Legal Ethics Committee
Dear Fellow Members:
Below you will find a link to an online copy of the Maryland Rules of Professional Conduct. We have provided this link in hopes of making your search for answers to your legal ethics questions easier. As always, if you need additional guidance, please do not hesitate to call the Legal Ethics Committee hotline at the number listed in the current issue of your bar newsletter.
MD Rules of Professional Conduct
Legal Ethics Hotline Volunteers
David Gavin ... 301-279-2700 ... firstname.lastname@example.org
Sam Shapiro ... 301-340-1333 ... email@example.com
Charging and Collecting Fees --
An Ethical Minefield
Attorneys’ fees are a frequent cause for complaint to the Attorney Grievance Commission. Charging and pursuing collection against a client creates an ethical minefield that must be avoided. Strict adherence to the Maryland Attorneys’ Rules for Professional Conduct (“MRPC”) is mandatory. The MRPC serve to “maintain the integrity of the legal profession and to prevent misconduct by attorneys.” See, Att’y Grievance Comm’n of Maryland v. Joseph, 422 Md. 670, 707 (2011)
A “standard” retainer agreement engages an attorney for legal services for a particular service, a particular case, or for ongoing services to the exclusion of adverse parties. The attorney’s fee is earned as the services are provided. Monies deposited in advance are client funds and must be deposited into the attorney’s trust account pursuant to MRPC 1.15. The rule similarly requires advanced costs and expenses be placed into a trust account. An attorney’s mishandling of a trust account may result in discipline, including disbarment. See, e.g., Att’y Grievance Comm’n of Maryland v. Thomas, 409 Md. 121 (2009).
MRPC 1.15 requires detailed accounting and record keeping regarding an attorney’s trust account. The rule mandates that upon receiving funds or other property in which a client or third person has an interest, an attorney shall promptly notify the client or third person. Additionally, an attorney must promptly deliver the funds or property to that client or third person, and upon request, render a full accounting regarding the property.
UNREASONABLE FEES AND EXPENSES
Attorneys are prohibited from entering into an agreement to “charge, or collect an unreasonable fee or an unreasonable amount for expenses.” MRPC 1.5(a). The rule lists eight (8) non-exclusive factors in determining whether a fee is reasonable.
When developing a new attorney-client relationship, an understanding as to fees and expenses must be promptly established. As a relationship develops, an attorney and client “will have evolved an understanding concerning the basis or rate of the fee and the expenses for which the client will be responsible.” See, MRPC 1.5 (Comment 2). A written statement concerning the terms of the engagement is strongly suggested.
“Calling a fee ‘nonrefundable’ will not make it so.” Att’y Grievance Comm’n of Maryland v. Stinson, 428 Md. 147, 170 (2012). In Stinson, the Maryland Court of Appeals disbarred an attorney for charging an unreasonable “nonrefundable fee” and refusing to refund the money to the client. The Court found that the $10,000.00 fee was excessive and unreasonable in light of the fact that “[t]he representation lasted less than 48 hours, during which Respondent met with the client twice (primarily to discuss Respondent’s fees and the urgency of payment) and made only a few phone calls to law enforcement officials.” Id. at 171.
Consideration is also given to the type of work performed for the fee. It is generally improper to charge legal rates for non-legal work. See, Att’y Grievance Comm’n of Maryland v. Chapman, 430 MD. 238, 269-70 (2013) (indefinite suspension for an attorney charging an unreasonable fee related to work on a loan modification).
DUTY TO EXPLAIN FEE
An attorney must communicate to the client, preferably in writing, the scope of the representation and the basis or rate of fee. MRPC 1.5(b). The only exception to this requirement is when the “attorney will charge a regularly represented client on the same basis or rate.” Id.
The ability to modify a fee agreement during the course of the representation is limited by MRPC 1.8(a). Rule 1.8(a) requires that the transaction be fair and reasonable to the client, that the client be advised in writing of the desirability of seeking advice of independent counsel, and that the client give written informed consent to the essential terms of the transaction.
MRPC 1.5(c) requires a contingent fee agreement to be in writing and to meet specific requirements set forth in the rule. The contingency fee agreement must state the method by which the fee is to be determined and whether expenses are to be deducted before or after the contingent fee is calculated. Upon conclusion of a contingent fee matter, the attorney must provide the client with a written statement showing the outcome of the matter and the remittance to the client.
MRPC 1.5(d) prohibits charging a contingent fee in a criminal case and in a “domestic relations matter, the payment or amount of which is contingent upon the securing of a divorce or custody of a child or upon the amount of alimony or support or property settlement.” Comment 6 explains that contingent fee agreements are not prohibited in connection with collecting post-judgment balances in domestic matters.
