Business Ethics Chapter 6 Fair Fees And Client Trust Accounts Power Point Presentations There Are

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Chapter 6

Fair Fees and Client Trust Accounts

Power Point Presentations: There are about 45 slides that are meant to be divided into two

parts. One is for fees and timekeeping (27 slides) and the other for retainers and trust accounts

(18 slides). Please remember to review these before showing them in class so that you can insert

your own state law where necessary on the slides.

Chapter Hypothetical: I have found that many younger students have difficulty with the

concept of IOLTA so I have given it to them in several different forms in this chapter, starting

with this hypothetical. At the end of the chapter they will be able to read the Went for It case to

see how the hypothetical turns out.

Lesson Objective: How do we begin the relationship with a client? (pg. 169)

Lecture Suggestion: If your students have never seen a fee agreement, now is the time. At the

very least, find one that calls for an hourly fee schedule and one that is contingency fee. I

encourage you to NOT use an agreement from your own law office or any other identifiable

Activity Suggestion: I put some California samples on the website for you to share with your

students. It would be better to use an agreement from your state. Have your students read and

Video Segment Alert: This video is about UPL but it fits in nicely here. Alicia’s boss (who

seems pretty clueless) does not introduce Alicia as a paralegal. That’s the misrepresentation.

Lesson Objective: What are the different types of fee agreements? (pg. 170)

Lecture Suggestion: Here’s an opportunity for some in-class role play. Have one student be the

lawyer (or you can play that part) and another student be the client trying to negotiate the terms

of the fee agreement.

I also hope I haven’t caused problems by suggesting that paralegals familiarize themselves with

fee agreements. I worked for firms that didn’t even allow the lawyers to see the fee agreements!

But I thought at the time that this was a bad practice, and I still think so. I think that every

Challenge Assignment: (pg. 170) It would be good for everyone in the room to know if it is not

legal for a paralegal to explain a fee agreement to a client.

Lesson Objective: Contingency fees. (pg. 171)

Lecture Suggestion: Please take the time to do the math with your students on your white

board. There are students in your class that are math-resistent. Please take the time to have your

Challenge Assignment: (pg. 171) Tax implications? Awards for physical injury are not

taxable by the Feds. Interest and punitive damages are. If the award (or settlement) is $100,000

but the lawyer gets $40,000, the full $100,000 is still income to the client, according to the IRS.

In some cases the client can deduct the legal fee.

Challenge Assignment: (pg. 172) I googled “Arizona personal injury lawyer” and came up

with some alternatives: “you pay us only if you receive a monetary reward or recovery of fees.”

“We assume all the financial risk and are paid only if we win your case.” I found this one: “We

do not get paid unless we win your case” which seems very close to the line.

1. $60,000 to lawyer

2. $25,000 paid back to lawyer

3. $40,000 for medical to hospital

$25,000 in costs (paid back to the lawyer), leaving $135,000.

Lesson Objective: Hourly billing. (pg. 173)

Lecture Suggestion: At the end of this chapter, your students will be invited to keep track of

their day in billable increments. (Collaborative Assignment #1) You might want to assign that

task now. Take some time here to thoroughly review Figures 6.1 and 6.2.

Video Alert: Video Segment #19 (Fees and Billing Issue: Contemporaneous Time Keeping) is

an absolutely hysterical video of Dante trying to recreate his time at the end of the day. If you

don’t show any other video clips during your class, show this one.

Other billing methods—If you are aware of any I have not included, please let me know.

Lesson Objective: What should/should not be in the fee agreement? (pg. 176)

Lecture Suggestion: In re Larry Coleman Attorney Coleman was disciplined, in part, for

agreeing with the client that he (the lawyer) had the sole authority to accept a settlement of the

client’s case. Client had paid him a bunch of money in “nonrefundable retainers.” (See below.)

For a case on changing fee agreements, I give you the 2009 Marshall case on the website.

