| | | | | | | | | | | | | | | | | | | |
| << Back to Table of Contents
|
ACTEC COMMENTARIES ON THE MODEL RULES OF PROFESSIONAL CONDUCT
|
|
|
|
(a) A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. The factors to be considered in determining the reasonableness of a fee include the following:
(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and
(8) whether the fee is fixed or contingent.
(b) The scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation, except when the lawyer will charge a regularly represented client on the same basis or rate. Any changes in the basis or rate of the fee or expenses shall also be communicated to the client.
(c) A fee may be contingent on the outcome of the matter for which the service is rendered, except in a matter in which a contingent fee is prohibited by paragraph (d) or other law. A contingent fee agreement shall be in a writing signed by the client and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal; litigation and other expenses to be deducted from the recovery; and whether such expenses are to be deducted before or after the contingent fee is calculated. The agreement must clearly notify the client of any expenses for which the client will be liable whether or not the client is the prevailing party. Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement stating the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination.
(d) A lawyer shall not enter into an arrangement for, charge, or collect:
(1) any fee in a domestic relations matter, the payment or amount of which is contingent upon the securing of a divorce or upon the amount of alimony or support, or property settlement in lieu thereof; or (2) a contingent fee for representing a defendant in a criminal case.
(e) A division of a fee between lawyers who are not in the same firm may be made only if:
(1) the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation;
(2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and
(3) the total fee is reasonable.
|
|
* * * * * * * * * * * * * *
|
|
|
|
| Basis of Fees for Trusts and Estates Services. Fees for legal services in trusts and estates matters may be established in a variety of ways provided that the fee ultimately charged is a reasonable one taking into account the factors described in MRPC 1.5(a). Fees in such matters frequently are primarily based on the hourly rates charged by the attorneys and legal assistants rendering the legal services or upon a mutually agreed upon fee determined in advance. Based on the revisions to MRPC 1.5 in 2002, unless the lawyer has regularly represented the client on the same basis or rate, the lawyer must advise the client of the basis upon which the legal fees will be charged and obtain the client’s consent to the fee arrangement. As revised in 2002, the rule also requires a lawyer to inform the client, preferably in writing, before or within a reasonable time after commencing the representation, of the extent to which the client will be charged for other items, including duplicating expenses and the time of secretarial or clerical personnel. Any changes in the basis or rate of the fee or expenses shall be communicated to the client. Basing a fee for legal services solely on any single factor set forth in MRPC 1.5 is generally inappropriate unless required or allowed by the law of the applicable jurisdiction. In recent years courts in several states have, in effect, prohibited or seriously limited the use of fees based upon a percentage of the value of the estate. |
|
| Most states allow a lawyer who serves as a fiduciary and as the lawyer for the fiduciary to be compensated for work done in both capacities. However, it is inappropriate for the lawyer to receive double compensation for the same work. |
|
| Fee Paid by Person Other than Client. One person, perhaps an employer, insurer, relative, or friend, may pay the cost of providing legal services to another person. Notwithstanding the source of payment of the fee, the person for whom the services are performed is the client, whose confidences must be safeguarded and whose directions must prevail. Under MRPC 1.8(f) (Conflict of Interest: Prohibited Transactions) the lawyer may accept compensation from a person other than a client only if the client consents after consultation, there is no interference with the lawyer's independence of judgment or with the lawyer-client relationship, and the client's confidences are maintained. See ACTEC Commentary on MRPC 1.8 (Conflict of Interest: Prohibited Transactions). |
|
| No Rebates, Discounts, Commissions or Referral Fees. The lawyer should not accept any rebate, discount, commission or referral fee from a nonlawyer or a lawyer not acting in a legal capacity in connection with the representation of a client. Even with full disclosure to and consent by the client, such an arrangement involves too great a risk of overreaching by the lawyer and the potential for actual or apparent abuse. The client is generally entitled to the benefit of any economies that are achieved by the lawyer in connection with the representation. The acceptance by the lawyer of a referral fee from a nonlawyer may involve an improper conflict of interest. See MRPC 1.7 (Conflict of Interest: General Rule) and MRPC 1.8 (Conflict of Interest: Current Clients: Specific Rules). In those jurisdictions that permit referral fees between lawyers, the lawyer should comply with the requirements of local law governing such matters, including full disclosure to the client. A lawyer is generally prohibited from sharing legal fees with nonlawyers. See MRPC 5.4 (Professional Independence). |
|
|
|
| Percentage, Excessive and Reasonable Fees |
|
| Statute |
|
| Florida: |
|
|
|
Florida has enacted a comprehensive statute governing compensation of the attorney for a personal representative.
