Attorney Fees/ Trust Accounts

1
Attorney Fees/ Trust Accounts

• Week 6

2
Objectives

• Understand financial organization in law firms
• Recognize ethical issues related to fee
  agreements
• Explain the purposes of and reasons for trust
  accounts
• Recognize ethical problems with trust accounts
• Evaluate options for preventing and dealing with
  trust account ethical violations

3
Accounting Procedures

• General Bank Account v. Trust Account
• General Account Earned Fees
• Trust Account Client money/third party funds
• Required for attorneys who handle client funds
• Ledger sheets

4
California Law

• California Business Professions Code
  6146-6149-.5 (Fee Agreements)
• Rules of Professional Conduct 3-400, 3-410
• (Fee Agreements)
• (See separate posting for laws and sample fee
  agreements from Calif. State Bar)

5
Agreements with clients

• Should
• always be in writing
• set forth the expectations of the parties
• explicitly explain the costs of the
  representation
• be explained to the client
• be signed by both parties
• The client must be given a copy

6
Omit from fee agreements

• Guarantees
• Limit on lawyer liability
• Limits on liability
• Charges for costs

7
UPL and fee agreement

• It is UPL for a paralegal to negotiate fee
  agreements
• Fee agreement must be explained to the client
• A paralegal can explain the contract without
  committing UPL

8
Fees vs. Costs

• Fees are the money earned by the law firm
• Fee generators are lawyers and paralegals
• Costs are the out of pocket costs paid to third
  parties related to the representation
• filing expenses, court reporter expenses, expert
  expenses

9
Rules of Legal Fees

• English Rule the loser pays for litigation
• American Rule each party pays for his/her own
  legal fees absent agreement
• Fee-shifting statute a statute that says the
  loser pays the other partys legal fees

10
Different Fee Agreements

• Contingency
• Hourly
• Value
• Bonus
• Fixed Fee

11
Contingency Agreements

• Lawyer gets paid fees only if there is a
  positive outcome that generates money
• Costs traditionally charged to client
  regardless of outcomeBut Calif. Has different
  ruledepends on fee agreement
• Typical in plaintiffs personal injury work

12
Contingency Agreements, cont.

• Typically set forth a split of the money
  generated by the case
• Costs
• Lawyers Portion
• Clients Portion
• Fee agreement must say where the costs are paid
  from

13
Contingency Agreements, cont.

• Some agreements pay the costs off the top and
  then divide the remaining amount
• Some agreements divide the money and then pay the
  costs from the clients portion

14
Costs Contingency Fees

• The law firm typically fronts the costs in
  contingency cases
• Then gets reimbursed (no mark-up) at the end of
  the case
• If no recovery attorney often uses unrecovered
  costs as tax deduction

15
Advertising Contingency fees

• Advertisements should not say no recovery no
  fees because it misleads potential clients who
  do not understand the difference between fees
  and costs
• Contingency fee agreements should say that the
  client is responsible for costs

16
Hourly Fee Agreement

• Each lawyer and paralegal in a law firm is
  assigned a billing rate
• Lawyers range from 100/hr to more than 1000/hr
• Paralegals range from 30/hr to 200/hr

17
Hourly Fee Agreement, cont.

• Each biller keeps track of his/her time on each
  case
• Time is billed to the client according to each
  billers billable rate
• Client is also billed for costs

18
Hourly Fee Agreement, cont.

• Hourly agreements are used in divorce (marital
  dissolution), criminal defense, personal injury
  defense, business litigation
• Fee agreement should include potential future
  increases in billable rates (such as annual
  increases)

19
Keeping track of time

• Time records should always be honest
• Time records should be complete with description
  of the task
• Keep track of time contemporaneously with the
  task
• Time is billed (usually) in 1/10 of hour (6
  minute increments)

20
What is billable?

• Paralegal tasks are billable at paralegal rates
• Secretary/clerical tasks are not billable

21
What is awardable?

• In a fee-shifting case, the prevailing party will
  apply to the court to have the losing party pay
  prevailing partys legal costs and fees
• The petition must include a complete accounting
  of attorney/paralegal time on the case

22
Court awarded fees

• Courts award objectively reasonable fees
• Courts award fees for time spent by the correct
  biller (paralegals for paralegal tasks, etc.)
• Courts will not award fees for clerical work

23
Ethical fees

• padding timesheets is inflating your time or
  billing for work you did not do
• Overbilling is fraud a tort and a crime

24
Retainers

• Security retainer-works like a deposit-it stays
  in an account to ensure the client pays the
  lawyer bills
• Some law firms bill against the retainer take
  money from the retainer amount to pay the bills

25
Retainers, cont.

• Non-refundable retainers earned on receipt
• Advance payment retainer earned on receipt
  advance payment for future legal work

26
Fee fights

• Sometimes clients and lawyers fight about the
  legal fees
• Some of those fights end up in litigation
• Some confidential information can be used in this
  litigation

27
Referral Fees

• Paying a fee to someone who refers a case to your
  law firm is illegal
• Exception California lawyers can pay other
  California lawyers for a referral

28
Pro Bono

• pro bono publico is Latin for doing legal work
  for free (for the public good)

29
Duty of Accounting

• The legal professional must keep accurate records
  of all funds received from the client
• Records should clearly differentiate each
  clients money from the others

30
Trust Accounts

• Often called Attorney Trust Account
• But it should be called Client Trust Account
• Retainers (those not earned on receipt) must be
  deposited into this account

31
Trust Accounts, cont.

• Client money must be kept in an interest-bearing
  checking account
• One account can hold money from all of the firms
  clients
• But accurate records must be kept on money going
  in and out for each client

32
Trust Accounts, cont.

• Account must always have a positive balance (more
  than 0)
• Account must only have client money in it
• Money owed to the lawyer must be removed
  immediately (when it is earned)

33
Trust Accounts, cont.

• Deposit
• Retainers
• Settlement money
• Judgment money
• Escrowed funds

34
General Operating Account

• Regular business checking account
• Should be used for paying office expenses
• Rent
• Salaries
• Overhead items
• Money is earned and removed from trust account,
  it should be deposited in here

35
Where the money goes

• Lawyer trust account
• General operating account
• Lawyer personal account

36
Account violations

• Many lawyers are disciplined for not having
  enough money in the trust account
• All client accounts added together should equal
  the total amount in the account

37
Account violations, cont.

• Lawyers are disciplined for having the wrong
  money in the trust account
• Only client money should be in the trust account
• Earned fees must be taken out immediately
• Commingling is mixing the money

38
Account violations, cont.

• Lawyers are disciplined for using this account
  improperly
• Personal or office expense payments must not be
  paid from this account
• When money is earned, it must be moved to the
  General Op. Acct. before spending it

39
Account violations, cont.

• Banks will report improper use of trust accounts
• Never bounce a check
• Find your state law on keeping a small amount of
  extra money in the trust account to cover check
  costs etc

40
IOLTA

• Banks collect the interest on client trust
  accounts
• This money is used to fund legal services and pro
  bono organizations
• Interest On Lawyer Trust Accounts