The Perils of Unsigned Fee Agreements and Engagement Letters

Does this scenario sound familiar?

On November 1 you meet with Jane Client.  You have a good feeling about Jane and her case.  She is definitely someone you want to represent.  After the meeting, you send Jane a standard fee agreement/engagement letter.  You tell Jane that you will need documents and additional information to proceed.  You also explain that Jane must establish a retainer of $2500 before you begin work on her case.  On November 3, Jane sends you an email with the required documents.  Four days later, she provides the additional information you requested.  On November 8 you and Jane speak over the phone. On November 10 Jane sends you a check for $2500.

Clients Like Jane are Tempting…

Jane is a very appealing client.  You have good rapport and confidence in her case. She is cooperative, responsive, and paid your retainer.  So what’s not to like?  If you proceed to represent Jane (or let’s be honest: if you continue representing Jane), you do so under substantial risk.  How can that be?  Let’s explore some of the issues that come to mind:

The Perils of Unsigned Fee Agreements and Engagement Letters

  • No enforceable written contract.  I wouldn’t want to be without one.  I’m not saying all hope is lost collection-wise, but you certainly have a far tougher row to hoe without the client’s signature on a written agreement.  Fee agreements should always be in writing, countersigned by the client, regardless of the practice area.
  • No proof of scope of representation.  This could lead to several problems: demands by the client that you provide additional, unintended services; liability exposure for unanticipated (but arguably related) services; or inability to withdraw as attorney of record before an agency or tribunal.
  • Voidable fees in contingent cases.  ORS 20.340(1)(a) provides that all contingent fee agreements “shall be written in plain and simple language reasonably believed to be understandable by the plaintiff.”  In addition, a model explanation of the contingent fee agreement is required.  ORS 20.340(1)(b).  “Any contingent fee agreement entered into on or after September 26, 1987, that does not comply with the requirements of subsection (1) of this section is voidable. [Formerly 9.400]”
  • Ethics complaints related to flat or fixed fees paid in advance.  Oregon RPC 1.15 and 1.5, together with Oregon Formal Opinion 2005-151, describe a specific set of conditions for “earned upon receipt fees,” the most basic of which is that such arrangements must be in writing.  No exceptions.

Fixing the Problem

Since Jane is otherwise an ideal client it should be easy to pick the phone and have a conversation about the necessity of signing and returning your fee agreement and engagement letter. It is possible she simply overlooked your paperwork.  You may also learn that your fee agreement or engagement letter is too long or too complicated.

  1. If you are asking the client to sign an “earned upon receipt” fee agreement after the fact, consult with private ethics counsel or contact OSB General Counsel before proceeding: “Without a clear written agreement between a lawyer and a client that fees paid in advance are earned on receipt, such funds must be considered client property and are, therefore, afforded the protections imposed by Oregon RPC 1.15-1. In re Biggs, 318 Or at 293 (discussing former DR 9-101). If there is a written agreement with the client that complies with the requirements of Oregon RPC 1.5(c)(3), the funds belong to the lawyer and may not be put in the lawyer’s client trust account. If no such agreement exists, the funds must be placed into the trust account and can only be withdrawn as earned. See, e.g., In re Hedges, 313 Or at 623–24; OSB Formal Ethics Op No 2005-149.” OSB Formal Opinion 2005-151.
  2. Going forward, streamline your engagement/fee agreement procedure.
    1. Give the client a heads-up about the importance of signing and returning your agreement/engagement letter during the client meeting.  Let the client know to expect the letter, what it will say, and why it must be signed before you can proceed.  Encourage clients to call with any questions or concerns.
    2. Consider presenting the fee agreement or engagement letter to the client as part of the client meeting [not my personal favorite, but it is an option] – or – experiment with eSigning.  Services like DocuSign are simple, easy, and secure.  Another option?  A click-wrap agreement.
    3. If you use surface mail, consider enclosing a stamped, self-addressed return envelope).  Be sure to include an extra copy of the agreement for the client’s records.
    4. Set a date to follow-up with the client about returning your agreement and enter the follow-up date in your calendaring system.  If the agreement is not returned by the date specified, contact the client.
    5. Solicit client feedback about other changes you can make to improve return of signed fee agreements and engagement letters.

