Flat Fee Agreements Paid In Advance Of Representation

BOARD OF PROFESSIONAL CONDUCT

65 SOUTH FRONT STREET, 5

FLOOR, COLUMBUS, OH 43215-3431

Telephone: 614.387.9370 Fax: 614.387.9379

www.supremecourt.ohio.gov

PAUL M. DE MARCO

CHAIR

RICHARD A. DOVE

DIRECTOR

WILLIAM J. NOVAK

VICE- CHAIR

D. ALLAN ASBURY

SENIOR COUNSEL

HEIDI WAGNER DORN

COUNSEL

OPINION 2016-1

Issued February 12, 2016

Withdraws Advisory Opinion 96-4

Flat Fee Agreements Paid In Advance Of Representation

SYLLABUS: It is proper for a lawyer to enter a flat fee agreement requiring a client

pay a fixed amount in advance of representation. The flat fee agreement must comport

with the Ohio Rules of Professional Conduct. Under Prof.Cond.R. 1.15(c), a lawyer is

required to deposit flat fees and expenses paid in advance for representation into an

IOLTA account, unless designated as “earned upon receipt” or similarly, and only may

withdraw the fees as they are earned or the expenses as they are incurred. This is a

change from former DR 9-102(A). Even if a flat fee paid in advance of representation is

deemed “earned upon receipt,” “nonrefundable,” or similarly, Prof.Cond.R. 1.5 requires

a lawyer to return any unearned portion of the fee if the lawyer does not complete the

representation for any reason. Additionally, the Rules also require that a flat fee must

not be excessive under Prof.Cond.R. 1.5(a); that a lawyer shall not provide financial

assistance to a client, aside from advances of court costs and expenses of litigation under

Prof.Cond.R. 1.8(e); and a lawyer is required to provide competent and diligent

representation to each client under Prof.Cond.R. 1.1 and 1.3.

OPINION: This opinion addresses a flat fee agreement requiring a client to pay a fixed

amount in advance of representation. It does not address payment of a retainer to an

The Board acknowledges that the Adv. Op. 96-4 addressed this issue in the context of criminal matters;

however, the Board has elected to consider the issue in other contexts.

Opinion 2016-1 2

attorney to secure availability of the lawyer’s services over a period of time without

regard to a specific matter.

QUESTION:

Is it proper for a lawyer to enter a flat fee

agreement requiring a criminal

defendant to pay a fixed amount in advance of representation in a criminal

matter?

Fee agreements must comply with Rule 1.5 of the Ohio Rules of Professional Conduct.

Prof.Cond.R. 1.5(a) is the cardinal rule governing fee agreements and provides that a

lawyer shall not “make an agreement for, charge, or collect an illegal or clearly excessive

fee.” Several factors should be considered in order to determine if a fee is reasonable:

(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 limitation 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;

(8) whether the fee is fixed or contingent.

Prof.Cond.R. 1.5(a)(1)-(8). These factors are not exclusive. Prof.Cond.R. 1.5, Cmt. [1].

Additionally, fixed fees are expressly recognized as a type of legal fee in Prof.Cond.R.

1.5(a)(8).

As used in this Opinion, the terms “fixed fee” and “flat fee” are afforded the same meaning and are

used interchangeably. The Board acknowledges that there are other types of fixed fees, such as a fixed

hourly rate. A fixed fee may not necessarily be a “flat fee.”

Opinion 2016-1 3

A lawyer is not permitted to enter into an arrangement for, charge, or collect a contingent

fee for representing a defendant in a criminal case. Prof.Cond.R. 1.5(d)(2). As a result,

fixed fee agreements are required in criminal representations.

A flat fee is a type of fixed fee. Fixed fees or flat fees are considered an alternative to

hourly billing in different types of matters because they provide the client a degree of

certainty about the cost of the legal services. Douglas R. Richmond, Understanding

Retainers & Flat Fees, 34 J. LEGAL PROF. 113 (2009). A flat fee is “a fee of a set amount

for performance of agreed work, which may or may not be paid in advance but is not

deemed earned until the work is performed.” Prof.Cond.R. 1.5, Cmt. [6A]. Flat fees are

based on factors independent of the actual number of hours involved in a representation.

A lawyer earns a flat fee by performing the services for which the fee was charged, and

that fee is the maximum amount that will be charged for the services to be performed.

Douglas R. Richmond, Understanding Retainers & Flat Fees, 34 J. LEGAL PROF. 113 (2009).

Criminal matters do present uncertainty with regard to the amount of time that may be

expended, since the matters may be resolved through dismissal, plea agreement, or trial.

Time is one factor to consider when determining the reasonableness of a fee under

Prof.Cond.R. 1.5(a). However, the ABA Guidelines for the Appointment and

Performance of Defense Counsel in Death Penalty Cases (2003) unequivocally disapprove

of flat fees in death penalty cases because the client’s interests are pitted against the

lawyer’s interest in doing no “more than what is minimally necessary to qualify for the

flat payment.” ABA Standards of Criminal Justice: Providing Defense Services,

Commentary to Standard 5-2.4 (3d ed. 1993).