Attorneys for personal representatives are entitled to “reasonable compensation” without
court order. If the compensation is calculated pursuant to a statutory percentage fee schedule set forth in
the statute, it is presumed to be “reasonable.” Provision is made for payment for certain “extraordinary
services,” examples of which are included in the statute. Upon the petition of any interested person the
court may increase or decrease the compensation for ordinary services or award compensation for
extraordinary services (if the facts and circumstances of the particular administration warrant.) The
statute also includes a list of factors for the court to use in determining what is “reasonable” and gives
the court discretion to give such weight to each such factor as the court determines to be appropriate. Fla. Stats. § 733.6171 (eff. July 1, 1995). |
|
| Cases |
|
| California: |
|
|
|
Estate of Trynin, 264 Cal. Rptr. 93 (1989). The Supreme Court of California, construing California’s
statute governing extraordinary compensation for attorneys, here held that in an appropriate case attorneys
may be compensated for legal services rendered in preparing and prosecuting a claim for prior
extraordinary legal services (so-called “fees on fees”). The Court observed that the trial court retains the
discretion to reduce or deny additional compensation for fee-related services if the court finds that the
fees otherwise awarded the attorneys for both ordinary and extraordinary services are adequate, given the
value of the estate and the nature of its assets, to fully compensate the attorneys for all services rendered. |
|
| Colorado: |
|
|
|
Estate of Painter, 567 P.2d 820 (Colo. Ct. App. 1977), appeal after remand, 628 P.2d 124 (Colo. App.
1980), appeal after remand, 671 P.2d 1331 (Colo. Ct. App. 1983). Fee awards for personal representative
and counsel based on expert testimony applying percentage method of determining fees were reversed. The
Colorado legislature had repealed authorization for percentage fees and adopted a reasonable fee standard. |
|
|
|
People v. Woodford, 81 P.3d 370 (Colo. 2003). This case is discussed in the Annotations following the ACTEC Commentary on MRPC 1.1. |
|
| Florida: |
|
|
|
Florida Bar v. DellaDonna, 583 So. 2d 307 (Fla. 1991). A lawyer acting as personal representative
was disbarred for five years for gross mismanagement of estate, conflicts of interest, and excessive
fees. The court rejected the argument that discipline could not be imposed on the lawyer since the
lawyer was not acting as a lawyer. |
|
|
|
In re Estate of Platt, 586 So. 2d 328 (Fla. 1991). The court here held that it was inappropriate to determine
the fees of a fiduciary and the fiduciary’s lawyer solely according to a percentage of the value of
the estate when governing statutes provide a number of factors to be considered in determining fees.
(See discussion of Florida statute below.) |
|
|
|
Teague v. Estate of Hoskins, 709 So. 2d 1373 (Fla. 1998). In this case of first impression, the Supreme
Court of Florida held that the attorneys’ fees awarded to a widow’s guardian against an estate’s personal
representative in the guardian’s successful litigation with the personal representative over the widow’s
homestead, and elective share rights constituted a claim of the highest priority against the estate’s assets.
