Washington Lawyer

Bar Counsel: The Case of the Flat Fee: Whose Money Is It Anyway

From Washington Lawyer, December 2009

By Dolores Dorsainvil

Illustration by Mick Wiggins

The issue of flat fees has been a source of contention for lawyers and disciplinary systems alike. The Office of Bar Counsel has always had the opinion that flat fees are entrusted funds, but among District of Columbia practitioners, the question has always been, “Whose money is it anyway?”

The D.C. Court of Appeals has recently decided this matter in In Re Robert W. Mance III,[1] where, for the first time, it addresses Rule 1.15(d) (Safekeeping Property)[2] of the D.C. Rules of Professional Conduct as it relates to flat fees. The court held that when an attorney receives payment of a flat fee at the outset of a representation, the payment is an advance of “‘unearned fees’ and ‘shall be treated as property of the client…until earned unless the client consents to a different arrangement.’”

In other words, all fees, whether characterized as general hourly retainers, flat fees, engagement fees, contingency fees, or advance fees, must be deposited into a trust account upon receipt and can only be withdrawn by the attorney once the fee has been earned. The court’s ruling will prove to have the most impact on attorneys who have solo or small practices because it definitively answers the question and provides guidance to those who may have, through tradition, mistakenly believed that flat fees belong to the attorney upon receipt.

The court’s opinion stems from a disciplinary matter filed against Mance by the Office of Bar Counsel following a complaint from a father who retained Mance to represent his son, who was sought for first degree murder. Mance told the father that his fee would be a flat fee of $15,000, with an initial installment of $7,500 to be paid “up front.” The two agreed that the second installment of $7,500 was to be paid after the son turned himself in to the police. The two had no further discussions about the fee or how the money would be retained, and in December 2003, the father paid Mance the initial $7,500.

Mance placed most of the initial installment ($6,010) into a client escrow account and the remainder into his operating account. Because the son decided not to turn himself in for another month, Mance decided to wait until that time to perform any work on the matter. In early January 2004, the father became frustrated with what he believed to be inactivity on the matter and terminated the attorney–client relationship. Although Mance agreed to return the initial $7,500 payment, he failed to do so until six months later. The father filed a complaint with the Office of Bar Counsel, which investigated the matter and then initiated disciplinary proceedings against Mance, charging him with several rule violations, including misappropriating client funds (Rule 1.15(a)), commingling his funds with client funds (Rule 1.15(a)), failing to treat an advance as client funds (Rule 1.15(d)), and failing to take timely steps to surrender client funds (Rule 1.16(d)).[3]

After a hearing was conducted in the matter, the Hearing Committee concluded that Rule 1.15(d) did not apply to flat fee matters because a flat fee was not an “advance,” but rather a fee earned upon receipt regardless of how much or how little work the attorney performed. Further, the Hearing Committee concluded that Mance took timely steps to return the funds to the father. However, the Hearing Committee did conclude that Mance commingled funds because he placed a portion of the $7,500 initial deposit into an escrow account containing funds of other clients.

The Board on Professional Responsibility rejected the Hearing Committee’s conclusion that Mance promptly returned the fee and found a violation of this rule. With one member dissenting, the board also found that Mance was not required to treat the flat fee as client funds under Rule 1.15(a).[4] The board then recommended that the attorney be censured for commingling funds[5] and for failing to promptly return the fee under Rule 1.16(d). Bar Counsel took an exception to the board’s interpretation of Rule 1.15(d) concerning advances on unearned fees and argued for a harsher sanction.

The court, acknowledging that this is the first time it has addressed the applicability of Rule 1.15 to flat fees, found that flat fees are advance payments of unearned fees and shall be treated as property of the client, absent consent from the client as to a different arrangement.[6] The court stated that its interpretation of Rule 1.15(d) shall be applied prospectively as it is aware of the common practice of attorneys, like Mance, who believe that flat fees belong to the attorney. The court publicly censured Mance.

The court also noted that its ruling is not intended to discourage attorneys from charging flat fees, recognizing that flat fees are helpful to clients as well as attorneys in certain practice areas, but to provide guidance to D.C. attorneys and to make clear their ethical obligation so that they may conform their practice to what is required of them under Rule 1.15 while protecting the interest of the public.[7]

Looking forward, it will be important for attorneys to determine how portions of a flat fee will be deemed earned, and to notify the client of whatever benchmarks are established in the retainer agreement.[8] This will not only help ensure compliance with the ethical obligations set forth in Rule 1.15, but it might also help resolve fee conflicts, should they arise.

To the casual observer, the term “flat fee” might imply simplicity. D.C. attorneys are now on notice that things are more complicated than they seem.

Dolores Dorsainvil is a senior staff attorney with the Intake Division of the Office of Bar Counsel.

