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February 12, 2004

Fees and the Lawyer-Fiduciary

Filed under: pre-06-2006 — David Giacalone @ 6:59 pm

abe young room for growth

On this celebration of his birth, I wonder how Abe Lincoln, Esq. would have defined the fiduciary duties of a lawyer when setting fees. I’m afraid that many lawyers never consider fiduciary principles in the context of fees. That oversight goes a long way toward explaining how the legal profession managed to squander the goodwill that was its legacy from honest Lawyer Lincoln.  Here are some helpful quotes about fee-setting by the lawyer-fiduciary that might help correct the situation, and gain clients their fiducial rights.

In his Brief Primer on Legal Ethics and Legal Fees (1999), Virginia Ethics Counsel James McCauley put the basic concept quite succinctly:

Contracts between an attorney and client, be they written or oral, are not construed as are ordinary contracts between parties dealing at arms length. This is because the attorney, by virtue of accepting an engagement, enters into a fiduciary relationship with his/her client.

The dictionary of legal terms offers some broad guidance on the particulars of this fiducial duty:

fiduciary n. from the Latin fiducia, meaning “trust,” . . . . Characteristically, the fiduciary has greater knowledge and expertise about the matters being handled. A fiduciary is held to a standard of conduct and trust above that of a stranger or of a casual business person. He/she/it must avoid “self-dealing” or “conflicts of interests” in which the potential benefit to the fiduciary is in conflict with what is best for the person who trusts him/her/it.

While fully explicating the history and meaning of lawyer fiduciary duties, in The Continuing Assault on the Citadel of Fiduciary Protection, (2003 University of Illinois Law Review., at 1185-86; available at SSRN) Prof. Lester Brickman has explained (emphasis added):

The principal fiduciary obligations imposed on the lawyer include the duties of confidentiality, loyalty, safeguarding property, giving disinterested advice, and acting fairly towards the client. The duties to act fairly and in a non-self-interested fashion, in particular, relate to the financial relationship between the lawyer and client and require that a lawyer present the client with information regarding the fee arrangement that approximates what the client would obtain if the client consulted a second lawyer for assistance in negotiating the fee arrangement with the primary lawyer. Fairness is to be determined according to a heightened fiduciary standard rather than the arms-length marketplace standard.

pointerDudeSm Similarly, in 1996, the ABA Task Force on Lawyer Business Ethics, issued its Statements of Principles in Billing for Legal Services (excerpted in Business Lawyer, 51 Bus. Law 1303, Aug. 1996), which included these notable introductory remarks:

[T]he Statement of Principles in Billing for Legal Services and the Statement of Principles in Billing For Disbursements and Other Charges are predicated upon an understanding between lawyer and client. To be valid, such an understanding requires, at the least, a fully informed client, whose information usually comes from the lawyer seeking agreement. The form, nature, and extent of the disclosure will depend on the sophistication and knowledge of the client as to legal matters and business dealings with lawyers. Thus, what might constitute acceptable disclosure to an in-house counsel accustomed to negotiating with lawyers over engagement letters and fee arrangements might be unacceptable when dealing with a business executive very knowledgeable about technical aspects of the business, but relatively inexperienced in dealing with lawyers over fee arrangements, the custom in the community with respect thereto, or the availability of alternative fee arrangements.

The courts and lawyer-disciplinary bodies normally do not require separate representation of the client with respect to the billing aspect of the engagement, even if the client is woefully naive. They often look, however, at the fairness of the understanding with skepticism, insisting that the lawyers carry the burden of establishing fairness.

In setting fees, then, the lawyer-fiduciary must act in a manner that puts the client’s interest first. Making sure the client is fully informed when entering into the fee arrangement is essential, taking into account the sophistication level and experience of the particular client.

  • Asking what fee might result, if the client had engaged another lawyer solely to negotiate fees, seems to me to be a very useful standard. update: Don’t laugh. Canadian tort lawyers Polten & Hodde have this advice on their contingency fee FAQ page:“Negotiate with your lawyer. It may well be advisable to pay a separate, independent lawyer to negotiate the contingency agreement with the lawyer who is taking your case. Don’t laugh. If a small up front fee saves you $100,000 in fees down the road, it is money well spent.” (for more in this spirit, see our prior post a Canadian role model, Jan. 5, 2005.)

Afterthought: See our follow-up posting, A Lincolnesque Law Practice, for details on A. Lincoln trial lawyer and on his approach to law practice, including fees. (Thanks to Kevin, whose Comment inspired the subsequent post).

update ( Sept. 4, 2007): Further discussion and analysis on this topic can be found in our new post “contingency fees and the clueless fiduciary” (Sept. 4, 2007).

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