Client Alerts News / 04.06.2016

The First Advisory Opinion of 2016 Focused on Fixed Fees

By Alexis Preskar & Samir Dahman

The first Advisory Opinion of 2016 from the Ohio Supreme Court’s Board of Professional Conduct concerns the newly popular practice of fixed fees. It is important to note that while Advisory Opinions serve as guidance on a particular point of law, they are non-binding and are responsive to mere hypothetical questions. The opinion can be found here.

Per the Ohio Rules of Professional Conduct, a fixed fee is “a fee of a set amount for performance of agreed work, which may or may not be paid in advance but is not deemed earned until the work is performed.” The Board’s opinion mainly addresses how attorneys should handle fixed fees. Specifically, where should an attorney place a fee that been earned versus one that is prepaid? This difference is important because of Rule 1.15 of Professional Responsibility, which states that attorneys cannot mingle client funds with their own funds. For this reason, attorneys must set up a client trust or IOLTA account to deposit client fees, like retainers and court costs, in addition to a general account where earned fees can be deposited.

Depending on the time of payment and service, lawyers must place fixed fees in different accounts. Generally, if a client pays a fee in advance of work, then that fee must be placed in the client trust or IOLTA account because that fee has not been earned by the attorney yet. But, if the fee is designated as “earned upon receipt,” it means the fee has been earned at the time of payment, even if the attorney does future work on the same project. This money is considered the attorney’s and so must be placed in the attorney’s general account. Additionally, if the fee is paid in advance and the attorney does not complete the project, he or she must return any unearned portion of the fee, even if the fee is designated as “earned upon receipt.”

The Board also clarified some other parameters for fixed fees, which are in line with the general rules for hourly fees as well. For instance, just like with hourly billing, an attorney cannot charge an excessive fixed fee. What is excessive depends on several factors, including the time involved, complexity of the matter, and the customary rate in the area. A fixed fee also cannot limit the attorney’s duty to provide competent and diligent representation. While these rules may see basic and straightforward, many attorneys face disciplinary charges because of the mishandling of fees, and that risk may be greater for attorneys inexperienced with the newer practice of flat fee billing.