The Written Fee Agreement

The Written Fee Agreement

Rule 1.5(c) conditions a contingent fee on a document. The agreement must be a signed writing, and the writing must “state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal; litigation and other expenses to be deducted from the recovery; and whether such expenses are to be deducted before or after the contingent fee is calculated.” It must also specify whether the client is responsible for expenses even if the client is not the prevailing party.¹ Those terms make four requirements, which this section takes in turn: the signed writing itself, the percentage, the identification and order of deduction of expenses, and the client’s liability for expenses regardless of outcome. A fifth duty arises when the matter ends. The lawyer must then give the client a written statement of the outcome and, if there is a recovery, the remittance to the client and the method of its determination.² The next section covers that statement.

The ordinary fee carries a lighter burden. Rule 1.5(b) directs the lawyer to communicate the scope of the representation and the basis or rate of the fee and expenses, preferably in writing, before or within a reasonable time after the representation begins. It excuses the communication when the lawyer charges a regularly represented client on the same basis or rate as before, and it requires that any later change in the basis or rate also be communicated.³ Because “preferably” states a preference, a lawyer who explains an hourly rate aloud has complied. A lawyer who explains a contingent fee only aloud has not complied with Rule 1.5(c), which makes the signed writing mandatory and dictates its contents.

The heavier burden follows from how contingent fees work. They are complex to calculate, clients are more likely to misunderstand their basis (particularly how expenses are deducted), and the lawyer who negotiates one has more room to overreach than with a simple hourly or fixed fee.⁴ An hourly rate is a number the client can hold against each invoice. A contingent fee is a share of a result no one can yet know, and the client’s take-home depends on which percentage applies at which stage and on how expenses interact with the fee. A signed writing fixes those terms before the result is known, gives the client something to read before committing, and gives both sides a document to consult if they later disagree.

The Signed Writing

The first requirement is a writing that carries a signature. Rule 1.5(c) calls for a signed written agreement, and the signature that counts is the client’s.⁵ A retainer that only the lawyer has signed falls short, and so does a letter the client reads, approves by telephone, and never signs. The signature belongs to the client because the client is the party the requirement protects. The lawyer drafted the terms and understands them, while the client must live with a percentage and an expense arrangement fixed before anyone knows the result. The client’s signature is evidence that those terms were put in front of the client and accepted.

An exam stem on this element usually puts a document in front of you and asks whether it is enough. The answer turns on whether the client’s signature appears on it.

The writing matters outside the disciplinary system as well. It bears on whether the agreement is enforceable at all: a lawyer who has not reduced a contingent fee agreement to writing will most likely be limited to recovery in quantum meruit and may be precluded from recovering any fee.⁶ The closing section takes up what a lawyer can recover when the agreement fails.

The signature must also arrive at a sensible time. In Starkey, Kelly, Blaney & White v. Estate of Nicolaysen, the lawyer’s fee depended on a contingency, a sale, and the lawyer did not reduce the agreement to writing for thirty-three months.⁷ The agreement was invalidated for that delay, so the court’s first question was whether thirty-three months fell within the reasonable time contemplated by RPC 1.5(b). The court also noted the general rule that fee agreements between lawyers and clients are construed against the lawyers.⁸ The Model Rule’s version of the same standard asks the lawyer to communicate the fee basis “before or within a reasonable time after commencing the representation.”⁹

The court’s reasoning shows what kind of requirement this is. It found no hint of fraud or bad faith and no suggestion that anyone had misunderstood the agreement, and it observed that Starkey may have negligently failed to put the agreement in writing much sooner. Even so, it held that invalidating an agreement left susceptible to misunderstanding by the lack of a timely writing sufficiently vindicated the Rule. The loss of a potentially substantial fee, together with the possibility of professional discipline, should give lawyers in similar positions reason to take greater care.¹⁰ The requirement therefore operates as one of form and timing. A lawyer cannot cure a late writing by proving that the client understood the deal all along, and a signature obtained when the engagement begins avoids the problem altogether.

