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Law Practice,
Ethics/Professional Responsibility

Dec. 31, 2020

Warning: Getting paid and not letting go of unearned fees

In 2020 we saw some high-flying attorneys come crashing down due to ethical problems. While it is (hopefully) easy to see how receiving money in a settlement and not paying a client the money can lead to major problems for a lawyer, it is not as easy to see how accepting payment from a person other than your client could lead to ethics problems.

Ira M. Friedman

Friedman & Friedman

Email: imf@f-flaw.com

Ira is a certified family law specialist and a Fellow of the American Academy of Matrimonial Lawyers.

David Friedman

Friedman & Friedman

Email: david@f-f-law.com

David is a certified family law specialist.

In 2020 we saw some high-flying attorneys come crashing down due to ethical problems. While it is (hopefully) easy to see how receiving money in a settlement and not paying a client the money can lead to major problems for a lawyer, it is not as easy to see how accepting payment from a person other than your client could lead to ethics problems.

All lawyers want to be paid for the work they perform, and often a potential client will state that they can't afford your fees. When informed that the possible client's mother or father can pay their fees, often the lawyer realizes that they can in fact accept the new matter. This scenario comes up very often in family or criminal matters. While there may be a host of issues regarding payment from a third party in criminal cases, in all matters lawyers in California are governed by the California Rules of Professional Conduct. California Rule of Professional Conduct 1.8.6 provides that a lawyer may not accept payment from one other than the client unless certain conditions are met. First, the acceptance of payment must not interfere with the lawyer's independent and professional judgment. Also, the lawyer must also protect all confidential information even from the third party paying the fees. Finally, the lawyer must have the client's informed written consent to this payment arrangement at the time of the agreement or as soon as reasonably practicable thereafter.

It is fairly easy for the lawyer to still maintain their independent and professional judgment even when receiving payment from a third party. The lawyer must not let the third party's wants and desires effect the representation of the client. Very often the third party paying the fees will want to be in the loop regarding discussions of all aspects of the client's case which poses a problem regarding keeping client information confidential. The best way to handle this would be either to simply inform the third party that you can't communicate with them, or obtain the client's written consent to discuss matters with the third party.

Obtaining the client's informed written consent to receive payment from a third party is often where lawyers do not discharge their obligations. It is imperative to obtain the client's informed consent in writing to the fee arrangement. Failure to do so can result in forfeiting the right to payment for services rendered, and could even lead to a court ordering disgorgement of fees already paid. No one likes to have to pay back money already earned and most likely spent. This rule of professional conduct does have an emergency exception which would generally apply for criminal law when a potential client is in custody and the lawyer needs to receive payment before it is possible to obtain the client's written consent; however, such written consent must be obtained as reasonably possible after accepting payment

In addition to the ethical issues it is a good idea to have the third party execute a written guaranty to pay the fees of the client since presumably your prospective client does not have the means to pay you. After an initial payment the third party may have second thoughts and securing that person's obligation in a written contract is a good way to ensure continued payment from the third party. It sets out the expectations of the third party and also creates an enforceable written contract.

Another potential problem prevalent in family law situations is clients changing attorneys for whatever reason where the present attorney has unused fees in his or her trust account. According to Rule of Professional Conduct 1.16(e)(2), upon termination of a representation for any reason: "the lawyer promptly refund any part of the fee or expense paid in advance that the lawyer has not earned or incurred. This provision is not applicable to a true retainer fee paid solely for the purpose of ensuring the availability of the lawyer for the matter."

If you are substituted out of a case, you should prepare a final bill to your client. If the client still has unearned fees in your attorney trust account you should forward the unearned fees to the successor attorney. or if the now former client is self-represented to your former client.

If you are still owed fees and are substituted out, remember that you can't hold the client's files hostage in an attempt to be paid. California Rules of Professional Conduct Rule 1.16 (e)(1) provides that upon the termination of representation of a client for any reason the lawyer shall promptly release the client's files to the client. Note that this rule does not prohibit the copying of the file(s); however, generally that must be done at the expense of the attorney unless there is a provision in the retainer agreement which provides that the client will bear this cost. This may be necessary if there is any potential fee dispute or the client is making allegations of malpractice.

Using your common sense along with following all applicable Rules of Professional Conduct will help avoid problems with the State Bar and your client or former client. When in doubt, seek a consultation with an attorney who specializes in legal ethics or call the State Bar ethics hotline. This is a valuable resource which many lawyers do not know exists. It is free and a phone call or email can save you headaches and possibly worse. When it comes to ethical issues it is best to follow the letter of the law, including the Business and Professions Code and the Rules of Professional Conduct. 

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