Two dissenting judges argued that the majority’s opinion “exacts no toll from the personal representative
for initiating and pursuing a fruitless claim.” |
|
| Illinois: |
|
|
|
Cripe v. Leiter, 703 N.E.2d 100 (Ill. 1998). The court here concluded that the Illinois Consumer Fraud
Act did not apply to regulate the conduct of lawyers in representing clients. The matter involved a fee
dispute brought on behalf of a trust beneficiary challenging the fees of the lawyer for the trustee. |
|
|
|
In re Estate of Pfoertner, 700 N.E.2d 438 (Ill. App. 1998). An attorney filed a successful will contest
on behalf of some, but not all, of the intestate heirs of a decedent. The attorney moved for an order
assessing his fees and costs against each heir’s intestate share of the estate to the extent such heir’s
interest exceeded what the heir would have received under the challenged will. The appellate court
affirmed the trial court’s authority and broad discretion to award fees and costs pursuant to the common
fund doctrine (described as an equitable exception to the “American Rule” that each party to litigation
must bear its own attorneys’ fees). The appellate court nevertheless remanded the case to the
trial court to make a quantum meruit award. |
|
| Indiana: |
|
|
|
In re Matter of Gerard, 634 N.E.2d 51 (Ind. 1994). A lawyer was here suspended for one year for
enforcing contingent fee agreement under which the lawyer received over $150,000 with respect to
largely administrative work in locating certificates of deposit that belonged to an elderly hospitalized
client. The lawyer’s conduct involved fraud and charging a clearly excessive fee. |
|
| Maine: |
|
|
|
In re Estate of Davis, 509 A.2d 1175 (Me. 1986). The practice of basing a lawyer’s fee on a percentage
of the estate being handled should carry little or no weight in determining a reasonable fee. |
|
| Massachusetts: |
|
|
|
In re Matter of Tobin, 628 N.E.2d 1273 (Mass. 1994). A lawyer was suspended for 18 months for
fraudulently inducing a client unnecessarily to probate an estate, all of the assets of which passed to
her as surviving joint tenant, for charging excessive fees based on bar association’s former fee schedule,
and misrepresenting facts to probate court. |
|
| Missouri: |
|
|
|
Estate of Perry, 978 S.W.2d 28 (Mo. Ct. App. 1998). This was an action brought by the decedent’s
son by a prior marriage to remove the decedent’s surviving husband as personal representative and
for an accounting. The trial court declined to remove the husband as personal representative but entered a money judgment against him for certain claims made on jointly secured obligations. The
court also adjudicated the husband’s request for an allowance of exempt property. The appellate
court, reversing the trial court on the issue of attorneys’ fees, held that the son was entitled to a fee
award since the estate had benefited from the judgment against the husband and the fact that the son
was not successful in his removal action was not determinative on the attorneys’ fees issue. |
|
| Montana: |
|
|
|
Hauck v. Seright, 964 P.2d 749 (Mont. 1998). In this will contest action where the decedent had executed
two wills within four days, counsel for the personal representative was unsuccessful in defending
the validity of the second will. Nevertheless, in admitting the first will to probate, the trial court
awarded attorneys’ fees to the personal representative under the second will. On appeal by the contestant,
the Supreme Court of Montana, construing Montana’s statute, held that a personal representative
is entitled to recover fees from an estate when he defends or prosecutes a proceeding in good
faith, whether successful or not. |
|
| New York: |
|
|
|
In re Estate of Freeman, 311 N.E.2d 480 (N.Y. 1974). This case lists the factors to be taken into
account by a surrogate judge in determining the fees of counsel in estate matters, which include the
amount involved, results obtained and the skill and time required. |
|
| North Carolina: |
|
|
|
Estate of Smith v. Underwood, 487 S.E.2d 807 (N.C. Ct. App. 1997). The appellate court here upheld
a trial court’s award in favor of the beneficiaries of a trust who had sued the attorney/trustee (together
with an accountant and the accountant’s firm) for breach of fiduciary duty and professional negligence.
