Tag Archives: Rule 1.5

Avoid Ethics and Malpractice Pitfalls With Sound Business Practices


Law firms must run like a real business to stay open, pay bills, and succeed financially. The lawyers who manage these firms and work in them have business responsibilities, too. Whether you’re a solo practitioner or a managing partner at a big law firm, you have to bill your clients, market your practice, grow your client base, and nurture relationships to thrive in the legal industry. Otherwise, you cannot meet clients’ needs and deliver services on a sustainable basis.

Law students are typically reminded that the practice of law is a profession, not a business. It is indeed a self-regulating profession that is bound by rules of professional conduct. But focusing on the business side of law practice doesn’t weaken professionalism. Rather, having sound business practices strengthens your ability to serve clients ethically and responsibly.

Good business practices go hand in hand with professionalism. The traditional notion that law firms are not businesses is outdated. Although law firms are not ordinary businesses and lawyers are not just business people, ignoring the business side of law practice does not benefit your clients or the legal profession.

Many ethics complaints and malpractice claims are based on issues related to how you manage your firm and practice, instead of on substantive legal errors. Failing to respond promptly to client inquiries, procrastinating, missing deadlines, and over-billing or billing inaccurately are some of the top ethics and malpractice traps.

Here are sound business practices to help you prevent (and defend against) ethics complaints and malpractice claims:

1. Screen your potential clients and accept cases deliberately 

Choosing your clients carefully is the first step to building a strong clientele that appreciates the work you do and will pay you accordingly.

Demanding and difficult clients are hard to please and often the slowest to pay. If a client has gone through several lawyers before they meet with you, be wary. If they unduly blame others without taking any responsibility for their predicament, chances are they will find you wholly at fault for any delays and negative results.

Take cases that really capitalize on your expertise and interest and choose clients you really want to help.  This is not only sound business practice, but will also make it easier for you to comply with Rules 1.1 (Competence) and 1.3 (Diligence) of the Minnesota Rules of Professional Conduct (MRPC).

You can certainly take cases that require more than what you normally bring to the table, but be sure to do the reasonably necessary preparation to meet the clients’ needs. This includes asking for guidance from your colleagues and more experienced attorneys.

Even when a client passes initial screening, there are some situations where continuing to represent the client does not make good business sense and leaves you open to ethics and malpractice pitfalls.

Except as stated in paragraph (c), paragraphs (b)(5) and (b)6) of Rule 1.16 (Declining or Terminating Representation), MPRC, allows lawyers to withdraw from representation when “the client fails substantially to fulfill an obligation to the lawyer regarding the lawyer’s services and has been given reasonable warning that the lawyer will withdraw unless the obligation is fulfilled, or “the representation will result in an unreasonable financial burden on the lawyer or has been rendered unreasonably difficult by the client.” Be sure to surrender the client’s file and property when your representation is terminated.

2. Keep a written fee agreement that fully describes the fee and scope of services

While business deals can be made verbally, on a handshake, or through a simple “thank you” letter, lawyers have unique obligations when it comes to agreements with clients. New clients and new matters should have a written fee agreement. Having the agreement in writing clarifies the scope of representation, your fee structure, your billing practices, and the out-of-pocket charges the client needs to pay. A written fee agreement also helps set clear expectations on both sides.

Make sure your clients can pay your legal fee, unless you want to end up with “forced” pro bono work.  Ask for an initial/advanced payment or retainer fee before you begin to work. Let the client know this payment is refundable if the work is not performed. Rule 1.5 , MRPC allows for advanced payments as long as they are agreed to in writing by the client and they are subject to refund.

3. Compete on value 

Rule 1.15(a), MRPC, states the following are relevant factors in determining whether the attorney’s 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 limitations 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; and

(8) whether the fee is fixed or contingent.

Charge reasonable fees, not rock-bottom fees. Set your fees based mostly on the value you bring, instead of what you think the client can pay. Low billing rates don’t necessarily attract more clients. Competing on price often results in less profitable work, additional stress, and the need to take on a huge volume of cases to make up for the financial loss. While many clients will shop around for the lowest fees, you are better off with clients who choose their lawyers based on the value they bring. These clients are more likely to stay with you and refer others to you.