Lawyer Marshall convinced the client to change from hourly to contingency expecting that the

amount client would win at trial would be completely eaten up by attorney’s fee. (In other

words, the lawyer was trying to help the client by taking on some of the risk.) However, when

Activity Suggestion: Marshall is a pretty short case so you could share it with your students

and give them 15 minutes to see what their take on the numbers is.

Check Your Understanding: (pg. 177) 1. fee agreement; 2. contingency fee; 3. objectively

reasonable; 4. hourly billing; 5. blended rate; 6 bonus billing

Lesson Objective: What is a retainer? (pg. 177)

Lecture Suggestion: It never fails to amaze me how we all use the same words differently

without regard to how confusing that is for practitioners and clients. I’ve tried to give you the

words in a universal sense here but please remind your students that many people use these

words differently in practice. There is no “right” or “wrong” here. There are simply different

uses of the same words. The importance of the differences arises where we are talking about

“when the money is earned.” The so-called nonrefundable retainer is earned upon receipt, as is

the advance payment retainer.

Lesson Objective: How does a law firm get paid? (pg. 178)

Lecture Suggestion: If you know of someone who arbitrates fee disputes, it would be terrific to

invite that person to speak to your students. That person probably has some great stories. When

I was a fee arbitrator, I was very hard on lawyers who: 1) had no written agreement (no

entitlement to fees) and 2) did not explain the written fee agreement to the client (no entitlement

to weird fees that were not explained). I was also hard on lawyers who charged excessive fees

even when they were in the agreement and those who ceased working on a client’s case long

before the fees became an issue (client abandonment). How about the lawyer whose smallest

billable increment was 30 minutes! I was hard on that fellow, too. Hmmmm…. sounds like I

did not have an open mind…

Activity Suggestion: I took the quantum meruit explanation out of this section because it

seemed like too much detail in an already-detail-full chapter. If you want to explain it, this is

where you would do it. Quantum meruit roughly translated from Latin means “the value of the

work.”

If you look at the Mullens v. Hansel-Henderson case (Case #3), you will find a fee agreement

that was not in writing. In response, the court analyzes quantum meruit because the legal

services were completed and, after all, the lawyer should get paid something when the

anticipated benefit was conferred and accepted by the client. (pg. 183-84) The contingency fee

agreement puts the client on notice that she must pay legal fees. So, if the client must pay the

value of the work the lawyer did instead of the contract amount (if, for example, the lawyer

neglected to put the contract in writing), how much money is the lawyer’s work worth? For a

five-minute end-of-class essay, ask your students what factors they would consider in assessing

quantum meruit.

Challenge Assignment: (pg. 178) This amended rule appears to nix non-refundable fees.

Lesson Objective: What does it mean to unbundle legal services? (pg. 179)

Lecture Suggestion: This is a new section for the 8th Edition. This would be a good place to

start talking about how expensive it is to be involved in a legal matter and how the internet

Lesson Objective: How do we get fees from the other side in litigation? (pg. 180)

Lecture Suggestion: This would be a nice place to have someone in to speak to your students

about awarding attorneys fees. If you can find a judge or referee to come speak on this issue,

that would be cool. When I practiced under the Rehabilitation Act, I had a Federal Judge award

fees to me at $100/hr. He arrived at this insane number (my billable rate was $250/hr at the

Lesson Objective: Are paralegal fees awardable? (pg. 181)

Lecture Suggestion: Is it time to go to task-based billing? This would be a good time for a

1. If a lawyer does a “traditional paralegal task” (such as organizing a trial notebook), the

lawyer should be billed at a paralegal rate.

2. If a paralegal does a “traditional lawyer task” (such as drafting a motion), the paralegal

should be billed at a lawyer rate.

What you’re looking for is rationale to support the position, not a simple reiteration of the

position. What will the societal impact be? What will happen to the cost of legal services? What

will happen to the quality of legal services?