The attorney had filed an initial trust accounting and obtained approval of his fees and commissions
in 1955, the year after the decedent died, but from 1956 until 1991 filed no annual accountings
and did not obtain the probate court’s approval of the fees and commissions that he collected. The
award against the attorney included statutory double damages allowed under state law when an attorney
has committed a fraudulent practice. |
|
| Ohio: |
|
|
|
Estate of Haller, 689 N.E.2d 612 (Ohio Ct. App. 1996). An attorney/administrator sought fees for his
firm’s representation of himself in an estate administration. Introducing no expert testimony, the attorney
did support his application with a 67-page itemization of his services. In affirming the trial court’s
approval of the entire fee requested (approximately $39,000), the court observed that, “[w]hile the better
practice may be to introduce expert testimony as to the reasonableness of the fees, a probate court
judge is nevertheless qualified to make a determination, upon evidence, of the reasonable attorney fees
to be paid from the estate without the necessity of expert testimony.” 689 N.E.2d at 615. |
|
| Oregon: |
|
|
|
In re Stauffer, 956 P.2d 967 (Or. 1998). While representing the personal representative of an estate,
lawyer took action to recover assets for the estate in order to collect an attorney fee the lawyer claimed
was owed to him by the decedent, to the detriment of the personal representative (title to the asset was
in the name of the personal representative). The lawyer failed to apprise the personal representative
client of his conflict of interest and failed to obtain consent. The lawyer was suspended from practice
for two years. |
|
| Pennsylvania: |
|
|
|
In re Trust Estate of LaRocca, 246 A.2d 337 (Pa. 1968). Estate and trust counsel are provided guidance
with respect to the setting of fees for their services. Factors include the amount of work, difficulty
of the problems involved, amount of money or value of the property in question and degree of
responsibility incurred. |
|
|
|
In re Estate of Preston, 560 A.2d 160, 165 (Pa. Super. 1989). The compensation allowed by the lower
court was reduced: “The lower court’s use of the Attorney General’s [percentage] schedule for calculating
fees is clearly improper and must cease.” |
|
|
|
In re Estate of Sonovick, 541 A.2d 374, 376 (Pa. Super. 1988). In this case the compensation of the
lawyer and the fiduciary were reduced. The court stated that: “Thus, the fiduciary’s entitlement to
compensation should be based upon actual services rendered and not upon some arbitrary formula.” |
|
| South Dakota: |
|
|
|
Estate of O’Keefe, 583 N.W.2d 138 (S.D. 1998). In this action decedent’s two nephews, who had acted
as fiduciaries in taking care of his property, were found liable for both compensatory and punitive
damages for breach of their fiduciary duties, conversion, fraud and deceit. The plaintiff, who, with the
nephews, was the only other beneficiary of the estate, sought an order to prevent the two nephews
from receiving any part of the punitive damages as estate beneficiaries and requested the court to
assess the estate’s attorneys’ fees incurred in the prior litigation against the nephews’ distributive
shares. After the trial court so ruled, the Supreme Court of South Dakota, interpreting that state’s version
of the Uniform Probate Code, upheld the trial court’s order regarding the punitive damages but
reversed the award of attorneys’ fees, finding that such fees could only be awarded by contract or
when explicitly authorized by statute. |
|
| Washington: |
|
|
|
Bennett v. Ruegg, 949 P.2d 810 (Wash. Ct. App. 1999). In this case the court, interpreting statutory
law, found that the state’s broadly drawn statute permitting attorneys’ fees to be awarded in a probate
proceeding “as justice may require” applies to permit the personal representative’s recovery of attorneys’
fees from a beneficiary who has unsuccessfully sought removal of the personal representative. |
|
|
|
Estate of Morris, 949 P.2d 401 (Wash. Ct. App. 1998). A corporate personal representative personally
incurred attorneys’ fees in successfully defending a suit for removal brought by the beneficiaries of
two estates. Its request for reimbursement from the estates was disallowed. The appellate court
affirmed the trial court’s decision denying any fees on the grounds that the bank’s conduct had conferred
no “substantial benefit” on the estate as required by the applicable Washington statute. |
|
| Ethics Opinions |
|
| ABA: |
|
|
|
ABA Formal Op. 93-379 (1993). This opinion articulates more particularly the duties of a lawyer to
disclose the basis of fees and charges as provided in MRPC 1.5. In addition, in matters where the
client has agreed to have the fee determined with reference to the time expended by the lawyer, a
lawyer may not bill more time than she actually spends on a matter, except to the extent that she
rounds up to minimum time periods (such as one-quarter or one-tenth of an hour). A lawyer may not charge a client for overhead expenses generally associated with properly maintaining, staffing and
equipping an office; however, the lawyer may recoup expenses reasonably incurred in connection
with the client’s matter for services provided in house, such as photocopying, long distance telephone
calls, computer research, special deliveries, secretarial overtime, and other similar services, so
long as the charge reasonably reflects the lawyer’s actual cost for the services rendered. A lawyer
may not charge a client more than her disbursements for services provided by third parties like court
reporters, travel agents or expert witnesses, except to the extent that the lawyer incurs costs additional
to the direct costs of the third-party services. |
|
| Arizona: |
|
|
|
Ariz. Op. No. 94-09 (1994). (For a more detailed summary see the Annotations following the ACTEC Commentary on MRPC 1.6.) A lawyer who believes that the fees charged by another lawyer
in connection with the administration of an estate are clearly excessive has a duty to report the other
lawyer’s violation of the rules to the state bar. |
|
| Connecticut: |
|
|
|
Op. 00-22 (2000). Attorney had previously represented a corporate fiduciary on unrelated estate matters.
