In response to a D.C. Court of Appeals decision last year on legal fees paid in advance, the D.C. Bar’s Legal Ethics Committee issued an opinion today outlining how those fees should be held.
In September, the court, writing in In re Mance, ruled that, absent “informed consent” from a client to a different arrangement, upfront fees should be considered the property of the client and held in escrow until they are earned.
The Legal Ethics Committee’s Opinion No. 355 says that a lawyer and a client may enter into an agreement about how and when the lawyer has earned some or all of the flat fee. The opinion “strongly” recommends that agreement be put in writing, but a written agreement is not mandatory.
Absent an agreement with the client regarding milestones for earning portions of the flat fee, the ethics opinion says, “the lawyer will have the burden to establish that whatever funds that have been transferred to the lawyer’s operating account have been earned.”
The unearned portion of the upfront fee may also be put into an operating account if the lawyer secures the “informed consent” of the client. The opinion defines informed consent as “explain[ing] to the client that the funds may also be placed and kept in a trust account until earned and that placement in an operating account does not affect a lawyer’s obligation to refund unearned funds if the client terminates the representation.”
Lawyers are also required to explain the additional protection offered by a trust account. Again, the disclosure doesn’t have to be in writing, the opinion says, but it’s a good idea “for both the lawyer’s and client’s protection.”
The full text of the ethics opinion is available here.