This Board has addressed the use of flat fees in the context of a flat fee agreement between

a law firm and an insurer/third party administrator of group health benefit plans. In

Opinion 95-2 (1995), the Board advised that the propriety of a flat fee agreement is based

upon a variety of factors. A fixed flat fee is subject to the restriction in former DR 2-106(A)

[now Prof.Cond.R. 1.5(a)] that it not be excessive. A fixed flat fee cannot circumvent the

requirement of DR 5-103(B) [now Prof.Cond.R. 1.8(e)] that clients must remain liable for

expenses of litigation. Additionally, a fixed flat fee agreement must not limit an

attorney’s duties of competent and diligent representation to each client under

Prof.Cond.R. 1.1 and 1.3.

When the payment of a flat fee is made in advance of representation, there are additional

ethical considerations, such as when a flat fee is required to be placed into the lawyer’s

client trust account, and what, if any, portion of the fee is refundable. See, Prof.Cond.R.

1.5(d)(3), Cmt. [6A].

Op. 2016-1 4

When a flat fee is earned affects whether or not it must be placed in the lawyer’s trust

account. Prof.Cond.R. 1.5, Cmt. [6A]. Prof.Cond.R. 1.15(a)

requires a lawyer to keep the

property of clients separate from the lawyer’s own property. Client and third-person

funds paid to a lawyer or a law firm must be maintained in an insured, interest bearing

account, designated as “client trust account,” “IOLTA account,” or with another

identifiable fiduciary title, and in a financial institution in the state where the lawyer’s

office is located. Prof.Cond.R. 1.15(a). Additionally, under Prof.Cond.R. 1.15(c), lawyers

are required to place legal fees and advances on litigation expenses paid by the client into

a trust account, unlike DR 9-102(A), which precluded a lawyer from placing client

advances into a trust account.

An “earned upon receipt” fee is a flat fee paid in advance that is deemed earned upon

payment regardless of the amount of future work performed. Prof.Cond.R. 1.5, Cmt.

[6A]. When a fee is denoted as “earned upon receipt,” those fees are considered the

lawyer’s funds, and not the client’s funds. As a result, those fees should not be placed in

the lawyer’s IOLTA account, as it is impermissible to commingle a lawyer’s own funds

with those of a client.

A lawyer who receives a flat fee paid in advance for representation in a legal matter is

obligated to return any unearned portion of the fee.

Prof.Cond.R. 1.5(d)(3), 1.16(e). Even

if a fee is designated as “earned upon receipt,” “nonrefundable,” or similarly,

Prof.Cond.R. 1.5 requires a lawyer to refund any unearned portion of a fee paid in

advance if the representation is not completed for any reason. Additionally, Prof.Cond.R.

1.16(e) states that “[a] lawyer who withdraws from employment shall refund promptly

any part of a fee paid in advance that has not been earned, except when withdrawal is

pursuant to Rule 1.17.”

The Board withdraws Opinion 96-4, which analyzed former DR 9-102(A), and concludes

that Prof.Cond.R. 1.15 requires flat fees paid in advance for representation must be placed

in a client trust account. A flat fee for representation in a matter may not be placed into

the attorney’s business or operating account, unless it is designated as “earned upon

receipt” or similarly and the client is advised in writing that if the lawyer does not

complete the representation for any reason, the client may be entitled to a refund.

Prof.Cond.R. 1.5(d)(3).

Prof.Cond.R. 1.15 includes provisions that are not contained in former DR 9-102.

See also, Columbus Bar Assn. v. Farmer, 111 Ohio St.3d 137, 143-44, 2006-Ohio-5342, ¶ 31, 855 N.E.2d 462,

469 (citations omitted) (A lawyer has a duty to account for and return any unearned fees).

Op. 2016-1 5

CONCLUSION:

It is proper for a lawyer to enter a flat fee agreement requiring a client to pay a fixed

amount in advance of representation. The flat fee agreement must comport with the Ohio

Rules of Professional Conduct. Under Prof.Cond.R. 1.15(c), a lawyer is required to

deposit flat fees and expenses paid in advance for representation into an IOLTA account,

unless designated as “earned upon receipt” or similarly, and may withdraw the fee only

as it is earned or the expense as it is incurred. If a lawyer designates a fee “earned upon

receipt,” “nonrefundable,” or similarly, the client must be advised in writing that the

client may be entitled to a refund under Prof.Cond.R. 1.16(e) for any part of an unearned

flat fee paid in advance of representation. Under Prof.Cond.R. 1.5(a), the flat fee must

not be excessive. Under Prof.Cond.R. 1.8(e), the lawyer shall not provide financial

assistance to a client, aside from advances in court costs and litigation expenses. Under

Prof.Cond.R. 1.1 and 1.3, the flat fee agreement must not interfere with an attorney’s

duties to provide competent and diligent representation to each client.

Advisory Opinions of the Board of Professional Conduct are informal, nonbinding

opinions in response to prospective or hypothetical questions regarding the

application of the Supreme Court Rules for the Government of the Bar of Ohio, the

Supreme Court Rules for the Government of the Judiciary, the Rules of Professional

Conduct, the Code of Judicial Conduct, and the Attorney’s Oath of Office.