TRT, Inc. CLE Blog

 

Arizona attorneys may charge clients a “nonrefundable” minimum fee to complete a discrete job or to work a specified number of hours on the matter, whichever comes first (Arizona State Bar Comm. on the Rules of Professional Conduct, Op. 10-03, 6/10).  If counsel does not complete the task within the specified hours, the agreement may further provide that the billing structure will switch to an hourly rate for the remainder of the matter, so long as the client understands how that new rate is triggered and the overall fee remains reasonable.  In this instance inquiring lawyers asked the committee whether it would be ethical to charge a nonrefundable fee to complete a task with a proviso that there would be a cap on the maximum number of hours worked.  Would it be ethical for a lawyer who normally bills at $200 per hour to charge the client a fixed rate of $2,000 that would pay for either 10 hours of legal work or completion of the matter, whichever occurs first?  Could the agreement provide that the lawyer would begin billing at an hourly rate to finish the task if it called for more than 10 hours of work?  The committee concluded that this arrangement is ethically permissible so long as it is designated as a “nonrefundable fee” and not a “flat fee,” which connotes an entirely different arrangement. The importance of explaining the system to the client and a recommendation this explanation be in writing were stressed.  An Arizona opinion (Opinion 99-02 (1999)) permitted nonrefundable fees in Arizona if the fee is reasonable under the eight factors contained in Arizona Rule of Professional Conduct 1.5(a), the lawyer adequately informs the client of the terms and basis for this type of fee and the lawyer obtains the client's agreement, preferably in writing, the panel said.  This same opinion implicitly suggests that a “hybrid” fee would be ethical, so long as the overall fee is reasonable.  Arizona Ethics Op. 03-06 (2003) further clarified that a combination contingent fee/hourly fee agreement would be acceptable provided that the overall fee charged was reasonable. A nonrefundable fee becomes the property of the lawyer the instant it is paid and therefore should not be placed in a trust account where it will be commingled with client funds, the committee said. By contrast, it added, a “flat fee” is historically associated with the idea that the client pays one amount for all legal services necessary to complete the legal matter.  Here the proposed arrangement only guarantees a maximum number of hours and does not certify that counsel will see the task through to conclusion, the committee recommended that lawyers avoid using the term “flat fee.” Instead, the minimum fee aspect of the arrangement should be referred to as “earned on receipt” or “nonrefundable,” it advised.  Were the attorney to need to shift the minimum fee arrangement to an hourly rate to complete the project, the panel said, would be important to explain the circumstances of the new hourly fee to the client (Arizona Rule of Professional Conduct 1.4).  Where the client balks at continuing at an hourly rate, the lawyer would have to comply with Rule 1.16 (duties on termination) before withdrawing from the representation.  Where litigation is pending, an attorney remains counsel of record until the court allows withdrawal.