Activity Suggestion: I hope you have your students research and find the law on this issue in

your state.

Lesson Objective: What is an inappropriate fee? (pg. 183)

Lecture Suggestion: What is “Objective fairness?” You have GOT to love the Brobeck case

mentioned in the box. (This case is used in Assignment #1 at the end of the chapter and you will

Challenge Assignment: (pg. 183)

Telex signed a contingency agreement with Moses Lasky, a partner at Brobeck, to file a petition

for certiorari with the US Supreme Court. The agreement was a 5% fee with a $1 million

minimum. Lasky prepared and filed the petition. Telex was concerned that if they were not

successful, the $18.5 million judgment would bankrupt the company. IBM was equally

concerned that the Supreme Court would reinstate the $260 million judgment judgment against

it. The two parties decided on a “wash” settlement and Lasky withdrew the petition for cert.

Then Lasky asked Telex for his fee! Telex refused to pay on the grounds that 1) the fee

agreement was ambiguous and 2) the $1 million was an “excessive fee.” The court found in

favor of Lasky. The decision was based on a few facts I didn’t give you: Telex put a great deal

of thought and effort into exactly what lawyer would give them the best chance of success on the

petition. Telex and Lasky negotiated their fee agreement for some time. Both parties were very

aware of the potential problems and risks of the agreement. Lasky delivered exactly what he

promised. He obtained a stay of execution on the judgment against Telex giving them time to

salvage their financial position and he scared the beejeebees out of IBM with the petition.

Here’s what you want to see from your students:

In Brobeck, the attorney/client contract was clear not just in the part where it provided for the $1

million fee, but the contract as a whole supported that same logical reading of the provision.

Further, Telex sought out Moses Lasky for exactly the reason they had to pay for: he was the

The Boston Maine case had a much more complex set of circumstances. The underlying case

was a bankruptcy and all attorney fees are subject to approval of the court. The standard fee in an

eminent domain case was also a bit squirrelly in its calculation. The railroad’s bankruptcy

Video Alert: Video Segment #20 (Fees and Billing Issue: Using Time Effectively) shows

paralegal Judy working for hours on a matter that is not billable and another matter she

Check Your Understanding: (pg. 184) 1. pg. 176 has a list of the things that belong in a fee

agreement

2. the qualifications of the paralegal; that the paralegal performed substantive legal work

under the supervision of a lawyer; nature of the legal work performed; paralegals hourly rate;

;number of hours worked by the paralegal

3. objective fairness; hourly rate of employees; ; how well the client understood the fee

agreement

Activity Suggestion: I put some articles about overbilling on the website if you’re looking for

something different for your students to read. Or have them research the topic on line and bring

their own articles to class.

Lesson Objective: What should the fee agreement say about client files and fees? (pg. 184)

Challenge Assignment: (pg. 184) The lesson here is that we should all keep track of our hours

regardless of contingency fee agreements.

Lecture Suggestion: This is a good time to take your students back to Chapter 3 on

Lesson Objective: What are the advantages of pro bono services? (pg. 186)

Lecture Suggestion: When students ask me how to get a start in the paralegal field, I tell them

Lesson Objective: How does a client trust account work? (pg. 186)

Lecture Suggestion: Here’s another place where the words are used differently. I encourage

you to call it a “client trust account” (even though IOLTA stands for Lawyer Trust Account)

(That’s a lawyer joke, folks. Don’t get offended.) and because there is a paper trail provided by

the bank. If you have some time to do accounting exercises in your class, that would be good.

Activity Suggestion: You might want to have your class google “Kathy Foer–Morse” for a

fascinating story of a paralegal who was arrested for stealing from her employing law firms

Check Your Understanding (pg. 188) 1. for free for the good of the public; 2. client trust

account; 3. charging lien; 4. commingling; 5. Lawyer Trust Accounts

Answers to End of Chapter 6 Review Questions

Critical Thinking

2. Answers will vary. Try a Fishbowl Debate on this one.

3. Answers will vary but students ought to see that the lawyer violates the duty of

supervision.

