Washington Lawyer

Legal Ethics: Propriety of Lawyer Charging Interest When the Client Fails to Pay Fees

From Washington Lawyer, December 2001

(The December 2001 “Speaking of Ethics” focuses on Opinion 310. Opinion 310 addresses the question of lawyers charging interest fees for late-paying clients. Rules 1.5 (Fees) and 1.8 (Conflicts of Interest: Prohibited Transactions) are resorted to as is the D.C. Bar Legal Ethics Committee’s 1975 Opinion No. 11. Opinion 310 allows for interest to be allowed prospectively, with safeguards and the reasonableness of the charge established.)


Fee arrangements between lawyers and clients are of course a matter of constant interest to both. As lawyers and clients attempt to craft agreements that provide both for fair fee amounts and assurances of payment, fee arrangements increasingly include not simply the designation of a fee for service but also terms that give the lawyer rights vis-à-vis the client to assist the lawyer in inducing the client to pay—most particularly in the question of whether a lawyer may charge interest on an unpaid client balance, although other issues also arise…

Finding the appropriate standpoint from which to assess fee arrangements can be difficult. … …[A]t least some adversity likely exists between client and lawyer in the creation of virtually any fee arrangement. At the most basic level, the client’s natural interest is to prefer the fee to be smaller and the lawyer’s, larger…

In Rule 1.8 (particularly Rule 1.8(a)), the D.C. Rules provide a framework for regulation of business relations between client and lawyer. However, to treat the relationship between client and lawyer in arriving at a fee arrangement as a legally adverse business relationship under Rule 1.8 would produce results that the Rules do not seem designed to bring about…

… Indeed, fee arrangements are in general intended to create legally enforceable obligations to pay (see Restatement of the Law Governing Lawyers, §§ 17-18(2000)), and thus necessarily contemplate at least the possibility of a legal action to enforce them. …

It cannot be forgotten, however, that a fee arrangement between a lawyer and client is not like a standard business arrangement… In dealing with the client, the lawyer should not take advantage of either the lawyer’s superior knowledge and experience or the lawyer’s freedom from the concern and distress that disturb the client. Moreover, because it is unusual for a client to obtain independent legal advice when concluding a fee arrangement with a lawyer means that lawyers owe a particular duty to avoid overreaching in the fee-setting process.

At the same time, there are benefits to providing assurances of payment of fees or compensation for late payment…

The District of Columbia Rules of Professional Conduct deal with fees in a fashion that allows taking full account of these considerations in individual cases. Rule 1.5 requires a lawyer’s fee to be “reasonable.” While the rule provides a list of factors that may be considered in that determination … that list is non-exclusive. …

The reasonableness requirement is an objective standard. Because the term “reasonable” is well understood to be a broad one, the lawyer must consider not just the non-exclusive list of factors provided in Rule 1.5(a)(1)–(8), but all issues that may bear upon the fairness and reasonableness of a fee arrangement… As we stated in Opinion No. 267, it is the lawyer’s responsibility to make sure that the client understands the fee arrangement. It is also the lawyer who, if challenged, will have the burden of establishing the reasonableness of the fee agreement. In this connection, the importance of having a written arrangement cannot be overstressed. Of course Rule 1.5(b) requires that the lawyer provide to a client whom the lawyer has not regularly represented a written statement of the basis or rate of the fee at or shortly after the representation begins. A writing would also be highly advisable, if not compelled by Rule 1.5 (see the final sentence of Comment [1] to Rule 1.5), whenever an existing fee arrangement with a client is altered during a representation.

The result in Opinion No. 11—that under the Code of Professional Responsibility a lawyer could charge interest on a client’s unpaid bills as long as that possibility had been agreed to by the client “in advance of representation or in advance of a new stage of representation”—is consistent with the rule in many jurisdictions. …

A logical question is whether it may be reasonable to go further and hold, as a number of jurisdictions do, that the lawyer can in appropriate cases ethically seek interest on amounts owed even if there is no such provision in the fee agreement. …

…(W)e conclude that we adhere to the view expressed in Opinion No. 11 that a client’s unexcused failure to meet a fee obligation does not allow a lawyer to seek to collect interest on the unpaid portion of the debt unless that is specifically provided for in the existing fee arrangement. However, we also conclude that a client’s unexcused failure to meet fee obligations to the lawyer can be a basis for the lawyer to re-examine the fee arrangement and, as a condition of performing further work, request the client to agree to an interest charge, prospectively only, for unpaid amounts that may be owing for work done by the lawyer in the future, after this change in the fee arrangement becomes effective … The lawyer can do this only if the severe standard for changing the fee arrangement during the representation can be met. A change in a fee arrangement in an ongoing representation is subject to strict scrutiny for overreaching by the lawyer …