New RPCs Would Affect Flat Fees
Change is pending for the ethics rules that address whether and under what circumstances Washington lawyers may deposit an advance payment of a flat fee for work not yet performed into a regular operating account versus a trust account.
The Washington Supreme Court has under review proposed changes to Rules of Professional Conduct 1.5 and 1.15A. The proposed rules address and clarify the proper treatment of advance payment of flat fees; the court will likely publish final rules sometime next year. In the meantime, the guidance available to lawyers on this subject is somewhat in flux.
We summarize here what gave rise to the proposed changes and their content, and offer some practice tips for dealing with advance payment of flat fees before formal guidance is finalized.
Background to Proposed Changes
The general, default rule for a payment received for work not yet performed is that the payment must be placed into a trust account and may be withdrawn only as it is earned. At the end of the attorney-client relationship, the client is entitled to any unearned portion of the advance payment.1
From 1990 until late 2005, a formal ethics opinion gave directions about when advance fee payments must be placed in the trust account or into the firm’s operating account. That opinion, Formal Ethics Opinion 186, distinguished between “advance fee deposits” and “retainers.” According to Opinion 186, “advance fee deposits” are unearned fees given for future services, are the client’s property until earned, and must be deposited directly into the lawyer’s trust account upon receipt and withdrawn only upon being earned. “Retainers” are payments made to secure a lawyer’s availability during a given time period, are considered earned upon payment and are therefore the lawyer’s property upon receipt, and must be deposited directly into the lawyer’s operating account.
Although Opinion 186 provided helpful guidance, questions about the treatment of advance fee payments remained. For example, Opinion 186 did not deal with whether or under what circumstances an attorney may accept in advance the payment of a flat fee for a specific legal service and deposit that payment directly into the firm’s operating account.
In December 2005, the WSBA Board of Governors withdrew Opinion 186, primarily as a result of the Washington Supreme Court’s decision in In re Discipline of DeRuiz.2 In DeRuiz, the Court affirmed the Bar’s discipline of a lawyer who refused to return unearned fees paid according to a “nonrefundable” fee agreement in a criminal case. The Court ruled that the fee arrangement was not a true “retainer” because the fee was not paid to secure the lawyer’s availability over a given period of time.
Rather, the Court said, the fee was essentially a flat fee for legal services in a particular matter. The Court held that DeRuiz violated the RPCs because the fee was unreasonable (DeRuiz had failed to perform the agreed-upon legal services) and because he refused to return unearned money to the client.
The Board’s withdrawal of Opinion 186 resulted in a lack of guidance concerning the treatment of advance payment of fees in general and flat fees in particular. Discussions among practitioners and bar officials took place, and a significant difference of opinion surfaced about the proper treatment of advance payment of flat fees.
Some WSBA members, particularly members of the criminal and family law bars, contended that the survival of their practices depends on the ability to charge flat fees up front and deposit those fees directly into their operating accounts. By contrast, the WSBA Office of Disciplinary Counsel took the position that any fee received for work not yet performed — including an agreed-upon flat fee — remains the client’s property and therefore must be deposited into the lawyer’s trust account, until earned.
As a result of these diverging opinions, the Board of Governors commissioned a task force to study the issue and make a recommendation. The Trust Account Responsibilities and Retainers Task Force was created, which consisted of 10 lawyer members and one non-lawyer. After a year of meeting, gathering information from multiple sources, evaluating options and drafting proposals for consideration, the Task Force issued a written report in July with proposed changes and comments to RPCs 1.5 and 1.15A. The Task Force’s recommendations are outlined in the box accompanying this article.3
In September, the Board of Governors voted unanimously to forward the Task Force’s proposed rule changes and guidance to the Supreme Court, without any reservations or suggested modifications. According to the WSBA ethics counsel’s office, there is no definite deadline by which the Court will or must make a final decision on the matter. Based on how proposed rule changes have been handled in the past, the Court likely will sponsor a public comment period on the proposed rules in early 2008 and publish a final response in the middle of the year.
Lori Rath is a solo practitioner in Seattle. Her law practice focuses on estate planning, probate and property agreements. Stacey L. Romberg, attorney at law, focuses her firm’s practice in the areas of small business law, estate planning and probate.
1 See RPC 1.5, cmt. (4); RPC 1.15A; RPC 1.16(d).
2 152 Wn.2d 558 (2004).
3 The Task Force’s July 2007 Report was on the WSBA Web site at http://wsba.org/lawyers/groups/trustaccounttaskforce/default1.htm along with related information and documents. We drew heavily on the report in writing this article.
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Reprinted from December 2007, King County Bar Bulletin, by Stacey Romberg & Lori Rath