Make it Easier for You and the Client

Clients want agreements that are short, simple, and understandable.  This presents a challenge because we are tempted to cover every contingency in great detail. Odds are your fee agreement has room for improvement when it comes to use of Plain English, and room to spare when it comes to verbosity.

Consider this option:  Instead of devoting a page of your fee agreement to the subject of billing, enclose a separate one page bullet list of “Billing Practices” describing when/where/how you bill. While technically a “cheat” (you just added another page), it will shorten the actual agreement while giving the client the information they need in a more understandable format.

Or if you prefer not to add another physical page, send the client a link to the billing practices section of your website.  (Which can be a stand-alone page not visible in your navigation menu.)

This concept – enclosing a bullet list or providing a link to content on your website – can be applied to other issues covered in a typical fee agreement/engagement letter. Using this approach should not jeopardize the viability of your contract or collection of accounts if you use language that incorporates the referenced practices as part of your agreement.  Be sure to use effective dates on any enclosures or web pages and retain links to archived firm policies or procedures. If you choose to transition content in this manner, do you own research on enforceability/viability.

Final Thoughts: Learn More!

Learn more about fee agreements at the upcoming CLE, “Fee Agreements – Ethical Dos and Don’ts,” on January 18, 2017.  Start the new year off right!

[All Rights Reserved 2016 Beverly Michaelis]

 

 

Setting Your Hourly Rate

Value billing.  The words alone sounded so good in 2000-whatever or 1990-something. But transitioning from concept to reality?  It was never easy and still isn’t.

Keeping it 100

Here’s the reality: everyone who uses flat fees or AFA/hybrid fee arrangements referenced or started with an hourly rate.  That’s the math, folks.  Unless you’re a 100% contingent fee lawyer who never intends to change practice areas, you need to have a sense of how to price your services on an hourly basis.  Here’s how to go about it.

The Anecdotal Approach to Pricing

We could also call this: “If Susan down the street charges $200 per hour, so should I.”

If you’re basing your hourly rate on what one, two, or a handful of other lawyers are charging, your sample group is too small.  Period.

I’m not saying don’t gather anecdotal data.  It can be informative.  Most of us can learn a lot from talking to colleagues or mentors about pricing and billing practices, especially if we’re new to an area.  But anecdotal data needs to be balanced with something more.

Use the Data the Bar Gave You

Every five years the Oregon State Bar conducts an economic survey.  If the bar adheres to its quinquennial pattern, the next survey will occur in 2017.  For now, use the 2012 survey. The important data on billing practices begins on page 29, “Hourly Billing Rate by Total Years Admitted to Practice,” reported by years of practice and geographic region. To use this data effectively, find where you fit based on years admitted to practice and area(s) of law, then scroll over to your region of the state.

Billable Rates by Years of Experience: Lawyers Admitted 0-3 Years

  • In 2012, the lowest hourly rate billed by this group was $113 in the lower valley versus a high of $246 per hour in Portland.
  • Statewide, lawyers admitted 0-3 years billed an average of $156 per hour.
  • While there are a few geographic blips here and there, the data bears out what common sense would predict: the longer you practice, the higher your billable rate.

Next, jump ahead to page 31, “Hourly Billing Rate by Area of Practice.”  Find your area(s) of law, then locate the rates for your region of the state.

Billable Rates by Areas of Law

  • The average hourly billing rates ranged from a low of $190 per hour for civil litigation-insurance defense to a high of $291 for civil litigation-defendant (not including insurance defense).
  • Other statewide average rates were:  Bankruptcy $269, Criminal $214, Family Law $214, Real Estate/Land Use/Environmental $283, Tax/Estate Planning $239.

