Thursday, September 24, 2009
The District of Columbia Court of Appeals has held that a flat fee paid to a lawyer remains the property of the client until it is earned, unless the client gives informed consent that permits the lawyer to take the fee at an earlier time. The court's opinion has an extensive discussion of flat fees and cites to case from other jurisdictions that reach the same conclusion.
The case involved a client who agreed to pay a flat fee in two installments but discharged the attorney before the paid-for services were completed. The attorney did not promptly return the payment after discharge. He refunded the fee when the the client complained to Bar Counsel. The client then sought to withdraw the complaint but Bar Counsel nonetheless filed charges.
The Board on Professional Responsibility had found that there was consent to treat the flat fee as the lawyer's property. The court found that the consent finding was not supported by substantial record evidence.
The court found that the attorney had commingled the payment but declined to impose a suspension because there had been uncertainty regarding the proper handling of flat fees prior to today's decision:
The [escrow] rule's application to flat fees is not clear on its face and, as not only respondent but his expert testified, the understanding among lawyers with respondent's type of practice has been that flat fees belong to the lawyer upon receipt, and therefore need not be kept separately in a trust account. We are confident that the D.C. Bar Board of Governors, the Bar's relevant sections, and the Board and Bar Counsel will take steps to inform the Bar and provide attorneys with helpful guidance on how to conform their practice to the rule we announce in this opinion.
Such guidance will be necessary, as all the court appears to say as to when the attorney can treat the fee as earned is as follows: "Simply labeling a fee as something other than a flat fee or extreme 'front-loading' of payment milestones in the context of the anticipated length and complexity of the representation will not excuse the lawyer from safekeeping the client's funds until it can reasonably be said that [the fee has] been earned in light of the scope of the representation."
So when is a flat fee earned? Must the attorney keep the full amount in escrow until the matter is concluded? Will this decision be the death of flat fees in the District of Columbia?
A public censure (as proposed by the board) was imposed in light of the attorney's cooperation and other mitigation. The attorney had a record of prior discipline.
One noteworthy aspect of the court's decision was its recognition of the severe impact of a suspension on a solo lawyer. This point had been emphasized by his lawyer Jake Stein, the dean of the District of Columbia Bar. (Mike Frisch)