Engagement Letters

Engagement Letters

When an attorney agrees to represent a client, it is in everyone’s best interests to get the fee agreement in writing. The agreement should cover the precise matter for which the attorney or firm is being retained, the fees to be charged, expenses, payment due dates, and termination of employment. In some cases, it is also wise to include language about the destruction of the file. This information is usually contained in a retainer letter sent to the client immediately upon the attorney’s being engaged.
 
Some matters permit the prevailing party in a litigated case to be reimbursed for reasonable attorney fees by the losing or non-prevailing party.  In most of these cases, the court, or perhaps arbitrator, reviews the attorney fee request and determines the amount of fees and expenses to be paid by the losing party. In such a situation, the retainer letter should state whether the law firm will accept the amount as full and final payment of the amount owed by the client.
 
In determining the type and amount of fees to be charged by an attorney, the attorney must keep in mind RULE 1.5 ABA Model Rules Of Professional Conduct, which covers legal fees.
 
Hourly Fee Agreements
 
Most large law firms have adopted standardized fill in the blank letters, which state the hourly fees of partners, associates, and paralegals who will be working on the matter. Where a matter is extremely complex and expected to extend over a long number of years, the agreement may call for an upward adjustment in the hourly fee.
 
Most retainer agreements require the client to pay a sum to retain the services of the attorney. The amount depends on the complexity of the matter, the hourly rate of the attorneys likely to work on the matter for which the firm was retained, and an advance on anticipated expenses. This retainer amount is placed into the law firm’s escrow IOLTA ( Interest on Lawyer’s Trust Account) account. The firm then draws from this account as fees are earned and expenses are incurred. When the fund is exhausted, the client is billed for additional amounts. This internal bookkeeping should be explained to the client, whether or not it is included in the retainer letter.
 
A client may also be liable for expenses, and the agreement should indicate what type of expenses and how and when they should be paid. Litigation expenses include court fees, deposition fees, expert witness fees, investigation fees, and any lab fees. Law firms also charge for office fees such as copying, postage, and courier expenses.
 
It must be remembered that attorney fees, like any other debt, are subject to state and federal debt collection laws. If an attorney wants to charge interest on bills that have been submitted and not paid, for services or expenses, the amount of interest must be clearly stated in the retainer letter and explained to the client in advance.
 
Contingency Fee Agreements
 
Contingency fee agreements are used when a client is seeking either money damages or monetary benefits. The attorney collects a fee only if he is successful. Typically, the attorney will advance expenses and in some situations, will waive expenses if he is unsuccessful.

The usual contingency fee agreement in personal injury cases is 33 1/3 percent of the amount the client receives from the tortfeasor, if the case is settled before trial. Expenses are also paid by the client. If the attorney proceeds to trial, it is typical that the rate increase to 40 percent. Some agreements stipulate a 50 % fee if there is an appeal.
 
In automobile accident cases, the attorney representing an injured plaintiff not only seeks damages from the tortfeasor for personal injury, but may also seek compensation for property damage and reimbursement from the plaintiff’s own insurer for medical expenses and lost wages. If the attorney is to be compensated for these actions, the agreement must stipulate the amount for such services and how it will be paid.
 
Statutes set much lower contingency fee rates for worker’s compensation claims and other benefit claims.  In most of these situations, the person deciding the issue, whether a judge, commissioner, or administrator, has authority to approve the fee request.
 
Class action tort claims, such as asbestos claims or drug company claims, may involve contingency fees, but they may or may not be paid. Attorney fees in class actions usually require approval by the court, and if the court finds them to be excessive, it may take the fee arrangement into consideration but not approve it.
 
While courts are not fond of contingency contracts, such contracts have been found to be appropriate by the American Bar Association. In an opinion published in 1994, the ABA stated:
 
In the opinion of the Committee, the charging of a contingent fee, in personal injury and in all other permissible types of litigation, as well as in numerous non-litigation matters, does not violate ethical standards as long as the fee is appropriate in the circumstances and reasonable in amount, and as long as the client has been fully advised of the availability of alternative fee arrangements. The mere fact that liability may be clear does not, by itself, render a contingent fee inappropriate or unethical. Nor does the possibility that, as some have suggested, the profession's obligation to assure appropriateness and reasonableness is sometimes honored in its breach mean that contingent fees are inherently ethically questionable. Rather, any lapse from the applicable requirements by some members of the profession simply suggests that the profession should redouble its efforts to assure that the ethical obligations associated with entering into a contingent fee arrangement are fully understood and observed.
 
ABA Standing Committee On Ethics And Professional Responsibility, Formal Opinion 94-389, Contingent Fees, Dec. 5, 1994.

 
Transaction or Lump Sum Fee Agreements
 
Transactional fee agreements are typically used where the attorney is hired to draft specific transactional documents such as deeds, wills, and contracts. The fee charged should be commensurate with the amount of time needed to obtain the information and to draft and sign the document.
 
Lump sum fees are frequently used in bankruptcy and criminal actions. The attorney, citing his expertise and the complexity of the matter, will set a fee to represent the client throughout the trial level proceedings. While bankruptcy courts have the right to adjust the fee charged by the attorney, criminal court judges do not. The careful attorney specifies in the fee agreement exactly what services are included in the lump sum fee and which are not. Adversary proceedings in bankruptcy and interlocutory appeals in criminal cases may be excluded from the lump sum agreement.
 
Although there is nothing in the canons of legal ethics that dictate how much an attorney may charge for any service,  RULE 1.5 ABA Model Rules Of Professional Conduct requires that attorney fees be reasonable.
 
For more information, see  Mary Ann Altman and Robert I. Weil, How to Manage Your Law Office (2007).