That’s one trend I won’t be following

On February 7, 2011, the South Carolina Supreme Court publicly reprimanded J. Cameron Halford for mishandling funds in his trust account.   Today [April 11, 2011], the Supreme Court refiled its opinion, In the Matter of J. Cameron Halford, 392 S.C. 66, 708 S.E.2d 740 (2011).   In both opinions the Supreme Court noted that “respondent learned [apparently as part of the Office of Disciplinary Counsel’s investigation] he was required to deposit all fees, including flat fees, into his trust account until the fees were actually earned….” (emphasis added) The only difference with the refiled opinion is a new footnote:

Respondent stipulates that the deposit of “flat fees” into his operating account was a violation of the Rules of Professional Conduct. We accept the stipulation here for purposes of honoring the Agreement for Discipline by Consent.  The handling of “flat fees” is a complex matter, and we do not intend in this opinion to set forth a categorical rule addressing “flat fees.”

Halford should terrify any South Carolina attorney who handles work on a flat fee basis.  While I handle few cases on a flat fee basis, and typically deposit the fee in my trust account, paying myself over time as I work on the matter by “paying” myself based upon the hours worked to date times my typical hourly fee and “paying” myself the full remaining amount when the case is complete, I do it more for budgeting purposes than as an ethical requirement.  If the fee is small and the work is being done immediately, I’ve never thought it a problem to deposit the fee into my operating account.

If attorneys are authorized to charge flat fees–and the ethics rules indicate we are[1]–why isn’t the fee “earned” when we take on representation (with the understanding that we might have to refund part of the fee if the representation terminates shy of completion)?  Isn’t one advantage for both the attorney and the client in charging a flat fee the certainty of the fee?  If an attorney is bound to charge no more than the flat fee but apparently doesn’t earn the fee when undertaking representation, aren’t flat fees one-sided agreements that inure completely in the client’s favor?

If the Supreme Court intends to discipline an attorney for treating a flat fee as immediately earned, even if this agreement is by consent, wouldn’t it be nice if it provided some guidance, perhaps even a “categorical rule” addressing flat fees?  I constantly read articles extolling the trend away from hourly billing and towards flat fees.   Apparently clients love it and (some) attorneys are beginning to see its merits.  Given this footnote in Halford, that’s one trend I won’t be following.

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[1]It was only thirty-six years ago, inGoldfarb v. Virginia State Bar, 421 US 773 (1975), that the United States Supreme Court found that a bar requirement that attorneys charge clients a minimum flat fee for certain work was unconstitutional.

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  • I haven’t read the opinion yet. Does it say how large these fees are? Many of my clients are poor and the fees are not large. I’m curious as to the effect on the payment plan lawyers. Seldom do I have a client deposit a large retainer ahead of it being earned.

    • The opinion is vague on every detail regarding the flat fee, thus providing our bar minimal guidance and maximal fear. Sometimes I wonder if our Supreme Court and the ODC really hates our bar. It’s the only way to explain such opinions.

      One way totalitarian societies maintain power is by creating vague laws that no one can obey and then utilizing these vague laws by selectively prosecuting individuals who challenge authority. I’m not saying ODC or our Supreme Court are totalitarian but these vague rules can be the tools of tyrants.

  • Pete DeLuca

    Greg: I think your reply to MJ Goodwin hits the nail on the head. Neither ODC or the Supreme Court has any concept of what goes on in private practice with most firms having less than 3 or 4 attorneys or sole practitioners. PDDJr.

  • Greg:

    Even though I do offer a flat fee option for a certain cases, I always outline for the client the various “stages” of my representation and the portion of their “flat fee” which will be charged at the completion of each stage. I have found great success with offering this option, especially to clients who need to budget upfront. However, the “flat fee” goes right into the Trust Account just like any other client funds until work is completed on each stage. You are certainly correct there isn’t clear guidance on this, but from the various questions/answer sessions with ODC reps during my session of Bridge the Gap and the lectures offered during my Ethics seminars back in law school, I have taken the approach that “better the Trust Account than not.”

  • I have a section in my representation agreement that sets out who much “typical” things will cost, such as the pleadings, orders, etc. I hope that this will help me if I ever run into trouble. However, I can’t see that happening as most of my cases don’t even have enough money to get started properly in the first place. I don’t have to worry about not having earned it. I have to worry about not getting paid after I’ve earned it.

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