Rule of the Road No. 6: A trial lawyer must have written fee agreements.
No lawyer has ever regretted having a written fee agreement. Many states now require a written fee agreement for new clients. For example, the Colorado Rules of Professional Conduct now require fee agreements in most cases:
(b) When the lawyer has not regularly represented the client, the basis or rate of the fee and expenses shall be communicated to the client, in writing, before or within a reasonable time after commencing the representation. Any changes in the basis or rate of the fee or expenses shall also be promptly communicated to the client, in writing.
C.R.P.C. 1.5(b). The ABA Model Rule 1.5(b) strongly suggests that the fee agreement be in writing:
(b) The scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation, except when the lawyer will charge a regularly represented client on the same basis or rate. Any changes in the basis or rate of the fee or expenses shall also be communicated to the client.
Moreover, in many states, written fee agreements are mandatory for all clients in contingent fee cases.
Usually, a written fee agreement will help both the lawyer and client to define and be clear about the scope of the lawyer’s engagement. See ABA Model Rule 1.2. Often, it is almost as important that lawyers and clients be as clear on what the lawyer is not doing for the client as it is important to know what the lawyer will be doing.
Lawyers without written fee agreements almost always lose legal battles over the scope of the engagement with the client, the terms upon which the client was to pay, and the method of how a settlement was to be distributed. Entering into a written fee agreement, and talking frankly to the client in person about every part of the agreement, not only helps establish the parameters of the client-lawyer relationship, but also makes the client realize that he or she is entering into an important business contract as well as a professional relationship.
Fee agreements with friends and family. Representing friends and family members is among the more dangerous representations that a lawyer can undertake. See Rule of the Road No. 6, infra. If you are going to do so, make sure that you have a well-drafted, clear fee agreement with the friend or family member that is explicit about i) the scope of the client-lawyer relationship, ii) that the lawyer is not handling other matters for the client, and iii) exactly how the lawyer is to be paid.
It is often tempting to not have a written fee agreement when representing a friend or family member. Lawyers often overlook written fee agreement with friends and family because the personal relationships cause all parties to lower their guard. My experience is that the closer the lawyer’s personal relationship with the client the more important it is to have a well-drafted fee agreement. As a corollary, the closer the lawyer’s relationship with the client, the more important it is to be clear about who is going to pay the lawyer and when the lawyer is to be paid.
The need for a clearly written fee agreement with friends and family arises from the fickleness of human nature: the more personal history we have with a client, the more opportunity there is for the professional relationship to be confused with the personal; our professional relationship become clouded with unspoken assumptions and the personal baggage that comes with long-term friendships and family relationships. Thus, when clients are friends or family, there are more opportunities for the representation to go wrong, not fewer.
Make clients pay their bills. A lawyer should take prompt action when an account is in arrears. If you don’t have time to dun slow paying clients, designate a staff member to diligently follow up on unpaid bills. Barring extraordinary circumstances, if the client refuses to pay or ignores the obligation until you threaten to withdraw, the client likely doesn’t respect you or your skills, so you probably should withdraw from that representation.
Don’t chase sunk costs. Often, lawyers find themselves involved in cases in which they have invested heavily and client is not paying as agreed, but the lawyer is hesitant to withdraw. Usually, the lawyer believes – correctly – that if the lawyer withdraws from the representation, the lawyer will lose all influence with the client and likely the client will never pay. The lawyer often believes that if he or she can just stick with the client long enough, the client will pay the bills and all will be well. Economists call this thinking the “sunk cost fallacy.”
It is almost always a mistake for the lawyer to continue the representation after the client stops paying. Business investors have a saying about bad investments, “Don’t chase sunk costs.” Another phrase that makes the same point is “Don’t throw good money after bad.” If a client won’t or can’t pay, unless the lawyer is willing to continue the case pro bono, or is committed to the client’s cause for social justice reasons, the wisest course action is to withdraw from the representation and move on.