Have you ever accepted a case on a flat-fee basis, only to quickly realize it’s going to be more complicated and time-consuming than you initially thought?
What do you do? Grit your teeth and soldier on under the existing fee arrangement, even though you know it will likely be a financial loser? Or do you cut your losses and try to get out of the case?
Well, if you practice in Texas, there’s a third option. The ethics rules allow you to renegotiate your fee – and a 2018 ethics opinion tells you how to do it the right way.
“A lawyer may renegotiate his fixed, flat fee for representing a client in a litigation matter after the litigation is underway if modification of the fee agreement is fair under the circumstances,” says State Bar of Texas Ethics Opinion 679. “The burden of proving fairness is the lawyer’s and will depend upon factors such as the length of the lawyer-client relationship, whether the reason for the renegotiation could have been anticipated at the outset of the representation, and the client’s level of sophistication.”
Even though the ethics committee gave a green-light to renegotiating fees, it warned attorneys to be aware of the risk they “voluntarily assume” when they enter into a fee agreement. This includes “the possibility that the fixed fee might not be adequate to compensate the lawyer when compared to other fee arrangements.”
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Texas Ethic Opinion 679
Here is the question presented to the State Bar of Texas Ethics Committee in Opinion 679: “May a lawyer renegotiate his fixed, flat fee for representing a client in litigation after the litigation is underway if the matter turns out to be greater in scope and complexity than the lawyer and client contemplated?”
The answer is found in Texas caselaw and Rule 1.04 of the state’s Disciplinary Rules of Professional Conduct. Common types of fees contemplated Rule 1.04 are flat fees, contingent fees and hourly fees. While the rule itself doesn’t expressly address fee renegotiations, at least one Texas court decision has done so.
In Jampole v. Matthews, 1997 WL 414637 (Tex. App.—Houston [1st Dist.] 1997), the court said: “An attorney and client may modify the fee agreement during the existence of the attorney-client relationship. However[,] a presumption of unfairness arises, and the attorney has the burden to show the fee modification is fair under the circumstances.”
The committee noted that when it comes to negotiating attorney fees, the client is at a disadvantage. “Changing lawyers during the representation is burdensome and ‘[a] client might hesitate to resist or even to suggest changes in new terms proposed by the lawyer, fearing the lawyer’s resentment or believing that the proposals are meant to promote the client’s good,’” the committee said, citing Jampole.
When is a Fee Modification “Fair?”
Whether changes to an existing fee agreement are “fair under the circumstances” will depend on several factors, the committee said.
- Do the attorney and client have a long-standing relationship? If the lawyer has regularly represented a client, the parties will likely have a mutual understanding regarding fees. If a deviation is necessary the lawyer should advise the client.
- Is this a first-time client? For new clients, the lawyer should clearly communicate the basis and rate of the fee. “It is not necessary to recite all the factors that underlie the basis of the fee, but only those that are directly involved in its computation. It is sufficient, for example, to state that the basic rate is an hourly charge or a fixed amount or an estimated amount, in order to identify the factors that may be taken into account in finally fixing the fee.”
- How sophisticated is the client? An institutional client like a lender will likely have experience regarding litigation matters routinely involved in its business. It will be better informed about the costs associated with litigation and the appropriate fee than an inexperienced client.
- Illegal or unconscionable fees are prohibited. This is so whether in an original agreement or a modification.
Scenario Where a Renegotiation Would Be Proper
“Consider, for example, a lawyer who represents a lender. The lawyer and the client have a flat-fee agreement under which the lawyer represents the lender in pursuing collection of delinquent promissory notes. The matters are either resolved by settlement or litigation that usually results in a summary judgment against the borrower. In one matter, however, a borrower and her lawyer file a counterclaim, asserting a class action against the lender for usury and other illegal conduct. The counterclaim alleges a class of hundreds of borrowers, the amount in controversy is enormous, and discovery in the case is expected to include numerous depositions, the exchange of thousands of documents, and require years to complete. In such a situation, neither the lawyer nor the client could reasonably anticipate that the scope of work to be included in the flat-fee agreement would be so grossly underestimated. Furthermore, based upon the history of their relationship, neither the lawyer nor the client expected that the lawyer’s flat fee would include any work except pursuing delinquent accounts. Renegotiating the fee would therefore be fair under the circumstances.”
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