A cautionary tale of sorts

Recently, I wrote a little about the problems that can be presented in re-negotiating the terms of a fee agreement with an existing client in light of the requirements of RPC 1.8(a) governing business transactions with clients.  Yesterday’s big legal news in Tennessee involves something that could be flippantly described as an RPC 1.8(a) problem on steroids.

In reality, the convictions of two middle-Tennessee attorneys (one of whom has been handling two high-profile matters and the other of whom happens to be married to a sitting trial court judge) for extortion touches on several ethical infractions much more severe than a violation of RPC 1.8(a).  The jury verdict comes in response to accusations that they had repeatedly threatened their client with arrest and eventually swore out an arrest warrant as part of attempting to get the client to pay them $50,000 that prosecutors said the lawyers needed as part of coming up with a larger sum to buy some property.  Having now been convicted, these lawyers can expect to be charged with violations of RPC 8.4(b) for their criminal acts, but even had their conduct not been found to be extortion there were serious RPC 4.4(a)(2) problems with threatening to pursue a criminal action against their own client to try to get paid.  I can pretty confidently say that the intent behind RPC 4.4(a)(2) is more trying to deal with problems associated with lawyers directing such threats at adversary parties and other counsel (in part, because it is difficult to fathom that any lawyer would so threaten their own client) but not a real stretch to consider such conduct to violate that rule.

Nevertheless, the factual narrative of the whole sad case does interestingly start from an effort by the lawyers to move from one set of contract terms — $800 to accompany a client to the reading of a will — to a much more lucrative arrangement for the lawyers — a $50,000 flat fee for a much larger contemplated engagement.  Ironically (at least in the Alanis Morrisette meaning of the term), if these lawyers had gone to the trouble of complying with all of the aspects of RPC 1.8(a) – including giving the client an opportunity to consult with an independent lawyer about the proposal — perhaps the lawyers and the client would have reached agreement on the terms of an arrangement (likely not a $50,000 flat fee though) that the client would have paid willingly and the rest of the violations might never have come to pass.

Traps for the unwary – Mid-stream changes to your client’s fee agreement

When lawyers think about problematic business transactions with a client, they usually think about things like loans or, perhaps, situations in which a lawyer is joining a client as an investor in a business venture.  The ethics rule regarding business transactions with clients, RPC 1.8(a), is broader in its coverage than just those situations and, in fact, broader than many lawyers realize.  A particular issue that pops up from time-to-time to cause trouble for lawyers is failure to understand that RPC 1.8(a) applies when you renegotiate a fee agreement with a client.  Given the nature of the attorney-client relationship and the broad fiduciary duties attorneys owe their clients, it should be logical that a lawyer faces a heavier than normal burden when trying to turn an existing fee agreement with a client into something more favorable for the lawyer.

It was but one of two problems involving handling of client fees, but failure to comply with RPC 1.8(a) when changing the terms of his client’s fee agreement was part of the reason a Tennessee lawyer was publicly censured at the end of last month.

The trap for a lawyer who does not realize that RPC 1.8(a) applies to such a change is that, even a change that would still amount to a reasonable fee arrangement in compliance with RPC 1.5, amounts to a violation of the rules unless it meets all of the additional requirements of RPC 1.8(a).  (Because the purpose of this rule is to prevent the lawyer from taking advantage of the client, RPC 1.8(a) does not apply when a lawyer is re-doing the terms of a fee agreement to make it more favorable to the client (i.e. marking down or walking away from a bill for example or agreeing to lower their hourly rate)).

Though numbered as three sub-parts, there are actually five additional requirements  to be met: (1) there has to be a writing transmitted to the client that discloses the transaction and the terms in a manner reasonably understood by the client; (2) the transaction and terms have to be fair and reasonable to the client; (3) the client has to be advised in writing that it is desirable to seek independent legal counsel for advice on the transaction; (4) the client must be given a reasonable opportunity to seek independent legal counsel; and (5) there has to be a writing, signed by the client, showing the client’s informed consent to the terms and the lawyer’s role (including whether the lawyer was also representing the client in the transaction.

Comment [1] to the rule offers a pretty specific pointer to try to make it harder for a lawyer to be unwary and, thus, prevent this rule from serving as a trap.  The next sentence in Comment [1] makes clear that this rule does not apply to standard commercial transactions (e.g. you represent a large bank and you also obtain a home mortgage from that bank) not only because requiring compliance would be impracticable but also because there is no real concern of an imbalance between lawyer and client in such situations.

When there is any real doubt about what the net outcome of a midstream fee change would be, the safe course is to make sure to comply with RPC 1.8(a).  Thus, while a lawyer who has been handling a plaintiff’s case on a hourly fee basis may be able to argue that moving the arrangement over to a contingent fee agreement was for the client’s benefit to avoid a burden of continuing to pay fees on a case that might not be successful, it’s a very risky endeavor to proceed without making sure that you tick each of the boxes to comply with RPC 1.8(a).