Aug. 5, 2009 – A new opinion from the Professional Ethics Committee highlights the 2007 changes to the rules governing communications with clients regarding fees and scope of a representation.
SCR 20:1.5 requires a lawyer to explain three issues to a client at the outset of a representation: (1) the scope of the representation, (2) the basis or rate of a fee, and (3) the expenses for which the client will be responsible.
Scope of the representation
The committee remarked that “[t]he rule does not explicitly require a particular degree of specificity” for the lawyer’s description of services and subject matter included in a representation. “The Professional Ethics Committee believes, however, that the rule requires a lawyer to provide enough detail to enable the client to identify the particular matter involved,” the committee said.
A brief description may be sufficient for a single task (e.g., “Legal representation in connection with contract dispute with Party X concerning delivery of widgets”). But where no particular matter is easily identifiable, the committee advised providing as clear a description of the lawyer-client relationship as possible (e.g., “Business-related matters as may arise from time to time and as requested by you.”)
However, the committee cautions that “[e]ngagement letters are contracts with clients, and ambiguities will be construed against the lawyer/drafter, and thus lawyers should carefully consider whether the language reflects the parties’ actual intent.” In particular, a lawyer engaged in a limited-scope representation should specify the services that will not be provided.
Basis or rate of the fee
SCR 20:1.5 leaves open the amount of detailed description a lawyer may provide for the basis or rate of the fee, but the committee recommends “the information be sufficient to enable the client to understand how the fee will be calculated, and that it should be communicated in a clear and easily understood manner.”
The rule provides eight factors for determining the reasonableness of a fee which is judged at three stages: (1) when the agreement is made, (2) when charged, and (3) when collected.
When a lawyer anticipates changes in the fee structure, the lawyer should advise the client from the beginning. Written notice is also required when the changes actually occur, even for regularly represented clients as to whom no communication of fees and expenses is required.
But the Wisconsin Committee Comment to SCR 20:1.5 “makes it clear that a change in rates does not necessarily require a separate written notification to the client, but it does require at least a clear statement on a bill sent to the client notifying the client of the change and indicating the new basis or rate for the fee or expenses,” the committee noted.
Interest charges
“The rules do not prohibit a lawyer from charging a reasonable rate of interest on outstanding balances,” the committee reported. But the client must be informed of this as part of the initial communication regarding fees, the committee added.
Expenses for which the client will be responsible
“The rule does not require that the specific amount of the costs that will be charged to the client (for example, the per-page cost for photocopying) be identified in advance, but that information should be provided if known,” the committee said.
A lawyer may only charge a reasonable amount for these expenses, the committee continued. “Marking up expenses, such as fees for photocopying, with the intention to use such expenses as a source of profit for the lawyer, is not permitted,” the committee said.
Fees greater than $1,000
Communication of the scope, fees, and expenses must be in writing when it is “reasonably foreseeable” that the total cost of the representation will be more than $1,000. But the rule does not explicitly instruct a lawyer what to do if a representation unexpectedly exceeds $1,000.
“[T]he clear intent of the rule is to encourage, and in most cases require, lawyers to provide information with respect to fees and costs to clients in writing,” the committee wrote. “Accordingly, in the committee’s opinion, compliance with the rule would require a written communication concerning fees and expenses when the lawyer anticipates the total cost to exceed $1,000, regardless of whether this occurred at the commencement of the representation or while the representation is in progress.”
Contingent fees
A contingent fee agreement must be in a writing signed by the client. Further, the writing must state:
the method by which the fee is determined, including the percentage(s) that shall accrue to the lawyer in the event of settlement, trial, or appeal
litigation and other expenses to be deducted from the recovery
whether such expenses are deducted before or after the contingent fee is calculated
expenses for which the client will be liable whether or not the client is the prevailing party
the scope of the representation
Upon conclusion of the contingent fee matter, the lawyer must give a written statement that (1) reports the outcome and (2) shows the remittance to the client from a recovery and the method of its determination.
Contingent fees are not permitted in actions affecting the family or when representing a defendant in a criminal case or any proceeding that could result in a deprivation of liberty.
Regularly represented clients
A lawyer charging a regularly represented client on the same basis or rate as in the past is exempted from the requirement of communicating the scope, fee, and expenses. But the rule does not define “regularly represented.”
The committee advised that the term “does not necessarily turn on the number of matters or contacts within a certain period, but rather on the nature of the relationship between the lawyer and the client.”
Also, the committee urged the lawyer to consider the relationship from the client’s point of view.
“The question the lawyer should consider is whether it is reasonable for the lawyer to conclude that the client understands that the client will be billed on the same basis as in the past,” the committee wrote. “The answer to this question depends on the context. Clients with differing levels of sophistication in dealing with lawyers, for example, may have differing conclusions regarding the concept of regular representation. The lawyer should be sensitive to this when deciding whether the basis or rate of the fee should be communicated to the client when additional representation is undertaken.”
Definition of a “writing”
SCR 20:1.0(q) defines a “writing” as “a tangible or electronic record of a communication or representation.” Accordingly, the committee found that a writing satisfying SCR 20:1.5 can be an email, a letter or memorandum, or a copy of the lawyer’s customary fee arrangements. “Arguably, a voicemail message falls within the definition of a writing, although using a voicemail message as a writing undercuts the benefits of documentation and retention contemplated by the rule,” the committee wrote.
Alex De Grand is the legal writer for the State Bar of Wisconsin.