No written fee agreement is required for lawyer’s representation of same corporate executor of a
new estate. |
|
| Oregon: |
|
|
|
Op. No. 2003-177 (2003). A lawyer does not charge or collect an illegal fee in a probate case if the
lawyer requests and receives an initial payment or interim payments from the personal representative’s
own funds. The personal representative client may later seek court approval for reimbursement
from the estate assets of some or all of the money advanced for legal fees. Lawyer who is serving as
a personal representative of an estate must obtain court approval before withdrawing any compensation
for services. |
|
| Contingent Fee Agreements |
|
| Cases |
|
| Indiana: |
|
|
|
In re Matter of Gerard, 634 N.E.2d 51 (Ind. 1994). This case, summarized above, involved a contingent
fee agreement that resulted in an excessive fee. The “enormity of Respondent’s fee in relation to
the amount of service rendered is fraudulent.” 634 N.E.2d at 53. |
|
| Oklahoma: |
|
|
|
Estate of Hughes, 90 P.3d 1000 (Ok. 2004). The court has authority to examine a written contract
between attorney and personal representative before approving attorney’s fee as an expense. The
contract here was found ambiguous because it was unclear what portion of a contingent fee was for
representation of the personal representative in estate matters and what portion was for representing
her individually. |
|
| Ethics Opinions |
|
| Missouri: |
|
|
|
Informal Advisory Op. 20000090 (2000). Attorney who represents the children of a decedent on a
contingent fee basis in an attempt to secure their portion of an intestate estate may later represent them
in a suit involving other family members under a representation contract with terms providing for a
small retainer up front and a later contingency fee basis. The fee assessed at the conclusion of the representation
must be assessed for its reasonableness. |
|
| New York: |
|
|
|
New York City Bar Formal Op. 1993-2 (1993). This opinion concludes that a lawyer may enter into a
contingent fee contract with a client in connection with a dispute involving a will. The lawyer may not
enter into a joint fee agreement among the lawyer, clients and a private investigator under which the
investigator would receive a contingent fee. |
|
| Payment of Fee by Person Other than Client |
|
| Ethics Opinion |
|
| ABA: |
|
|
|
ABA Inf. Op. 86-1517 (1986). A lawyer may bill a corporation for personal services provided to the corporation’s
shareholder, director, officer or employee, if the corporation and the attorney’s personal client agree
and the bill identifies the services as personal services and the amount of the charge for the services. |
|
| Reduced Rates for Employees of Corporate Client |
|
| Ethics Opinion |
|
| Illinois: |
|
|
|
Ill. Op. 92-8 (1993). This opinion approved an arrangement under which a law firm that represents a
corporation would represent corporate employees at reduced rates in return for the corporate president’s
recommendation that the employees use the law firm’s services. However, the opinion observes
that the promise of “reduced” rates may be misleading unless the fees charged are less than the firm’s
normal and customary fees. The same may be true unless the fees charged are less than the fees generally
charged in the locality for similar legal services. There is also a substantial risk of a conflict of
interest between the employees and the employer. |
|
| Rebates, Discounts, Commissions or Referral Fees |
|
| Cases |
|
| Kansas: |
|
|
|
In re Matter of Farmer, 747 P.2d 97 (Kan. 1987). It is improper for a lawyer to negotiate discounts on a client’s medical expenses that were payable from personal injury settlement, charge the client for
the full amount of the claims without disclosure, and retain the difference as an additional fee. |
|
| New York: |
|
|
|
