Bar Counsel: You Can’t Get Around Mance

From Washington Lawyer, July/August 2011
By Dolores Dorsainvil

In 2009 the District of Columbia Court of Appeals held that when an attorney receives a flat fee at the outset of the representation, those funds are deemed “unearned” fees and remain the property of the client until earned.[1] The court said its interpretation of Rule 1.15(d)[2] would be applied prospectively because, at the time, it was aware that D.C. practitioners commonly treated flat fees as property belonging to the attorney upon receipt.[3]

Although many attorneys have adjusted their billing practices accordingly, Bar Counsel is aware that a small contingent of local practitioners are engaging in what one might call “semantic gymnastics” to avoid the clear proscription contained in the D.C. Rules of Professional Conduct[4] and the court’s ruling in In re Mance.[5]

In the course of investigating ethical complaints, Bar Counsel routinely comes across practitioners whose fee agreements improperly characterize advance fees as “non–refundable.” Such language is problematic for several reasons. First, to the extent that an attorney attempts to enforce such a provision, he or she violates Rule 1.16(d),[6] which requires unearned fees to be returned to the client at the conclusion of the representation. Next, in the event that the representation ends prematurely, as it did in Mance, either because the client was no longer happy with the representation and wanted to seek the assistance of new counsel[7] or the attorney had decided to terminate the representation, the term “non–refundable” would mislead a client into believing that he or she would have no recourse and could not expect the return of unearned funds. Third, the use of the term “non–refundable” could discourage a client from terminating his or her attorney altogether. The reality is that the Mance court has determined that a flat fee, or any other advance fee, is not a “non–refundable” fee.

Another problem that Bar Counsel has identified is when an attorney mischaracterizes the fee agreement as an “engagement fee,” in an effort to justify taking possession of “advanced” funds immediately. Although true engagement fees are rare, Bar Counsel has seen the phrase used way too often. An engagement fee is a fee for ensuring an attorney’s future availability in a matter, and it guarantees that the attorney would be precluded from representing any parties with adverse interests in that matter.[8] Because engagement fees are earned upon receipt, they should not be placed in an attorney’s escrow account as they are property that belongs to the attorney and to do so would be commingling, which would violate Rule 1.15(a).[9]

However, attorneys must understand that engagement fees are only for the attorney to be “on call” to provide legal services at any time during a specified time period, thereby precluding employment by other potential clients during that time period. If the fee that a client pays is tied directly to the attorney providing a legal service in exchange thereof, that fee is actually an advance fee,[10] rather than an engagement fee, and must be placed in the attorney’s trust account. Similarly, if a client is engaging an attorney’s services to begin working on a legal matter immediately and the attorney is available to do so, that is not an engagement fee.  

Finally, Bar Counsel notes that, consistent with Rule 1.15(e),[11] attorneys may properly seek a waiver of the Mance rule by obtaining the informed consent[12] of the client. Such a waiver may be written into the retainer agreement or separately. If the attorney obtains a valid waiver, the advance fees would be considered the attorney’s own property and placed in the attorney’s account.

“What’s in a name? That which we call a rose. By any other name would smell as sweet.”[13] Attorneys may creatively name their fee agreements anything they wish. Ultimately, however, Mance requires that advance fees are the property of the client until earned, and that such property should be safeguarded and maintained in a separate escrow account pursuant to Rule 1.15(a).

Dolores Dorsainvil is a senior staff attorney with the Intake Division of the Office of Bar Counsel.

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Notes

[1] In re Robert W. Mance II, 980 A.2d 1196 (D.C. 2009). Mance, a criminal defense attorney, was provided an initial flat fee of $7,500 to represent a client in a homicide case and treated a portion of the advance payment as earned upon receipt when he placed it in his operating account. The client terminated Mance before he had completed any work on the matter, and Mance delayed for several months returning the advance fee to the client. Id.  

[2] Effective August 1, 2010, the D.C. Court of Appeals amended Rule 1.15 and what was formerly Rule 1.15(d) is now Rule 1.15(e). The language of both the former and current provisions of the rule is identical.

[3] The Court of Appeals held “that when an attorney receives payment of a flat fee, the payment is an ‘advance[] of unearned fees’ and ‘shall be treated as property of the client … until earned unless the client consents to a different arrangement.’” Mance, 980 A.2d 1196, 1202, quoting Rule 1.15(e).

[4] As of January 2000, Rule 1.15(e) of the D.C. Rules of Professional Conduct (formerly Rule 1.15(d) prior to August 1, 2010) provided pertinently “[a]dvances of unearned fees and unincurred costs shall be treated as property of the client … until earned or incurred unless the client gives informed consent to a different arrangement.”

[5] 980 A.2d 1196 (D.C. 2009).

[6] Rule 1.16(d) provides, in part, “[i]n connection with any termination of representation, a lawyer shall take timely steps to the extent reasonably practicable to protect a client’s interest, … and refunding any advance payment of fee or expense that has not been earned or incurred.”

[7] The Colorado Supreme Court prohibits attorneys from entering into nonrefundable fee agreements. In re Sather, 3 P.3d 403, 413 (2000).