4. Implement effective billing and collections practices

Fee disputes and collections suits to recover on delinquent accounts are a driving factor behind many ethics complaints and malpractice claims. To avoid this ethics and malpractice trap, you need to have effective billing and collections policies in place. Mistakes — such as double-billing for duplicative work, charging clients for filing fees that have already been paid, inconsistent invoicing, and failing to clearly describe the work performed — leads to client mistrust. Accurate billing and timely collections will reduce financial problems down the line and enhance your relationship with the client.

Avoid suing a client just because you believe you deserve to get paid for the work you did and the results you delivered. Consider whether the client has the ability to pay and whether the amount owed is worth the hassle of trying to collect it.

5. Communicate regularly and respond promptly

Rule 1.4 (a), MRPC, requires you to promptly inform the client of key decisions and circumstances and obtain informed consent; reasonably consult with the client about means to accomplish objectives; keep the client reasonably informed about the status of the matter; and promptly comply with reasonable requests for information. These ethics rules are also sound business practices.

Respond to your clients’ voice mails and emails within 24 hours, unless there are extenuating circumstances, such as your being ill or on vacation. Have a back-up plan for those circumstances. Even if you don’t have an immediate answer, let clients know you received their message and will follow up within a certain time frame. At the very least, inform your clients about your communications policy, such as your office hours and when and how they can expect a response from you.

Send your clients copies of all filings, correspondences and other materials relating to their matter.  This is a convenient way to keep them reasonably informed about the status of their case. Regular and prompt communication is not only ethical, but is also a good business policy that increases client loyalty and satisfaction.

6. Set up systems to handle client matters and run your firm

Systematizing your  law practice helps you provide high-quality service and effective representation to your clients. Systems are clearly defined, step-by-step plans, procedures, processes and policies to complete routine tasks and address common issues.

Documenting your processes and policies, as well as systematizing repetitive tasks, can help you streamline your practice and create more consistent, high-quality results (no matter how heavy your work load).

Systematization doesn’t mean you provide cookie-cutter solutions or drop the uniqueness of your brand. Rather, they help you automate routine activities and daily operations so your firm runs like a business instead of just as a practice that depends completely on you.

Two key systems that allow you to run your firm effectively and avoid ethics and malpractice traps are:

  •  Calendaring, scheduling and tickler system. e.g. recording important hearings and meetings and setting reminders for due dates and deadlines.
  • Client file management system. e.g. providing steps for running conflicts checks, opening new client files, closing files, and destroying old files.

Setting up systems can be a time-consuming, costly activity. When you’re busy, it can seem a like a low priority. But having systems in place is key to operating your law firm like a real business and meeting your obligations to clients.

7. Find the best, workable solution for the client

Although law firms are businesses, your responsibilities as a lawyer should always trump your roles as a business person. While filing a meritorious lawsuit is probably more lucrative than using informal channels, lawyers need to consider the best interest of the client. As professionals, lawyers also have a duty to avoid overburdening the courts and clogging up the judicial system.

In immigration practice, for instance, a lawyer should consider negotiating an agreement with the immigration authorities that will meet the client’s objectives, instead of filing a federal lawsuit to make case law (and more money). While using cost-effective methods to gain desired results  might not bring you fame and glory, it will enhance your reputation and add to the bottom line in the long run.

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This article provides general information only. Do not consider it as legal advice for any individual case or situation.   The sharing or receipt of this information does not create an attorney-client relationship.

The author, Dyan Williams, is admitted to the Minnesota state bar and focuses on the Minnesota Rules of Professional Conduct, which are subject to change. Check your individual state rules of professional conduct, regulations, ethics opinions and case precedents, instead of relying on this article for specific guidance. 


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Photo by:  Kevin Harber

5 Tips to Avoid Ethical Pitfalls in Flat Fee Agreements

Flat fees are a welcome alternative to hourly billing.

This arrangement means the attorney charges a fixed fee for the agreed-upon legal service. The client knows exactly what he will pay for the service and usually begins making payments at the outset of representation.

In my immigration practice — although I can offer an hourly rate to clients — I normally quote a flat fee. No client ever asks to be billed by the hour instead. Most prefer to know the exact value/cost of the agreed-upon legal service, rather than be billed for the lawyer’s time (usually in six, ten or fifteen-minute increments).

While flat fees offer several advantages, they also present ethical pitfalls, particularly when the attorney-client relationship ends before all the work is completed.

Flat Fees Are Subject to a Partial Refund if the Work is Not Fully Performed and to a Full Refund if the Work is Not Performed At All

Minnesota Lawyer recently published an article by Patrick Burns, First Assistant Director of the Minnesota Office of Lawyers Professional Responsibility, titled Ethics: Refunds of Unearned Flat Fees (reprinted here).