Payments in the form of property instead of money as a fee is generally acceptable, so long as an attorney is not acquiring a proprietary interest in the subject matter of the litigation. See, MRPC 1.8(i). A non-monetary fee may constitute a business transaction and thus be subject to MRPC 1.8(a). See, MRPC 1.5 (Comment 4). If an attorney takes a security interest in client property after the representation begins, this is a business transaction subject to MRPC 1.8(a). For example, a family law attorney must comply with MRPC 1.8(a) if he or she asks the client to sign an Assignment of Proceeds in his or her favor related to the sale of real property that is to be sold pursuant to a divorce settlement agreement.
WITHDRAWAL FROM CASE
An attorney may not withdraw from representation for nonpayment of his or her fees if withdrawal will have a “material adverse effect on the interests of the client,” unless withdrawal is mandatory under MRPC 1.16(a) or one or more of the conditions for permissive withdrawal set forth in MRPC 1.16(b) applies. In hourly fee cases, a lawyer may seek to withdraw if the client does not pay bills and thus “fails substantially to fulfill an obligation to the attorney regarding the attorney’s services” under MRPC 1.16(b)(5). However, MRPC 1.16(c) makes it a disciplinary violation to withdraw without permission of the Court where the rules of the tribunal require such permission.
SUING A FORMER CLIENT
If it becomes necessary to sue a former client, it is important to keep in mind the duties to former clients under MRPC 1.9. Specifically, an attorney has a continuing duty of confidentiality after the termination of representation. Id. at Comment 1. The duty of confidentiality may arise when presenting an attorney’s monthly account statements, including the description of work performed, to the Court in seeking entry of judgment. Any description detailing a client’s confidential information should be redacted prior to submission to the Court.
Although when filing a lawsuit against a former client an attorney has become a plaintiff, the ethical rules still apply. As such, any violation of MRPC 4.1 (Truthfulness in Statements to Others) or MRPC 8.4 (Misconduct) may result in disciplinary actions. For this reason, an attorney seeking to collect its fee may not misrepresent facts that occurred during the pendency of the representation to either the former client or Court. The attorney must also be mindful of prohibitions against disclosure of information related to debts owed to financial institutions or medical privacy concerns.
REPRESENTING AN ATTORNEY AGAINST HIS OR HER FORMER CLIENT
Many attorneys have non-business cases, including but not limited to, criminal matters, divorce and child custody cases, tenant representation, and personal tax issues. When a client fails to pay an attorney for these matters, the debt is a “consumer debt” as defined by the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692, et seq. since the debt relates to a transaction for “personal, family, or household purposes.” 15 U.S.C. § 1692a(5). See also, Maryland Consumer Debt Collection Act (MCDCA), Md. Code, Comm. Law, § 14-201(c) (definition of a “consumer transaction”).
An attorney with unpaid invoices may decide to hire a collection attorney to file a lawsuit against his or her former client. Collection attorneys, as third party debt collectors, must not only comply with the MRPC, but also Federal and State statutes (FDCPA and MCDCA) governing consumer debt collection if the underlying representation was for personal purposes. Before undertaking an engagement to collect another attorney’s accounts receivables, an attorney must be aware of the disclosure requirements and prohibitions outlined in the FDCPA and MCDCA.
A violation of the FDCPA may also violate the MRPC. For example, the FDCPA regulates, among other matters, the venue where a collection attorney can file a lawsuit, misrepresentations in a complaint, communicating with a represented debtor, and amounts claimed in a complaint. Noncompliance with these issues may also negatively reflect on attorney’s ethical duties pursuant to MRPC 1.1 (Competence), 1.3 (Diligence), 3.1 (Meritorious Claims & Contentions), 3.3 (Candor Toward Tribunal) and 4.2 (Communicating with Represented Party). Further, a collection attorney must interact with unrepresented debtors in compliance with MRPC 4.3. (“When the attorney knows or reasonably should know that the unrepresented person misunderstands the attorney’s role in the matter, the attorney shall make reasonable efforts to correct the misunderstanding”).
The MCDCA, one of Maryland’s consumer protection statutes, identifies eleven (11) prohibited acts that an attorney may not do when attempting to collect a consumer debt. MCDCA, § 14-202. Whereas these prohibitions apply to all collectors, an attorney acting as a collector may not only face a potential civil action if he or she violates the MCDCA, but also a disciplinary action from Bar Counsel.
From the commencement of an attorney-client relationship to the involuntary collection of an unpaid fee, the Maryland Rules of Professional Conduct impose various ethical requirements that must be strictly followed. An attorney is wise to gain a comprehensive understanding of the ethical issues involved in charging and collecting his or her fee to avoid any unwanted grievances. Above all, following the ethical rules ensures that the client is charged a reasonable fee for the attorney’s work and protects an attorney when he or she looks to collect any unpaid balances.
Bradley T. Canter, Esquire
P. David Gavin, Co-Chair
Allen J. Katz, Co-Chair
Samuel M. Shapiro, Co-Chair