Keep on Keeping On With the Law of Averages

Once you know the average hourly rate based on years of admission and area(s) of law, tally the rates and take the average again.  Once you know this number, feel free to reflect back on the anecdotal data you gathered.  If your anecdotal data differs wildly from what the survey says, go with the survey.  Use this hourly rate when calculating flat fee and hybrid fee arrangements.

Cultivate Confidence

Some lawyers low ball their rate because they don’t feel they can charge “what the survey says.”  Newer lawyers often fall into this category.  But perspective is everything: if you did the same work as an associate for a firm, rest assured they would bill clients in the average to high ranges documented by the bar.  Why, intrinsically, should your rate as a solo be any lower?

Nonetheless, part of the process of setting your rate is finding a comfort zone for what you charge.  If you can’t quite stomach the average and need to take it down a tick or two, I respect that decision [even though I may try to talk you out of it].

Either way, you must be able to face potential clients and communicate your rate in a matter-of-fact, businesslike, manner – with confidence and without hesitation.

[All Rights Reserved 2016 Beverly Michaelis]

 

 

 

How to Succeed in Practice

Succeeding in practice requires momentum, courage, and hard work.  No one knows
that better than a solo practitioner or small firm lawyer.Motivation1

Whether you’re starting out, retooling, or want to make a change, consider this sage advice from Ann Guinn, one of the presenters at the Oregon State Bar Solo & Small Firm Conference.  She may just motivate you to get moving!

All Rights Reserved 2016 Beverly Michaelis

Postscript

For related content with a greater focus on the financial side of practice see this post on Storify.

 

Passing on Credit Card Surcharges to Clients

The Back Story

In 2013, the U.S. District Court for the Eastern District of New York approved a Class Settlement among merchants, Visa, MasterCard, and other defendants.  Allegedly, the defendants conspired to collect excessive “surcharges,” also called merchant fees, transaction fees, or convenience fees.

The class action litigation was drawn out over 8 years and involved 400 depositions, 80 million pages of documents, 17 expert reports, and 32 days of expert deposition testimony.

On September 28, 2015, the Second Circuit Court of Appeals held a hearing regarding an appeal of the settlement. The matter has now been submitted to the Court for decision. It is not known when the Second Circuit will issue its decision.

Why should Oregon lawyers care about the Payment Card Interchange Fee Settlement?

Because it’s all about the money.  Or more precisely, the cost of getting paid.

Can Law Firms Pass On Credit Card Surcharges?

Some lawyers are taking the position that the Payment Card Interchange Fee Settlement permits them to pass on credit card surcharges to clients.

Depending on the situation, these fees can add up to real money:

  • Jane Client owes her law firm $7,000.  A fan of frequent flyer miles and other perks, she charges her legal bill to her Visa card.  Surcharge to the firm: $210.* Net amount collected by the firm: $6,790.
    If the firm has five “Jane’s” in a month, it ends up losing over $1,000 in billed fees.
  • Corporate client Oregon, Inc. informs its law firm that henceforth it will pay only by credit card.  A typical monthly invoice for Oregon, Inc. is $10,000.  Over a 12 month span, the law firm will eat $3,600 or more in legal fees – the cost of absorbing surcharges each time Oregon, Inc. pays its bill by credit card.*  Bottom line: taking credit cards isn’t cheap.

You Might Say a $10,000 Client Payment is a Good Problem to Have

Agreed.  It may not be easy to sympathize with or relate to either of these scenarios. But most lawyers do take credit cards, and by year-end the surcharge fees add up.

What to do?

