do something illegal, and I may not defraud you. Legal fees are not a free-for-all because clients often come in vulnerable positions to lawyers, and lawyers shouldn't take advantage of people's vulnerability, so I may not charge an unconscionable fee (the standard under the current Texas Disciplinary Rules of Professional Conduct: "A fee is unconscionable if a competent lawyer could not form a reasonable belief that the fee is reasonable"). Other than that, contract principles apply and should apply.

Exceptions to the freedom to contract should be justified. So what justifies barring flat fees?

The public-policy argument is that clients should be able to change lawyers, and that a flat-fee contract hampers the client in changing lawyers: if the client can't get back part of the fee paid to Lawyer A, he might not have money to hire Lawyer B.

But most clients never want to change lawyers, and saving from themselves those who hired the wrong first lawyer and didn't prepare for the contingency of a change of counsel doesn't justify depriving the rest of their right to contract, especially since flat fees are good for clients, and public policy strongly supports their continued existence.

What other argument is there for doing away with flat fees? Hourly fees are more susceptible to fraud and overreaching.