In re Estate of Clarke, 188 N.E.2d 128 (N.Y. 1962). The lawyer for a personal representative who
entered into an agreement with a real estate broker to split the broker’s fee on the sale of real property
belonging to the estate had a conflict of interest that required denial of all of the lawyer’s fees. |
|
| Ethics Opinions |
|
| ABA: |
|
|
|
ABA Formal Op. 93-379 (1993). This opinion covers a number of subjects relating to attorneys’ fees
and disbursements. It states, in part, that, “if a lawyer receives a discounted rate from a third-party
provider, it would be improper if she did not pass along the benefit of the discount to her client rather
than charge the client the full rate and reserve the profit to herself. Clients quite properly could view
these practices as an attempt to create additional undisclosed profit centers when the client had been
told he would be billed for disbursements.” |
|
| California: |
|
|
|
L.A. County Op. 443 (1987). A lawyer may not accept payments from a physician to whom the lawyer
refers clients for medical treatment. |
|
|
|
San Diego Op. 1989-2 (1989). A lawyer for the executor of a decedent’s estate may not ethically
demand payment of a referral fee by a real estate broker as a condition to retention of the broker.
“Disclosure and consent by the client (per Rule 3-300) does not cure the abuse.” |
|
| New Jersey: |
|
|
|
N.J. Op. 514 (1983). This opinion is summarized in the Annotations following the ACTEC Commentary on MRPC 1.7. |
|
| New York: |
|
|
|
N.Y. Formal Op. 610 (1990). This opinion is summarized in the Annotations following the ACTEC Commentary on MRPC 1.7. |
|
| North Carolina: |
|
|
|
99 Formal Ethics Opinion 1 (1999). A lawyer may not accept a referral fee or solicitor’s fee for referring
a client to an investment advisor. |
|
| Pennsylvania: |
|
|
|
Op. 2003-16 (2003). Although it is conceivable that an estate planning attorney could be ethically
permitted to sell life insurance, securities, or other financial products to his or her client as part of
the estate planning process, it is highly unlikely that the lawyer could satisfy MRPCs 1.7(b), 1.8(a) and 1.8(f). |
|
|
|
Op. 2000-100 (2000). Lawyers may accept referral fees from insurance agents, investment advisors, or
other persons who provide products or services to the lawyer’s client subject to MRPCs 1.7(b) and 1.8(f). |
|
| Texas: |
|
|
|
Op. 536 (2001). A lawyer may not receive referral or solicitation fees for referring a client to an investment
adviser while the lawyer’s client continues to receive services from the investment adviser
because the client would be adversely affected by the lawyer’s own financial interests and his obligations
to the investment adviser. |
|
| Utah: |
|
|
|
Op. No. 01-04 (2001). Charging an annual fee for estate planning or asset protection services based
on a percentage of the value of the client’s assets would be ethical “only in extraordinary circumstances.”
The opinion does not suggest any circumstances where the arrangement would be appropriate. |
|
|
|
Op. No. 99-07 (1999). It was not “per se unethical” for a lawyer to refer a client to a financial advisor
and to receive a referral fee, but the lawyer “has a heavy burden to insure compliance with applicable
ethical rules.” The opinion noted that several states hold, as do the Commentaries, that the practice
is “per se unethical.” |
|
|
|
Op. No. 146A (1995). This opinion held that a lawyer may sell life insurance products to an existing
client if the lawyer complies with MRPC 1.8(a). |
|
| Virginia: |
|
|
|
Op. 1754 (2001). It is not unethical for an attorney and an insurance agent to share the commission
generated by the purchase of a survivorship life insurance policy to fund client’s irrevocable life insurance
trust provided full and adequate disclosure is made to the client. |
|
| << Back to Table of Contents
|
