[Editor’s note: this is another in a series of blog posts discussing how specific ABA Model Prof. Conduct Rules that all lawyers must follow impacts how lawyers can and cannot bill clients.]
In this blog piece, I will discuss how Rule 1.2 Scope of Representation and Allocation of Authority between Client and Lawyer affects how lawyers ethically can bill for their services.
In setting out the allocation of authority between the client and lawyer, Rule 1.2 provides that the big picture items in a representation such as deciding on the “objectives” of the representation including whether to settle or arbitrate or go to trial are the client’s responsibility whereas the details in a representation such as deciding upon the “means” or the steps that need to be taken to carry out the strategy to achieve the objective are the lawyer’s responsibility.
But in deciding upon the steps involved to carry out the objectives of the representation, Rule 1.2 at Comment  provides that “lawyers usually defer to the client regarding such questions as the expense to be incurred.” As a result, lawyers have a duty to discuss the costs of carrying out any proposed strategy with the client and get the client’s consent to the proposed costs.
In an “independent counsel” situation in an insurance context, a lawyer’s statement to a client that the “insurance company will pay my fees and costs” may not be an accurate statement. This would especially be the case if the lawyer has not actually reached an agreement with the insurance company as to the costs of the planned defense.
One of the main reasons clients (or insurers) need “accurate estimates of what their fees will be [is] to make a rational choice between settling now or spending more on legal fees, whether in negotiation or litigation.” See Toothman & Ross, Legal Fees, (Carolina Academic Press 2003) at p. 204. As will be seen in the discussion of Rule 1.4 Communication, the lawyer has a continuing duty to timely update her estimate of costs in order that the client be able to make informed decisions about whether to settle or continue the representation.
Another reason an accurate estimate may be needed is for the client to decide whether or not to employ the particular lawyer. See In re Crown Orthodonic Dental Group, 159 B.R. 307 (Bankr. C.D. Cal. 1993)(“If an attorney estimates the cost of his or her services and that estimate is a critical part of the negotiations upon in employing the attorney, unless there are some real, unexpected changes of circumstances, the attorney should be bound by that estimate”). In other words, a lawyer cannot lowball an estimate just to get the work.
But what if the costs exceed the lawyer’s original estimate given to the client and upon which the client relied in agreeing to the lawyer’s proposed strategy? More importantly, can the lawyer bill for his costs that exceed the original estimate? To use a lawyerly word, it “depends.” For one thing, if it is later shown that the lawyer’s estimate was not an accurate estimate made in good faith, the lawyer could be bound by his original estimate or “some reasonable variation thereon.” See In re Chas. A. Stevens & Co., 105 B.R. 866 (Bankr. N.D. Ill. 1989)(“The court holds that when professionals, especially financial experts, project estimated fees or budgets to a client, they should expect to be held to the same or some reasonable variation thereon.”).
In my next blog piece I will discuss how Rule 1.4 Communication impacts how a lawyer can bill for fees and costs. As a reminder, the Rules I have selected for discussion are the same ones set out in ABA Standing Comm. On Ethics and Prof. Resp., Formal Op. 93-379 (1993) Billing for Professional Fees, Disbursements and Other Costs, beginning at p. 4, as impacting how lawyers can bill for fees and costs.