Starkey is best read for its reasoning about timing. The contingent fee rule as the court quoted it states no deadline of its own, and the reasonable-time standard came from RPC 1.5(b).¹¹ What a lawyer may recover when the agreement is invalid belongs to the closing section.

States may add to the Model Rule baseline. One state rule quoted in the sources requires a contingent fee arrangement to be “reduced to a written contract, signed by the client, and by a lawyer for the lawyer or for the law firm representing the client.” It bars any lawyer or firm from participating in the fee without the client’s written consent, and it requires each participating lawyer or firm to sign the contract and assume joint legal responsibility to the client as if the lawyers were partners.¹² A fee agreement the client has signed and the lawyer has not therefore meets the Model Rule’s signature element and fails that state’s rule. When an exam stem names a jurisdiction, check whether its rule adds signatories or terms. When it names none, apply the Model Rule text.

Stating the Percentage

The signed writing must state the method by which the fee is determined, “including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal.”¹⁵ In a contingent fee, the method is almost always a share of the recovery. The plural “percentages” signals that the share may change as the case advances, so the writing must supply the figure for each of the three points the rule names: settlement, trial, and appeal.

The reason to insist on every stage is that the client controls the decisions that carry a case from one stage to the next. Whether to accept a settlement offer, to try the case, and to appeal each become a choice about the lawyer’s share whenever the percentage varies by stage. A client who does not know in advance what each stage costs cannot see how a decision affects the amount that finally reaches the client, and the lawyer who drafted the arrangement could claim a higher percentage later than the client ever understood.¹⁶ Putting every applicable percentage in the signed document removes that ambiguity before any stage arrives. A later disagreement is then settled by reading the document rather than by comparing memories.

A stepped schedule is common, but the rule does not require the percentages to differ. A single flat percentage satisfies it equally well: a one-third fee that the writing applies to settlement, trial, and appeal is one percentage stated for all three stages. Whether a given percentage is too high is a question of reasonableness under Rule 1.5(a), which is separate from the writing requirement.¹⁷ A drafting failure under Rule 1.5(c) arises when the writing is vague or silent about what the lawyer will take.

The 40 percent trial fee in the stepped schedule was unobjectionable under this requirement because the client had seen it in the signed writing. The same figure in the last example fails because the client had not. Rule 1.5(b) separately requires that any change in the basis or rate of the fee be communicated,¹⁸ but a change the client never agreed to in a signed writing is not the method the original writing stated. A lawyer who expects to charge more at trial must put that percentage in the writing at the outset, and a lawyer who wants flexibility about the figure must give it up, since the rule asks for the number itself.

Deducting Expenses

The third requirement concerns the money that leaves a recovery besides the lawyer’s share. The writing must identify the “litigation and other expenses to be deducted from the recovery” and state “whether such expenses are to be deducted before or after the contingent fee is calculated.”²⁰ The second half of that clause looks like a drafting detail until it is run through real numbers, where it moves thousands of dollars.

The $3,000 gap equals one-third of the $9,000 in expenses, and that equality shows what the order does. When expenses come off first, they shrink the base to which the percentage applies, so the lawyer’s fee falls and the lawyer in effect absorbs a third of the expense burden. When the fee is computed first, the client bears the entire expense and also pays a percentage on money that went to cover those expenses. The gap always equals the fee percentage multiplied by the expenses, so it widens as expenses grow. On the same $90,000 settlement with $30,000 in expenses, the net method yields a $20,000 fee and $40,000 for the client, while the gross method yields a $30,000 fee and $30,000 for the client, a $10,000 difference.

Because the gap is so sensitive to the order, students are tempted to treat the client-friendlier method as the one the rule demands. Rule 1.5(c) does not choose between them. It requires only that the writing state which order applies, so a lawyer who computes the fee on the gross recovery complies with this requirement if the signed agreement says so.²¹ The fee remains subject to the reasonableness standard of Rule 1.5(a), and that standard reaches expenses too. Expenses charged to the client must be reasonable in nature and amount, and in-house costs such as copying and telephone charges are measured either by a reasonable amount the client agreed to in advance or by an amount that reasonably reflects the lawyer’s actual costs.²² The identification half of the clause serves the same end. A writing that says only “expenses” gives the client no way to estimate what may come off the recovery, so the agreement should name the categories the lawyer expects to deduct, such as filing fees, transcript costs, and expert fees, along with any in-house charges to be passed on.

