Week 6

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◦ 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

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

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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)

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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

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

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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

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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

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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 party’s legal fees

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Contingency Hourly Value Bonus Fixed Fee

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Lawyer gets paid “fees” only if there is a positive outcome that generates money

“Costs” traditionally charged to client regardless of outcome—But Calif. Has different rule—depends on fee agreement

Typical in plaintiff’s personal injury work

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Typically set forth a split of the money generated by the case◦ Costs◦ Lawyer’s Portion◦ Client’s Portion

Fee agreement must say where the costs are paid from

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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 client’s portion

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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

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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

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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

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Each “biller” keeps track of his/her time on each case

Time is billed to the client according to each biller’s billable rate

Client is also billed for costs

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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)

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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)

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Paralegal tasks are billable at paralegal rates

Secretary/clerical tasks are not billable

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In a fee-shifting case, the prevailing party will apply to the court to have the losing party pay prevailing party’s legal costs and fees

The petition must include a complete accounting of attorney/paralegal time on the case

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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

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“padding” timesheets is inflating your time or billing for work you did not do

Overbilling is “fraud” – a tort and a crime

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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

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Non-refundable retainers – earned on receipt

Advance payment retainer – earned on receipt – advance payment for future legal work

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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

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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

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

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The legal professional must keep accurate records of all funds received from the client

Records should clearly differentiate each client’s money from the others

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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

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Client money must be kept in an interest-bearing checking account

One account can hold money from all of the firm’s clients

But accurate records must be kept on money going in and out for each client

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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)

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Deposit:◦ Retainers◦ Settlement money◦ Judgment money◦ Escrowed funds

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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

Lawyer trust account General operating account Lawyer personal account

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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

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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

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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

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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

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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