Flat Fees Must Be Earned

Attention D.C. attorneys.

A significant opinion on the duty to hold flat fees in trust from the District of Columbia Court of Appeals

We hold that—absent an agreement specifying to the contrary—an attorney earns a flat-fee payment only upon completion of all the enlisted services. Because, however, we announce this interpretation of Rule 1.15 for the first time, we embrace the Board’s recommendation to apply the holding prospectively. We therefore conclude that Mr. Alexei did not violate Rule 1.15(a), even though the same conduct might violate the rule if it occurs after the issuance of this opinion.

Facts

The Board found the following facts. Maria Victoria Dijamco hired Mr. Alexei to assist her with certain immigration needs. They agreed in writing that Mr. Alexei would file, on Ms. Dijamco’s behalf: (1) a green card application in exchange for a fee of $1,500; (2) a humanitarian reinstatement request in exchange for $750; and (3) an appeal from a prior immigration decision in exchange for $2,750. The price totaled $5,000, and, in accordance with the agreement, Ms. Dijamco paid $2,500 upfront, with the remainder due once Mr. Alexei filed the documents. Mr. Alexei deposited the advance into his firm’s trust account. The agreement neither mentioned Mr. Alexei’s hourly rate nor specified how Mr. Alexei might earn the advanced funds.

Five days after Ms. Dijamco paid the initial deposit, Mr. Alexei withdrew $1,900 from the trust account, leaving $2,010.98 in the account—$489.02 less than Ms. Dijamco’s deposit.

The client filed a bar complaint in 2016; Disciplinary Counsel charged misappropriation 

The Board disagreed. It explained that “the issue is whether Disciplinary Counsel proved by clear and convincing evidence that [Mr. Alexei] withdrew more of the flat fee than he had reasonably earned [at that point] in light of the scope of the representation.” The Board ultimately “agree[d] with the Hearing Committee that Disciplinary Counsel failed to carry its burden.” In the alternative, the Board suggested that if this court were to agree with Disciplinary Counsel about In re Mance, we should apply that understanding “prospectively.” It emphasized that D.C. Bar Ethics Opinion 355—which had been withdrawn on other grounds—had advised, even after In re Mance, that attorneys could withdraw earned portions of flat fees without the client’s consent.

Editor’s note: Even with a “novel” issue, it should not take eight years to resolve a complaint.

The court

Because the default rule we announce above—that advances on flat fees are earned upon the completion of all the legal services bargained for in the flat fee—is novel, we pause to explain how attorneys may deviate from that default rule and the interplay between those deviations and other professional conduct rules. Attorneys may depart from the default rule we establish in two distinct (but not mutually exclusive) ways: they may (1) specify in the agreement when and how portions of the flat fee are earned or (2) obtain informed consent from the client to treat unearned fees as their attorney property.

The first option, specifying when and how portions of the flat fees are earned, allows the attorney to actually earn portions of the fee before completing the full representation. For example, the agreement might provide that the attorney earns the flat fee at an hourly rate set forth in the contract up to but not exceeding the total flat fee. This is essentially what Mr. Alexei advocates for as a default rule, but it comes with the added benefit of specifying what the hourly rate is and how the fees will be earned. Or, as was the case here, the agreement might involve multiple discrete legal services—here, three separate filings—and attach a separate price for each service that sums to the total flat fee. Under such a contract, an attorney would earn the portion of the flat fee attributable to each separate legal service upon completing that project. Or, the agreement might provide that after the attorney submits, say, a first draft of a legal brief to the client for approval, they earn a percentage of the flat fee. These agreements, by deviating from the default rule, would allow attorneys to earn portions of the advanced flat fee as they worked on the client’s behalf. The rate at which the attorney earns the fees—whether hourly, by milestones, or by some other measurement—would still need to comport with the separate ethical requirement that the fees be reasonable. See D.C. R. Pro. Conduct 1.5(a). The attorney would not, however, need to secure informed client consent for this arrangement under Rule 1.15(e). They would only need to comply with the requirements of a valid contract and any other applicable ethical rules. That is because, as discussed above, informed consent under Rule 1.15(e) does not affect whether a fee is earned but rather only what an attorney may do with unearned fees. Id. 1.15(e); see supra Part II.A.

The second, distinct option available to attorneys is to treat unearned fees as attorney property with the client’s informed consent. Under this approach, the attorney does not earn the fees until after they complete all the legal services (or an alternative arrangement set forth in the contract), but they may use the unearned fees for personal ends because their client has allowed them to treat the funds as attorney property.

From this moment on

In light of (1) the novelty of our holding, (2) the Board’s recommendation to apply such a rule prospectively, and (3) the prior existence of a contrary Ethics Opinion, we apply our holding prospectively so as not to reach whether Mr. Alexei’s conduct or any other similar fee arrangements predating the issuance of this opinion violated Rule 1.15.

Associate Judge Shanker authored the opinion joined by Chief Judge Blackburne-Rigsby and Associate Judge Easterly.  (Mike Frisch)