In the article, Burns states that there have been complaints filed with the Office of Lawyers Professional Responsibility where the lawyer and client entered into a flat fee agreement, but the agreed-upon service was not fully provided. In some instances, the lawyer claimed no refund was due because the total fee had been earned even though the services were not fully provided. The lawyer argued that he spent enough time on the matter such that the flat fee (when analyzed on an hourly fee basis) was fully earned.

Burns points out, “The flat fee agreement fixes a value for specific legal services to be rendered. If those services are not fully rendered, a refund is due to the client no matter how many hours the lawyer has spent on the matter.”

Amendments to Rule 1.5 Marked the End of Non-Refundable Fees

Previously, Minnesota lawyers could charge non-refundable retainer fees. It was quite common for criminal defense or estate planning attorneys to use non-refundable retainer agreements.

Prior language under Rule 1.5 of the Minnesota Rules of Professional Conduct allowed for non-refundable advance payments of availability (retainer) fees. There was no requirement that the non-refundable retainer be held in a trust account. If clients terminated the representation, they normally forfeited the retainer fee and did not get a refund.

But the amended Rule 1.5, which went into effect on July 1, 2011, prohibits non-refundable fees. The current rule states that while advance payments of flat fees and availability (retainer) fees, if agreed upon in writing, are the lawyer’s property, they are subject to refund.

As part of the amendments, the Minnesota Supreme Court deleted from Rule 1.5(b), the following sentence, “All agreements for the advance payment of nonrefundable fees to secure a lawyer’s availability for a specific period of time or a specific service shall be reasonable in amount and clearly communicated in a writing signed by the client.”

The Court added to Rule 1.5 (b) the following:

Except as provided below, fee payments received by a lawyer before legal services have been rendered are presumed to be unearned and shall be held in a trust account pursuant to Rule 1.15.

 (1) A lawyer may charge a flat fee for specified legal services, which constitutes complete payment for those services and may be paid in whole or in part in advance of the lawyer providing the services. If agreed to in advance in a written fee agreement signed by the client, a flat fee shall be considered to be the lawyer’s property upon payment of the fee, subject to refund as described in Rule 1.5(b)(3). Such a written fee agreement shall notify the client:

(i) of the nature and scope of the services to be provided;

(ii) of the total amount of the fee and the terms of payment;

(iii) that the fee will not be held in a trust account until earned;

(iv) that the client has the right to terminate the client-lawyer relationship; and

(v) that the client will be entitled to a refund of all or a portion of the fee if the agreed-upon legal services are not provided.

(2) A lawyer may charge a fee to ensure the lawyer’s availability to the client during a specified period or on a specified matter in addition to and apart from any compensation for legal services performed. Such an availability fee shall be reasonable in amount and communicated in a writing signed by the client. The writing shall clearly state that the fee is for availability only and that fees for legal services will be charged
separately. An availability fee may be considered to be the lawyer’s property upon payment of the fee, subject to refund in whole or in part should the lawyer not be
available as promised.

(3) Fee agreements may not describe any fee as nonrefundable or earned upon receipt but may describe the advance fee payment as the lawyer’s property subject to refund. Whenever a client has paid a flat fee . . . and the lawyer-client relationship is terminated before the fee is fully earned, the lawyer shall refund to the client the unearned portion of the fee. If a client disputes the amount of the fee that has been earned, the lawyer shall take reasonable and prompt action to resolve the dispute.

Although flat fees and retainer fees do not have to be placed in a trust account until they are earned, they are still subject to refund. Flat fees are subject to a partial refund if the work is not fully performed. They are also subject to a full refund if the work is not performed at all. Retainer fees are subject to refund if the attorney is not available as promised. Such fee agreements also must be communicated in writing to the client.

The amended Rule 1.5 presents ethical pitfalls for Minnesota attorneys, particularly when the client makes advance payments of flat fees and the agreed-upon service is not fully provided or not provided at all.

Here are five tips to avoid ethical pitfalls in flat fee agreements for specified legal services: 

1. Choose the clients you love and love the clients you have

Good client relations and effective, regular communication between the attorney and client reduce the likelihood of a breakdown in the relationship and an early termination of representation. When agreed-upon legal service is not fully performed, it’s usually because the client fires the attorney or the attorney withdraws from the case.

