Being Paid By Someone Other Than Your Client?

May a client’s family member, friend, employer, legal services plan, or insurance company foot your bill?  The answer is yes, so long as:

  • The client gives informed consent;
  • The third party does not interfere with the lawyer’s “independence of professional judgment or with the client-lawyer relationship;” and
  • The client’s confidential information is protected (or the client consents to disclosure of information after informed consent).  ORPC 1.8(f).

“Informed” Means More than Consent to the Mere Fact that Someone Else is Paying the Fee

Clearly, the lawyer who is considering accepting payment from someone other than the client must ensure that the client makes an informed choice. This means inquiring about and understanding any limitations on the third-person’s ability or willingness to pay and then communicating the information to the client. While RPC 1.8(f) does not require the client’s consent to be confirmed in writing, documenting the basis upon which the client’s informed consent was given will go a long way to resolving any subsequent concernsFrom Sylvia E. Stevens, “Avoid Serving Two Masters,” Oregon State Bar Bulletin (July 2009).

Preventing Third Party Interference

At the very least … (explain) to the third party that paying fees doesn’t make one a client and that the lawyer cannot permit the third party payor to dictate the objectives of the representation or the strategy or tactics for achieving those objectives. And of course, the lawyer must be watchful throughout the representation for pressure from the payor, particularly in the face of explicit or implicit threats to cease funding the case if the lawyer won’t do as the payor desires.

Similarly, a third party cannot be allowed to interfere with the client-lawyer relationship itself, such as by firing the lawyer unilaterally. If the payment stream stops, the lawyer may well wish to withdraw from the representation, but the lawyer can be fired only by the client.  From Sylvia E. Stevens, “Avoid Serving Two Masters,” Oregon State Bar Bulletin (July 2009).

Protecting Confidentiality and Attorney-Client Privilege When Billing

Many of the issues relating to confidentiality and attorney-client privilege arise in the context of billing.  The best practice is to send detailed bills to the client and redacted bills to the third party paying your fee.  However, if your client gives informed consent to disclosure of confidential information, it is ethically permissible to provide a detailed billing to the third party.  See OSB Formal Ethics Op. No. 2005-157.

Craft Your Fee Agreement to Address the Issue of Unearned Fees

If your representation is concluded and unearned fees remain, to whom will you issue the refund?  ORPC 1.15-1(d) requires lawyers to deliver funds requested by a client which the client is entitled to receive.  (Emphasis supplied.)  “If the client is not entitled to the funds, the lawyer may be civilly liable to the payor for conversion or otherwise.”  Sylvia E. Stevens, “Ethics Issues Arising in Fee Agreements,” Fee Agreement Compendium (OSB BarBooks 20o7).

Ethically and legally the path seems clear – refund the money to the party who paid your fee – but nonetheless, this is an issue best addressed in your written fee agreement.  Otherwise, you may find yourself in the middle of a dispute between your client and the third party. Read more about third party payment dilemmas here.

FAQ – Law Practice Management, Part I

Law practice management advisors specialize in fielding questions.  Here are a few recurring ones that have been posed to me in recent months:

Conflict Procedures

Question:

If our firm purchases practice management software, is it necessary to continue routing new client intake forms to all the attorneys to review for possible conflicts?

Answer:

Yes!  It is important to circulate new matter information to all lawyers and staff in the office.  Ask that everyone review new matters for possible conflicts that may not be in the conflict system.  Someone in the office may recognize a conflict that would not be detected otherwise.  This can be done by routing new client intake forms or sending a firm-wide e-mail.  In either case, circulate the new matter information on a weekly basis.

Time Entries for Contract Work

Question:

I recently completed a contract project for another lawyer.  She is asking for time entries to include in the client’s billing statement.  Is there a particular format I should follow?

Answer:

Bill the lawyer as if you are billing the client directly.  Most clients want to see the following for each billable activity:

  • Date
  • Matter
  • Description of work performed
  • Time spent
  • Amount due (hours spent x hourly rate)

Give the lawyer the same information.  Remember that every time entry, and every bill for that matter, should tell a story.  An easy way to accomplish this is to  remember the “three W’s:” who, what, and why.

  • “Who” are the parties or persons involved in the activity.
  • “What” is the actual billable activity.
  • “Why” is the reason for spending the time to complete the task (For example: in preparation for trial or in response to a discovery request.)

Here are some more do’s and dont’s:

DO’s

  • Use results-oriented verbs to describe your billable activity:  “Attend hearing in response to Defendant Smith’s objection to attorney fee award,” or “Prepare Plaintiff’s First Request for Production to Defendant Jones.”
  • Be as detailed as possible.  Don’t just say “Review documents,” describe the documents you reviewed: “Review documents, including [then list some of the key documents].”
  • Use present tense rather than past tense.
  • Be consistent in your phrasing.

DON’Ts

  • Don’t repeat the same phrase over and over again:  “Review discovery,” “Review documents,” “Review medicals.”
  • Do not use “etc.”
  • Avoid abbreviations the client won’t understand.
  • Avoid acronyms (which no one understands).
  • Weigh the formality of your language.  Should you say “memo” or “memorandum?”  “Fax” or “facsimile?”  “Telcon” or “Telephone conference?”  Many clients prefer a more formal approach when it comes to billing.   In either case, see the last bullet point under “Do’s.”

Third Party Payments

Question:

We have a case where an advance deposit was paid by a third party (not the client).  The work is now complete and there are funds remaining in trust.  To whom do we issue the refund?  We do not have a written fee agreement with the client or the third party.

Answer:

This issue is addressed in the Oregon State Bar Fee Agreement Compendium, available as part of BarBooks:

“A lawyer must deliver funds requested by a client ‘which the client is entitled to receive.’ Oregon RPC 1.15-1(d).  If the client is not entitled to the funds, the lawyer may be civilly liable to the payor for conversion or otherwise.”

I don’t have a bullet-proof answer for you, but here are two suggested approaches:

Option 1

Render a final bill to your client reflecting the balance remaining in trust.  Inform the client via the bill or in a covering letter or e-mail that you will be processing and issuing a refund to the third party within [some number of days] of the billing date.  Wait the stated number of days, then process the third party refund.

Option 2

Prepare a final bill reflecting the proposed refund to the third party.  Submit it to the client for her approval.  Process the refund after you receive your client’s consent.

Lesson Learned

The best course for this type of arrangement is to enter into a written fee agreement which specifies to whom any prepaid, but unearned fee is to be refunded.  Remember:

  • Billing statements sent to third parties should be redacted to protect client confidentiality or obtain client consent to disclose detailed billing information.
  • Third party payment arrangements are subject to Oregon RPC 1.8(f) – the client must give informed consent and the paying party cannot interfere with the “lawyer’s independence of judgment or with the client-lawyer relationship.”

Also see Avoid Serving Two Masters: Take Care in Accepting Payment from Someone Other Than Your Client and The Pushmi-Pullyu Resolving Third-Party Claims to Client Funds.

Copyright 2011 Beverly Michaelis