Legal ethics

Texas Op. 701 – half right is still wrong.

We aren’t doing “Bad Ethics Opinion or Worst Ethics Opinion” only because it is Texas so grading has to be on a curve. But we are still going to take a Texas opinion addressing whether a Texas attorney can offer a “subscription model” of legal services to task.

Opinion No. 701 issued during May 2024 is, all things being equal and certainly affording that “curve,” a relatively reasonable ethics opinion but only on one half of the topic it addresses.

Now, a couple of primers for those not familiar with Texas ethics rules, you have to remember that their number of their rules is different from rules patterned after the ABA Model Rules, so for example when evaluating fees their rule is 1.04 rather than 1.5. In addition, they do not have a 1.5/1.04 variant that looks anything like the Model Rules. Instead, their rule states: “[a] lawyer shall not enter into an arrangement for, charge, or collect an illegal fee or unconscionable fee. A fee is unconscionable if a competent lawyer could not form a reasonable belief that the fee is reasonable.”

Starting from that prohibition, unsurprisingly, the opinion begins by focusing on whether the charging of a subscription fee would be unconscionable.

Whether a particular subscription fee agreement is unconscionable is a
question of fact, but there is nothing inherently unconscionable about a subscription fee. A subscription fee may provide a reduced hourly rate, “on-call” availability, and other benefits. The value of these benefits should be weighed against the cost of the monthly fee, the risk that the client may not need the allotted amount of legal services, and the risk that the lawyer may not be able to provide the requested services due to a conflict of interest, a lack of expertise, or some other professional
limitation. There is no question that, for some clients in some circumstances, a subscription fee agreement may be advantageous and desirable.

Although the Texas opinion does not apply the prevailing ABA Model Rule version regarding reasonableness of fees, the outcome under the ABA Model Rule should be the same. There is nothing inherently unreasonable in the kinds of fee arrangements discussed in the Texas opinion.

Unfortunately, while the opinion gets that core issue correct and does not prohibit outright fee arrangements using a subscription model, it goes entirely off the rails on the related question of whether the lawyer has to deposit the payments received under the subscription model into the lawyer’s trust account.

Relying upon an earlier opinion on a topic it deems sufficiently similar, the opinion explains:

As defined in this opinion, a subscription fee agreement is tantamount to a periodically recurring fixed fee agreement. Although some of the subscription fee may be attributable to ensuring the lawyer’s availability, and, thus, may be deemed earned upon payment, the fee also pre-pays for a specified number of hours of legal services. Because the fee is not entirely paid to secure the lawyer’s availability and compensate for the preclusion of other employment, the unearned portion of the fee
cannot be non-refundable. As a result, a lawyer must keep subscription fees that merely entitle the client to legal services segregated from other fees until the conclusion of each fee period. At the end of the fee period, the fee may be moved from the lawyer’s trust account and taken into income.

This unsatisfying analysis, like many such instances evaluating fees paid in advance, focuses far too much on concerns about the notion of non-refundability and, as a result, misses the forest for the trees when deciding to whom the money belongs at the time of payment and when it is earned.

The mere fact that a lawyer might later, due to circumstances not anticipated by the contracting parties at the time of their contract, refund a portion of a subscription fee does not mean that the lawyer should ethically be required to keep the fee in trust until the end of the subscription fee period.

Imposing that requirement is, in fact (or at least IMO) antithetical to the concept that is in play in a traditional subscription arrangement. If we assume a version of such an arrangement acknowledged by the Texas opinion as allowable, then I find it incredibly easy to disparage the conclusion drawn by the Texas committee about when the fees are actually earned.

If you are a lawyer who normally charges $600 per hour for your services, and you offer a client an arrangement in which they agree to buy up to 5 hours of your time each month in exchange for a payment of $1,500 (a 50% discount). The client agrees that whether or not they use the full 5 hours of time in any month they still owe the monthly payment. It is quite clear that the $1,500 payment is earned by the lawyer at the time that it is paid and that the only option that does not involve commingling is for the lawyer to deposit those funds into the lawyer’s operating account with the rest of the money that belongs to them. The mere fact that, in any given month, the lawyer might agree to refund or rollover some portion of the payment to a new month does not actually change the analysis.

For anyone not yet convinced of the wrongness of the Texas analysis, ask yourself this: if the client does not use the 5 hours at all in a month but is perfectly happy having paid the fee, then what has the lawyer done at the end of the month to have earned the fee and be entitled to move it into operating that was not already done on the first day of the month?