[Note: This is the time of year that many clients will be getting notices or requests from their attorneys that their hourly rates will be increasing. Thus, I thought it would be a good idea to re-post something I did four years ago on the subject of increasing hourly rates during the course of a representation.]
If you recently have had any of your attorneys ask for a 5% increase in their billing rates you might want to refer them to Judge Richard Posner’s recent decision in Prather v. Sun Life . In that case, he found a 5% increase in billing rate to be “excessive!”
Just for kicks, I encourage you to read Judge Posner’s entire opinion in the Prather case. The Judge is well known for his often thought provoking opinions and statements on a wide variety of subjects. He also sometimes has an entertaining tongue-in-cheek way of presenting his opinions and Prather is an example of this.
But back to the subject of increases in billing rates. I often come across this issue in reviewing legal bills in cases or other legal matters which drag on for years. So I thought it time to set out some basic facts on the subject.
To begin with (and we should begin at the beginning), lawyers are ethically obligated to set out how they intend to bill for their services including their billing rates at the outset of a representation. See ABA Model Rules of Prof. Conduct (RPC) 1.5(b).[i] This can be done by way of a unilateral letter from an attorney or by way of a signed fee agreement (required in some states). Almost always included in addition to a disclosure of the hourly rates for staff is a statement to the effect that the firm may increase its billing rates from time to time.
But merely advising a client that fee rates may increase in the future is not the same thing as notifying a client that fee rates will increase on a date certain and by a sum certain.
If billing rates do increase during the course of the representation, the attorney has an affirmative ethical duty to first notify the client before the increase goes into effect notwithstanding what a prior letter or a fee agreement may have stated. See ABA Opinion No. 11-458 (2011) Changing Fees During Representation citing Severson, Werson v. Bolinger, 235 Cal. App. 3d 1569 (1991)(written fee agreement in which law firm charges client “its regular hourly rates” does not permit firm to unilaterally raise its rates beyond those informally quoted to the client before the representation began).
Unfortunately for the attorney, the notice to the client of the increase does not end the matter. Rather, it just signals the beginning of the process the attorney must go through to raise billing rates.
The reason for the need for a process is that an increase in fees during the course of the representation beyond what was originally agreed to is considered to be a “modification” of the original fee agreement. And any unilateral “modification of a fee agreement to a lawyer’s benefit during the course of a representation is generally unenforceable.” ABA Annotated Model RPC (7th ed. 2011) at p. 78 Modification of Agreements.
To make a modification of a fee agreement enforceable, the lawyer must follow a strict process. Of particular note in the process is that modifications to fee agreements are viewed as “business transactions” with a client. Business transactions with clients are governed RPC 1.8. See Annotated Model RPC, supra at p. 142 Modifications to Fee Agreements. RPC 1.8 requires not just consent from the client for the transaction, but “informed consent.” And what is required for “informed consent” is governed by RPC 1.0(e).
If you mention to a lawyer that he must get “informed consent” from a client for any fee increase, you will usually get a glassed over look. You may even get a look of despair. For “informed consent” to be valid, the lawyer must be careful to document that he has provided all the information necessary to a client to make an informed decision.
So merely stating that the client did not object to the rate increase after notice would never be enough. A lack of objection does not at all support a conclusion that the client made an “informed decision.” To the contrary, it may support a conclusion that the lawyer lulled the client into not objecting by failing to comply with the RPC. This is because the RPC make clear that the client must have all the information “reasonably necessary to make an informed decision.” See ABA Annotated RPC, supra, Informed Consent at p. 17.
Specifically, a lawyer is required to provide a communication that includes “a disclosure of the facts and circumstances giving rise to the situation.” Id. So, what then are the “facts and circumstances” that have given rise to the request for a fee rate increase? How about the statement that “we haven’t had an increase in rates in the past two years?” How would this possibly be considered a changed circumstance to justify a modification of a fee agreement?
Or how about the statement to the client that “our costs have increased this past year by 5%?” What documentation would the lawyer have to provide if asked to do so to support this statement in order for the client to be shown as giving “informed consent” to the intended rate increase?
Fortunately for most lawyers, the clients never assert their rights and lawyers do not inform clients of their rights. Thus the client just accepts the rate increases without much in the way of resistance – at least until I am asked to review the legal bills.
Want to have some fun with your attorneys? Next time they call you up to ask for a rate increase, tell them that before you can give your “informed consent” to their requested rate increase, you must have them supply you with adequate documentation that would justify the requested rate increase. Then look closely into the phone, I am certain you will see either a glassed over look or a look of despair.
[i] According to the ABA Center for Prof. Responsibility, all states with the exception of Calif. have adopted the latest version of the ABA Model Rules. Although Calif. has not officially adopted the ABA Model Rules, Calif. professional rules mirror the ABA Model Rules. Also, the ABA Model Rules are consulted in Calif. in fee billing disputes. See California State Bar Arbitration Advisory 98-03 (June 23, 1998) at p. 2.