To minimize breakdowns in the relationship or to avoid fee disputes, you want to have good clients who appreciate the value you bring.

If the client had many prior attorneys before he met with you, this could be a red flag. Look out for warning signs of a bad client.  Then once you accept a case, work on it diligently, provide excellent service, and give ongoing status updates to the client.

2. Break down the representation into stages or segments

Flat fees are most appropriate in relatively simple or routine matters, such as writing a basic will, overseeing a real estate closing, or preparing an uncontested divorce petition. They also work well in complex cases where the representation can be broken into segments and stages.  A separate fee can be charged for each segment or stage individually.

If the attorney carefully outlines, in the fee agreement, what is and isn’t covered in each segment or stage of the representation, it’s easier to determine what work is already done versus work yet to be done.

For example, a U.S citizen client may hire an immigration attorney for full representation in obtaining an immigrant visa for his foreign national spouse who lives overseas. The process starts with filing an I-130 immigrant petition, proceeds to the filing of the immigrant visa application, and ends with the immigrant visa interview, after which time the U.S. Consulate grants or denies the immigrant visa.

Instead of having one fee agreement that lumps in and does not distinguish the different stages, the attorney and client may have one fee agreement that clearly delineates each stage and the related fee, or have separate fee agreements for each stage and the related fee.

3. Have a written fee agreement that includes the required language

If  the advance fee payment is to be considered the lawyer’s property, subject to refund, the client must consent to this in a written fee agreement.

A written fee agreement that calls for advance payment of flat fees must also include the required language set forth in Rule 1.5(b).

The agreement must notify the client that he will be entitled to a refund of all or a portion of the fee if the agreed-upon legal services are not provided. It also cannot include any language describing an advance payment as non-refundable or earned upon receipt.

4. Don’t spend it all

Minnesota lawyers may accept full or partial payment of a flat fee in advance of performing the specified legal services. They may deposit the payment in an operating account instead of in a trust account, if they consider the payment their property (assuming the agreement is in writing).

But they have no right to a non-refundable flat fee. If they do not fully perform the agreed-upon services, they must refund the “unearned” portion of the fee upon termination of representation.

The safest thing to do is to wait until the work is done and then charge the fee, but this leads to cash flow problems and makes it practically impossible to pay bills and keep the law firm running.

Advance payments are necessary for most lawyers. But because flat fees cannot be non-refundable under Rule 1.5, it’s important to put money aside in the event of a fee dispute.

Although the ethics rule doesn’t require you to deposit advance payments in the trust account until earned, you still have the option to do so. Otherwise, keep a nominal amount of funds in the operating account for those rare occasions where you might need to give money back.

5. Keep a time record

One reason why lawyers prefer flat-fee arrangements is that you don’t have to present timekeeping records with your bills. Is there any lawyer out there who enjoys the painstaking chore of entering time?

But because unearned fees are subject to refund, lawyers need to maintain some type of time record for each case, even if it involves a flat fee arrangement. (At the very least, time keeping helps you determine whether you are working efficiently on a case and gives you a more realistic perspective on how much to charge for the next, similar case.)

If the agreed-upon work is not fully performed, the hourly metrics help to show how much of the fee the attorney has earned. Rule 1.5(a) states that a lawyer must charge reasonable fees, and the time and labor required to do the work are primary factors.

While you don’t have to track your time down to every minute in flat fee arrangements, as you would in hourly billing, you want to keep some type of time record. This backup documentation will help you resolve fee disputes and decide how much to refund to the client.

Although the time spent is not “an exclusive factor,” it “may be considered” in determining the value of the services that the lawyer completed, as Burns states in the Minnesota Lawyer article.

To a great extent, your knowing that advance payment is always subject to refund makes you a much more diligent attorney. You will do the work and communicate well with your client if you know you have to give money back if you don’t.

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Apply these five tips to avoid ethical pitfalls in flat fee arrangements, particularly when you accept partial payment or full payment before you complete all the work.

This article provides general information only. Do not consider it as legal advice for any individual case or situation.   The sharing or receipt of this information does not create an attorney-client relationship.

The author, Dyan Williams, is admitted to the Minnesota state bar and focuses on the Minnesota Rules of Professional Conduct in her articles.  Check your individual state rules of professional conduct, regulations, ethics opinions and case precedents, instead of relying on this article for specific guidance. 


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Photo by: Tax Credits