Notes
[1] 2009 D.C. App. LEXIS 473 (2009).
[2] Rule 1.15(d) states that:
Advances of unearned fees and unincurred costs shall be treated as property of the client pursuant to paragraph (a) until earned or incurred unless the client gives informed consent to a different arrangement. Regardless of whether such consent is provided, Rule 1.16(d) applies to require the return to the client of any unearned portion of advanced legal fees and unincurred costs at the termination of the lawyer’s services in accordance with Rule 1.16(d).
[3] Rule 1.16(d) provides:
[i]n connection with any termination of representation, a lawyer shall take timely steps to the extent reasonably practicable to protect a client’s interest, . . . and refunding any advance payment of fee or expense that has not been earned or incurred.
[4] The Board on Professional Responsibility dismissed four of the six charges, including the charge of misappropriation under Rule 1.15(d).
[5] The court notes that Mance acknowledges commingling funds by placing his own funds in a client escrow account. Typically, commingled funds involve lawyers placing client funds into their own operating account.
[6] Under Rule 1.15(d), a client may waive, by providing his or her informed consent, the requirement that the fees given to an attorney be held in trust. However, regardless of the client’s waiver, in the event that the client terminates the attorney–client relationship, the attorney has an obligation under Rule 1.16(d) to promptly refund any unearned portion of the fee and/or unincurred costs.
[7] The court notes that if flat fees are not entrusted until earned, the client runs the risk of being deprived of his or her funds should a creditor of the attorney attach the attorney’s general operating or personal accounts.
[8] Rule 1.5(b) explains the required elements of a retainer agreement.

Disciplinary Actions Taken by the District of Columbia Court of Appeals

Original Matters
IN RE JOHN E. ANDERSON. Bar No. 420236. September 3, 2009. The D.C. Court of Appeals disbarred Anderson and conditioned his reinstatement upon his fulfillment of the restitution obligation recommended by the Board on Professional Responsibility. Anderson’s failure to pay his client’s medical providers from a 1996 settlement occurred in 1996 and constituted at least reckless misappropriation resulting from a deliberate pattern of misconduct. Anderson compounded his misappropriation when, in 2001, he falsely reassured his client that he had paid the outstanding bills from the settlement proceeds even though he had no record-keeping system to speak of, had no records to substantiate his claims of payment, made no effort to locate such records, and took no actions with the creditors to satisfy the long overdue claims. Anderson violated Rules 1.3(b) (intentional failure to pursue client’s objectives); 1.3(c) (failure to act with reasonable promptness); 1.15(a) (misappropriation, failure to maintain financial records); 1.15(b) (failure to deliver funds promptly); 1.17(a) (failure to deposit trust funds in properly denominated account); 8.4(c) (dishonesty); 8.4(d) (serious interference with the administration of justice); and D.C. Bar Rule XI, § 19(f) (failure to keep proper escrow records).

IN RE MICHAEL H. DITTON. Bar No. 436463. September 17, 2009. In a disciplinary matter described as a “pairing of reciprocal and original discipline,” the D.C. Court of Appeals suspended Ditton from the practice of law for five years with fitness. The court previously remanded the matter to the Board on Professional Responsibility for augmentation of the record and further consideration of three issues: (1) whether some of the conduct discussed in the Virginia proceedings constituted misconduct in the District of Columbia; (2) whether the misconduct found in Virginia “warrants substantially different discipline” than the five-year suspension imposed in that jurisdiction; and (3) whether a requirement that Ditton demonstrate his fitness to practice law is supported under the District’s standards for imposing original discipline. Based upon the augmented record, the court found that Ditton had not carried out his burden of demonstrating, by clear and convincing evidence, that the conduct on which Virginia authorities relied does not constitute misconduct in the District. The court also found that the imposition of a fitness requirement is amply supported by the record.

IN RE OTHA M. JACKSON. Bar No. 248393. September 3, 2009. The D.C. Court of Appeals disbarred Jackson. Jackson was convicted of conspiracy to commit mail fraud and wire fraud in violation of 18 U.S.C. § 371, and mail fraud (aiding and abetting) in violation of 18 U.S.C. §§ 1341 and 1342 in the United States District Court of the Northern District of Ohio. Mail fraud and wire fraud are both crimes of moral turpitude per se, for which disbarment is mandatory under D.C. Code § 11-2503(a)(2001).

IN RE ROBERT W. MANCE III. Bar No. 285379. September 24, 2009. The D.C. Court of Appeals issued Mance a public censure. Mance commingled his own funds with his client’s and failed to take timely steps to protect the client’s interests by promptly returning the retainer. Rules 1.15(a) and 1.16(d).

