By: Dana E. Foster
What if a client requests that the lawyer switch from being compensated by the hour to accepting a contingency fee instead? How can the lawyer avoid potential conflicts, fulfill his or her duties of disclosure and accomplish this in a way to maximize its enforceability? While the the American Bar Association’s (ABA) Model Rules of Professional Conduct clearly contemplate changes to fee arrangements (see, e.g., Rule 1.5(b), which states “[a]ny changes in the basis or rate of the fee or expenses shall be communicated to the client”), the ABA has provided limited guidance on the most effective means for doing so. That guidance is found in ABA Formal Opinion 11-458.
When a Change in a Fee Arrangement is Permissible
ABA Opinion 11-458 considers when a change in an attorney fee arrangement is permissible under the Model Rules, and to a lesser extent, how such a change would be analyzed under common law contract principles. While the ABA Opinion notes that general principles of contract law apply and require little discussion, the ABA Opinion points out several areas where interpretation of an attorney’s fee contract differs from that of ordinary contracts. For example, the ABA explains that:
- A modified fee contract does not require additional consideration for the modification to be effective, as most other contracts would; and
- The attorney bears the burden of justifying any change in an agreement midstream in the representation of a client, rather than both parties equally.
Importantly, Florida cases that pre-date the ABA Opinion suggest that additional consideration for the modification is required. See, e.g., Independent Fire Ins. Co. v. Lugassy, 636 So. 2d 1332, 1335 (Fla. 1994) (holding “general rules of contract law allow parties to alter the terms of a retainer agreement as long as new consideration is given”); Moreno v. Allen, 692 So. 2d 957, 959 n. 2 (Fla. 3d DCA 1997) (holding “[t]he latter [fee] agreements, entered into, as they were, in the course of the attorney-client relationship, were undoubtedly void for lack of consideration and overreaching”). So, at least in Florida, consideration for a change in a fee arrangement is an issue that needs to be considered and addressed. See, e.g., Lugassy, 636 So. 2d at 1335 (finding adequate consideration for modification where original fee agreement did not contemplate defending a counterclaim); Gen. John J. Pershing Auxiliary No. 6, Dept. of Florida v. Murphy, 341 So. 2d 809, 810 (Fla. 3d DCA 1977) (reducing fee award to amount of original agreement after finding there was no consideration provided for modified agreement).
Modification of a Fee Arrangement
Turning to how a modification of a fee arrangement is affected by the Model Rules, the ABA Opinion concludes that modifications of fee arrangements will be considered generally permissible provided:
- The modification was reasonable under the circumstances [ABA Model Rule 1.5(a)];
- The modification was communicated and fully explained to the client [Rule 1.4 and 1.5(b)]; and
- The modification was accepted, either expressly or through conduct, by the client.
These general rules are consistent with Florida case law. See, e.g., In re Estate of Johnson, 566 So. 2d 1345, 1347 (Fla. 4th DCA 1990) (holding changes to retainer agreement must be “mutually agreed to”); Mercy Hospital, Inc. v. Johnson, 390 So. 2d 103 (Fla. 3d DCA 1980) (holding the lawyer has the burden of showing the “fairness” of the modified retainer agreement by “clear and convincing proof”).
Examples of Acceptable Modifications to Fee Arrangements
The ABA Opinion provides a few examples of acceptable changes:
- A firm may increase its hourly billing rates annually without negotiating every rate increase with the client if this is clearly communicated to the client, the client consents, and the increase is reasonable.
- A lawyer and client also may agree to change an hourly fee agreement to a contingent fee agreement, or vice-versa, provided that the lawyer complies with Rule 1.5(c), which requires a contingent fee agreement to be in writing and signed by the client.
Examples of Unacceptable Modifications to Fee Arrangements
By contrast, the ABA Opinion points out the following unacceptable examples of fee modifications:
- A lawyer may not unilaterally impose a “success fee” on a client, altering the arrangement from an hourly rate to a contingency fee, without the client’s informed consent.
- A lawyer may not threaten to withdraw if the client does not agree to an increase in the fee.
Overall, here is the lesson: It’s often permissible for an attorney to change legal fee arrangements during an ongoing representation, as long as the change is both reasonable and consented to by the client.
* Ms. Foster is counsel with the law firm of Ackerman, Link & Sartory, P.A.