Assignments

1. See discussion about this case above.

Collaborative Assignments

1. I hope you can use this group work to engender some exciting debate.

Review Questions

1. Begin with a conflict check on the client; interview the potential client; do another

conflict check based on the information gathered in the interview; estimate the time and

3. The Do list is on the bottom of page 176; Don’ts are on the next page.

4. Classic (earned on receipt); nonrefundable (considered unconscionable in some states);

5. Client money (monies from different clients) is deposited into one, special bank account

called the client trust account or the attorney trust account. Scrupulous records must be

7. Students should have researched this along the way in this chapter.

8. An unconscionable fee “shocks the conscience.” Fees should be “objectively fair.”

Hourly rates should be at market rates. Certain items should not be “marked up.” A

9. The list of advantages to pro bono work is on the bottom of page 186.

Notes about the Cases for Consideration

Case #1: Brown v. Legal Foundation of Washington

1. IOLTA is handled by different organizations in different states. You could interpret the

question as what did these organizations get from Brown? That question is too

simplistic. Obviously, they got to stop worrying about how they were going to fund free

legal service providers. The point of the question is what did it do for the masses of

2. I have explained the loss of interest to clients this way: rather than a state tax to fund free

and reduced cost legal service providers, the system is designed to put the cost on others

Case #2: Blair v. Ing

1. Thayer was entitled to attorneys fees as the prevailing party. He owed no duty to the

Plaintiffs. They were third-party beneficiaries of his work for their mother.

2. Takenaka’s timesheets showed her making phone calls and sending documents to the

court. Those are secretarial tasks. Ms. Yukawa may have performed work that should be

3. The court relies on Continental Townhouses for the rule: the work must be legal work,

Case #3: Mullens v. Hansel-Henderson

This is not your typical “contingent fee agreement wasn’t in writing” case but it serves to teach

us a good lesson.

1. Contingency cases have to be in writing because of all of the abuse that clients used to

2. This is the $64,000 question. What was he thinking? Mullens probably figured that he

could just roll the new representation (bad faith claim) into the workers comp agreement.

However, the description in the original written contract was probably specifically

limited to workers comp work. So, now the cases are over and he’s looking at this and

saying, if I give her a good deal maybe she won’t figure out that I’m not entitled to the

extra fee. Or maybe he believed he was entitled but is just a generous man. (No good

deed goes unpunished?) Whichever it was, the client got more than she would have

4. All clients have a signed contract for all matters. We keep track of our time even on

contingency cases.

In the News (pg. 201)

1. Some secrets your students may come up with are questions for jurors and witnesses,

2. Experts; the use of practice jurors or surveys; deposition summaries; the computerization

of facts.

4. Time in jail? Would prison make this fellow an even worse criminal? How about

making him go around lecturing about the evils of theft? Would money make any

difference? No one lost any money in this crime, so recompense doesn’t make sense.

Video Case Studies:

UPL: Disclosure of Status (Misrepresentation) Alicia’s boss (who seems pretty clueless)

does not introduce Alicia to the client as a paralegal. That’s the misrepresentation. But Alicia

fixes it later. Alicia has an affirmative duty to tell people she is a paralegal, as does Saunders,

but Saunders does not have a duty to identify himself as a lawyer. There is nothing wrong with

Alicia giving her card to the client. It’s a great thing to do!

Video Segment #19 (Fees and Billing Issue: Contemporaneous Time Keeping) is an

absolutely hysterical video of Dante trying to recreate his time at the end of the day. If you

don’t show any other video clips during your class, please show this one.

Video Segment #20 (Fees and Billing Issue: Using Time Effectively) shows paralegal Judy

working for hours on a matter that is not billable and another matter she researches for hours

turns out to be a question that was easily answered. What should she do? My advice would be