[8] The rules contemplate that an attorney may base his or her fee upon his/her preclusion from other employment. See Rule 1.5(a)(2), which states, “[a] lawyer’s fee shall be reasonable. The factors to be considered in determining the reasonableness of a fee include the following: … the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer.”

[9] Rule 1.15(a) provides, in part, that “[a] lawyer shall hold property of clients or third persons that is in the lawyer’s possession in connection with a representation separate from the lawyer’s own property.”

[10] See D.C. Bar Legal Ethics Opinion 264, “Refunds of Special Retainers; Commingling of Such Funds With the General Funds of the Law Firm Upon Receipt,” adopted February 14, 1996. Legal Ethics Opinion 264 differentiates between a “general retainer,” or an engagement retainer, and a retainer for legal services. The opinion defines a “general retainer” as a fee paid to secure an attorney’s availability to perform legal services on a matter and is deemed earned upon receipt and “is not intended to pay for specific services to be rendered.” See id. However, an advance fee or “special retainer” is not earned upon receipt and “is tied to the performance of services.” See id. at Part A. Readers should be warned that the portion of D.C. Bar Legal Ethics Opinion 264 that deals with how to treat advance funds is no longer correct following amendments to the D.C. Rules of Professional Conduct.

[11] Under Rule 1.15(e), a client may waive, by providing his or her informed consent, the requirement that the fees given to an attorney be held in trust. However, regardless of the client’s waiver, in the event that the client terminates the attorney–client relationship, the attorney has an obligation under Rule 1.16(d) to promptly refund any unearned portion of the fee and/or unincurred costs.

[12] Rule 1.0 (Terminology) states that “informed consent” denotes the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.

[13] William Shakespeare, Romeo and Juliet, 1600.

Disciplinary Actions Taken by the Board on Professional Responsibility

Original Matters

IN RE JAMES M. SCHOENECKER. Bar No. 490488. May 18, 2011. The Board on Professional Responsibility recommends that the D.C. Court of Appeals disbar Schoenecker. Schoenecker was found guilty in the Circuit Court Branch 4 for Walworth County, Wisconsin, of misappropriation of identification information to obtain money in violation of Wisconsin Statutes § 943.201(2)(a), a crime involving moral turpitude per se, for which disbarment is mandatory under D.C. Code § 11-2503(a) (2001).  

Disciplinary Actions Taken by the District of Columbia Court of Appeals

Original Matters

IN RE QUINNE HARRIS-LINDSEY. Bar No. 451238. May 19, 2011. The D.C. Court of Appeals rejected Harris-Lindsey’s petition for negotiated discipline.

IN RE TAMLA T. SCOTT. Bar No. 496724. May 12, 2011. In a consolidated reciprocal and original matter, the D.C. Court of Appeals suspended Scott for three years with fitness, nunc pro tunc to March 17, 2008. In the reciprocal matter, Scott was suspended by the Disciplinary Hearing Commission of the North Carolina State Bar for three years, with the right to apply for a stay of the remaining period of suspension after one year. The North Carolina Commission’s order of discipline was based on Scott’s stipulations that she (1) failed to respond to fee dispute petitions in four matters and to the related disciplinary grievances, and (2) failed to provide competent representation and to communicate.        

The original matter was based on Scott’s failure to update the D.C. Court of Appeals Committee on Admissions’ Supplemental Questionnaire with information concerning the pending disciplinary complaints in North Carolina. Scott made a knowingly false statement of material fact in connection with a bar admission application; failed to disclose a fact necessary to correct a misapprehension known by an applicant in connection with a bar application; engaged in conduct involving dishonesty, fraud, deceit, or misrepresentation; and engaged in conduct that seriously interferes with the administration of justice. Rules 8.1(a), 8.1(b), 8.4(c), and 8.4(d).

IN RE CHRISTOPHER C. YUM. Bar No. 424602. May 12, 2011. The D.C. Court of Appeals disbarred Yum by consent, effective for reinstatement purposes from November 6, 2009.

Interim Suspensions Issued by the District of Columbia Court of Appeals

IN RE MARK A. KEY. Bar No. 458725. November 16, 2011. Key was suspended on an interim basis based upon discipline imposed in North Carolina.

IN RE BRIAN J. COLOMBANA. Bar No. 501937. May 13, 2011. Colombana was suspended on an interim basis based upon discipline imposed in California.

IN RE JOHN VENUTI. Bar No. 963256. May 13, 2011. Venuti was suspended on an interim basis based upon discipline imposed in Maryland.

IN RE ANGEL SAAD. Bar No. 474538. May 16, 2011. Saad was suspended on an interim basis based upon his conviction of a serious crime in the Supreme Court of the State of New York, New York County.

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The Office of Disciplinary Counsel compiled the foregoing summaries of disciplinary actions. Informal Admonitions issued by Disciplinary Counsel and Reports and Recommendations issued by the Board on Professional Responsibility are posted at www.dcattorneydiscipline.org. Most board recommendations as to discipline are not final until considered by the court. Court opinions are printed in the Atlantic Reporter and also are available online for decisions issued since August 1998. To obtain a copy of a recent slip opinion, visit www.dccourts.gov/internet/opinionlocator.jsf.