If you’ve read my blog before, you know I’m an advocate of building the cost of taking credit cards into your fee – what you charge for services.  This continues to be a valid approach for the following reasons:

  • Assessing surcharges [or crediting clients for the net amount less fees] involves extra administrative and bookkeeping steps.  If you get the math wrong and the transaction involves trust account funds, you could face disciplinary action.
  • Passing on surcharges is unpopular.  Clients don’t like to be “nickel and dimed” to death.
  • Ethically, clients are not obliged to pay any cost to which they did not agree.  If you did not include the right to assess surcharges in your fee agreement, you cannot unilaterally pass on the cost after the fact.  [Granted, you can fix this by modifying your fee agreement – but it isn’t necessarily advisable and may not be successful.]  See OSB Formal Opinion 2005-97.
  • Legally, there are more than a few barriers.

Legal Implications of Passing on Surcharges

A bit of research reveals that passing on surcharges may be acceptable under the Payment Card Interchange Fee Settlementprovided you:

  1. Inform Visa and MasterCard before you begin surcharging.
  2. Show the surcharge as a separate item on all transaction receipts.
  3. Display prominent signage at checkout advertising surcharge fees.
  4. Apply surcharges only to credit card purchases – you cannot legally add a surcharge to a pre-paid card or debit card (even if you run it as a credit card transaction).
  5. Limit surcharges to transactions in the domestic United States and US territories.
  6. Verify surcharges are not prohibited by state law.
  7. Assess no surcharges to clients using American Express or Discover, as they are not part of the Payment Card Interchange Fee Settlement.

How Do These Requirements Translate to the Legal Profession?

Good question!  Assuming the Payment Card Interchange Fee Settlement gives you the right to begin surcharging:

  • Step two might require you to change your credit card processing practices. When a card is swiped, a receipt is generated.  Assuming it shows the surcharge as a separate item, and you provide the receipt to the client, you have complied with this step.  But what about “card not present” transactions where the card is not available to swipe?  These are far more common in a law firm. Do you currently email a contemporaneous receipt?  Maybe you should.  Will you list surcharges as a separate line item on billing statements?  Maybe you should do that too.
  • Step three may mean displaying a sign in your office, drawing prominent attention to the fees in your written fee agreement, including information on your intake form, discussing surcharges during the initial client interview, etc.
  • Step six would require vigilance when working with out-of-state clients. Surcharges are illegal in California and nine other states. Some predict this number will grow.

Can I Do it or Not?

I can’t give you the unequivocal green light.

While some law firms are surcharging now, please remember the settlement is under appeal.

Additionally, consider this comment in OSB Legal Ethics Opinion No. 2005-172:

Passing the merchant fee on to the client or crediting the client for the net amount of the transaction only … may implicate Regulation Z of the Truth in Lending Act,
12 CFR §226.  As a result, you may be compelled to offer cash discounts to all clients and make specified disclosures to your clients who pay by credit card.
See CONSUMER LAW IN OREGON ch 14 (Oregon CLE 1996 & Supp 2000).

While the language is “may implicate Regulation Z,” the safe harbor has always been to assume the Truth in Lending Act applies to these transactions.  [The Ethics Committee added this substantive law caveat to alert practitioners to the possibility.]

I’ve read the Orders and other documents posted at the Payment Card Interchange Fee Settlement in an effort to wrap my head around this.  I’ve never seen any source that fully reconciles the issues in the class action with the requirements set out in Regulation Z – not that I’m an expert.

Assuming the appeal doesn’t upset the apple cart, my suggestions on how the Payment Card Interchange Fee Settlement would translate to lawyers are only best guesses. There is no authoritative source to guide us on applying point-of-sale retail transaction requirements to a law firm setting.  For example, how does a law firm “display prominent signage at checkout?”

Proceed at Your Own Risk

If you want to assess surcharges, do your own substantive legal research and proceed at your own risk.  Before taking the plunge, consider these words of wisdom from LawPay, a popular credit card processor serving the legal profession:

Many law firms simply build the additional cost [of accepting credit cards] into their fees as a standard business expense. This is generally recommended as the proper and more professional way to handle the business expense of processing payments.

[All Rights Reserved 2016 Beverly Michaelis]

*Based on a surcharge of 3% per transaction – transaction rates vary.