IN RE RONNIE THAXTON. Bar No. 448815. September 10, 2009. The D.C. Court of Appeals accepted Thaxton’s petition for negotiated disposition and suspended him for one year with six months stayed, followed by three years of probation, with conditions, including restitution and consultation with the D.C. Bar Practice Management Advisory Service, for violation of Rules 1.2(a), 1.4(a), 1.4(b), 1.4(c), 1.5(c), 1.15(a), 1.15(b), 1.15(c), 8.4(d) and D.C. Bar Rule XI, § 19(f).

IN RE LLOYD F. UKWU. Bar No. 420617. September 24, 2009. The D.C. Court of Appeals disbarred Ukwu. Ukwu settled a client’s case without his authority, forged his client’s signature on a settlement check, and intentionally misappropriated a substantial part of the settlement for his own use. Moreover, Ukwu failed to cooperate with the Office of Bar Counsel during its investigation. Ukwu’s conduct violated Rules 1.4, 1.15, 8.1, 8.4 and D.C. Bar Rule XI, § 2 (b)(3).

Reciprocal Matters
IN RE KEVIN J. FLYNN. Bar No. 422993. September 24, 2009. In a reciprocal matter from New York, the D.C. Court of Appeals suspended Flynn for one year with fitness as identical reciprocal discipline.

IN RE DONALD P. MCLAUGHLIN. Bar No. 261131. September 24, 2009. In a reciprocal matter from Maryland, the D.C. Court of Appeals indefinitely suspended McLaughlin with fitness. McLauglin is not eligible to file for reinstatement until the expiration of five years or upon his reinstatement in Maryland, whichever comes first.

IN RE LESLIE D. SILVERMAN. Bar No. 448188. September 10, 2009. In a reciprocal matter from Virginia, the D.C. Court of Appeals imposed identical reciprocal discipline and suspended Silverman for 60 days.

Interim Suspensions Taken by the District of Columbia Court of Appeals

IN RE ELMER D. ELLIS. Bar No. 423276. September 16, 2009. Ellis was suspended on an interim basis based upon discipline imposed in the United States Court of Appeals for the District of Columbia Circuit.

IN RE ROBERT J. PLESHAW. Bar No. 938241. September 18, 2009. Pleshaw was suspended on an interim basis based upon the Board on Professional Responsibility’s August 7, 2009, recommendation of disbarment, pursuant to D.C. Bar Rule XI, § 9(g).

IN RE ANNE-MARIE ROY. Bar No. 414603. September 9, 2009. Roy was suspended on an interim basis based upon discipline imposed in the Commonwealth of the Northern Mariana Islands.

IN RE PAUL B. ROYER. Bar No. 484398. September 29, 2009. Royer was suspended on an interim basis based upon his conviction of a serious crime in the Superior Court of the District of Columbia.

IN RE CHRIS C. YUM. Bar No. 424602. September 29, 2009. Yum was suspended on an interim basis based upon his conviction of a serious crime in the United States District Court Eastern District of Virginia.

Disciplinary Actions Taken by Other Jurisdictions

In accordance with D.C. Bar Rule XI, § 11(c), the D.C. Court of Appeals has ordered public notice of the following nonsuspensory and nonprobationary disciplinary sanctions imposed on D.C. attorneys by other jurisdictions. To obtain copies of these decisions, visit www.dcbar.org/discipline and search by individual names.

IN RE ALLEN D. BRUFSKY. Bar No. 64956. On July 16, 2009, the Connecticut Superior Court for the Judicial District of Hartford reprimanded Brufsky.

IN RE MARIA I. GONZALEZ. Bar No. 439718. On December 4, 2007, the State of New York Grievance Committee for the Second and Eleventh Judicial Districts admonished Gonzalez.

IN RE NAVEED A. QURAISHI. Bar No. 489080. On April 24, 2009, the State of Connecticut Statewide Grievance Committee reprimanded Quraishi.

IN RE JONATHAN H. SHOUP. Bar No. 231340. On August 28, 2009, the Court of Appeals of Maryland publicly reprimanded Shoup.

Informal Admonitions Issued by the Office of Bar Counsel

IN RE TILMAN L. GERALD. Bar No. 928796. September 8, 2009. The Office of Bar Counsel issued Gerald an informal admonition. Gerald, after obtaining a garnishment of the opposing party’s wages to satisfy his client’s judgment, failed to timely disburse the full share of the judgment his client was entitled to receive, after Gerald’s fee was paid and he was discharged. Rules 1.15(b) and 1.16(d).

The Office of Bar Counsel compiled the foregoing summaries of disciplinary actions. Informal Admonitions issued by Bar Counsel and Reports and Recommendations issued by the Board on Professional Responsibility are posted on the D.C. Bar Web site at www.dcbar.org/attorney-discipline. Most board recommendations as to discipline are not final until considered by the court. Court opinions are printed in the Atlantic Reporter and also are available online for decisions issued since mid-1998. To obtain a copy of a recent slip opinion, visit www.dccourts.gov/internet/opinionlocator.jsf.