The writing must fix the order at signing because the lawyer, who understands the arrangement better than the client, could otherwise choose the order after the results are known. Clients are especially prone to misunderstand how expenses figure in a contingent fee, which is one reason the rule demands a writing at all.²³ If the agreement is silent, the choice does not disappear. It moves to the end of the case, when the recovery has arrived, both calculations can be run, and the lawyer can see which pays more. Requiring the order in the signed writing forces the choice into the open while the client can still ask for the net method, shop for a different lawyer, or accept the gross method with eyes open.

The two compliant retainers in the earlier example differ by $3,000 in what the client keeps, and the noncompliant retainer generates a dispute over exactly the same $3,000. The compliant writings answered the order question before any money existed, while the third left the answer to whoever controlled the funds when the case ended. That is the failure the requirement targets. Identifying expenses and fixing their order governs only the division of a recovery that exists. The next requirement concerns who bears the expenses when the matter produces no recovery at all.

Expenses Owed Regardless

The fourth requirement concerns a client who may owe money when the matter produces no recovery. The writing must specify whether the client is responsible for expenses even if the client is not the prevailing party, which is to say whether the client’s liability for expenses is, like the fee, contingent on the outcome.²⁵ The order-of-deduction term divides a recovery that exists. This term governs a matter that may recover nothing.

A common belief about contingent fees explains why the rule needs a separate term. A person who chooses a contingent fee usually thinks the arrangement shifts the cost of failure to the lawyer, and as to the fee it does: no recovery, no fee. Expenses are a different category. They are sums paid to outsiders, such as the court clerk, a court reporter, or an expert witness, and a contingent fee does not by itself make them contingent. A client who hears “you pay nothing unless we win” may assume costs are included and learn otherwise only from a bill sent after a defense verdict. The risk of that very misunderstanding about expenses is one reason the rule demands a writing.²⁶ Putting the answer in the document makes the client’s true downside visible before any commitment, so the client can weigh the bargain, ask for different terms, or look for a different lawyer.

That framing yields two arrangements. In the first, expense liability is contingent: the lawyer advances the costs and recoups them only from a settlement or judgment, so a loss leaves the client owing nothing. In the second, the client must reimburse the expenses whether or not the matter produces a recovery, although the fee itself is owed only if it does. The rule asks only that the writing specify which applies, so a client may owe expenses after losing if the writing says so. Either way, any expense charged remains subject to the requirement that expenses be reasonable in nature and amount.²⁷

A retainer that instead said the lawyer would advance all expenses and recover them only from a settlement or judgment would also comply, because it too states which arrangement applies. Under that writing the identical defense verdict leaves the client owing nothing and the lawyer bearing the loss. The two retainers allocate the risk very differently, yet each answers the question the rule cares about: whether the client was told in advance who pays for a lost case.

What decides compliance is silence or speech on that point. An exam stem often gives the lawyer a reassuring oral promise and a writing that never addresses the topic, so the question becomes what a bill after a loss does to the lawyer’s position.

The lawyer gains nothing by arguing that costs were always the client’s responsibility in the lawyer’s own mind. The writing exists so that the client learns the answer before the result is known, and notice that arrives with the invoice comes too late. What the lawyer may still recover despite the defect is a question for the closing section.

Students most often confuse this term with the one before it, because both concern expenses. The before-or-after term matters only when there is a recovery to divide, and it governs the arithmetic of that division. The regardless term matters on a loss as much as on a win, because it tells the client whether any of the lawyer’s costs will come out of the client’s own pocket. A retainer can state the order of deduction flawlessly and still fail by saying nothing about expenses owed after a loss, and a retainer can announce that the client owes costs regardless and still fail by leaving the order unstated. When a stem hands you a writing, test it against each expense term separately, because satisfying one does not satisfy the other.