Crafting a Solid Attorney-Client Fee Agreement
Any attorney-client fee agreement should be (i) understandable, (ii) comprehensive and (iii) enforceable. Here’s a way to best achieve all three goals:
Start with the State Bar’s Model Fee Agreement. While technically only advisory, a court or arbitrator is not likely to find a fee agreement drafted and published by the State Bar Committee on Mandatory Fee Arbitration and approved by the Board of Governors in 2010 invalid or unconscionable.
The State Bar provides three versions of the Fee Agreement: Hourly, Contingency and Non-hourly (Flat Fee). If your practice is like mine was, you’ll have all three types of engagements depending on the matter. So, consider combining the three into one and delete the modules that aren’t needed for that case. For example, my standard form engagement letter had contingency fee language that I kept/deleted depending on the case.
Then modify it to suit your needs. For example, if you don’t have malpractice insurance, add “Pursuant to California Rule of Professional Conduct 3-410, I am informing you in writing that I do not have professional liability insurance.”
Deposit: Choose if a deposit is required and what type: one time, billed against first invoices, evergreen/replenishing, billed against last invoice.
Arbitration: Although the client always has the right to force the attorney to mandatory fee arbitration, the only way for the attorney to force the client to arbitrate is to include it in the fee agreement. That said, weigh whether the costs of arbitration (including the filing fee) exceed the expected recovery.
Mediation: Most counties do not have fee mediation programs, so you might want to consider including it in the fee agreement.
Interest: Clearly set forth the interest rate to be charged and when the clock starts ticking. Do not compound the interest charges, meaning clients should not be paying interest on (unpaid interest + outstanding principal). The State Bar has not set an explicit cap on the interest rate. I used and have seen 18%. In Calvo Fisher & Jacob LLP v. Lujan, A139863 (Cal. App. 1st, Feb, 19, 2015), the court remarked how the trial court’s grant of 10% prejudgment interest had previously survived appeal. The law firm had asked for 18%, but the court had granted 10% starting from the date of filing the complaint.
Attorneys’ Fees: Even if you include it, you cannot recover attorneys’ fees incurred in fee arbitration or fee mediation. Bus & Prof Code section 6203(c) states: “Neither party to the arbitration may recover costs or attorney’s fees incurred in preparation for or in the course of the fee arbitration proceeding with the exception of the filing fee paid pursuant to subdivision (a) of this section.” So the provision would only help/hurt you if the dispute goes to court.
This article was originally written in preparation for presentations to the San Mateo County Bar Association and Santa Clara Law School in January 2015.
Shirish Gupta is an award-winning mediator and arbitrator with JAMS. As part of his practice, he mediates/arbitrates attorney fee disputes. He is a past-Chair of the California State Bar Solo and Small Firm Section Executive Committee and had his own solo practice from 2008 through 2015.
Book a mediation with Shirish.