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Presentations:Last update: 12/16/09 Established 1993
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Creating a Retainer Agreement
That's Fair to Both Sides
by John W. Toothman, Esq.
8(7) Accounting for Law Firms (Leader Publ. July 1995)
CLIENTS SHOULD never sign the standard retention or billing agreements offered by many law firms. Too often these are lopsided in favor of the firm. This is hard to reconcile with the firm's fiduciary and professional duties to the client, which may therefore come back to haunt the firm if a dispute later arises. This phenomenon is part of a larger pattern in which many lawyers effectively segregate their relationship with the client as customer (the money aspect) from their relationship with the client as client (the professional aspect).
Coming to Terms
As a fee arbitrator as well as a consultant to clients, I have seen terms attempting to waive in advance future conflicts of interest, terms specifying that the firm may add any staff it wants (at whatever rates it wants), no limitations or details regarding hourly rates and expenses (including in-house expenses that may truly be overhead), terms limiting the clients ability to contest a bill to a very short period of time and advance agreements to allow the firm to withdraw with no advance notice, even in the midst of trial. Some of these terms, rather than giving the firm more comfort, could actually be unethical per se or as enforced. It seems that the firms, however, make these agreements even more aggressive each time they have a major write-off.
Because some ethical protections can be waived by the client, especially if the waiver is obtained in writing, at the threshold of the representation, some firms seem to be overreaching at the moment when the client is typically most vulnerable. At the threshold, clients are vulnerable because they are focused, not on the business relationship with the lawyer, but on the problems that sent them to the attorney in the first place.
Getting Off to a Good Start
Often, the lopsided retention agreement gets the relationship off to a bad start. Even if the client signs the agreement without voicing any objection and the firm never has to enforce it, it sends the client the signal that this is just another relationship in which he or she may he taken advantage of -- trust is the immediate victim.
Our standard agreement is thus designed to create a more level relationship, one in which neither side is securing waivers or imposing terms that would seem unfair. Yet, because the attorney is the professional, subject to ethical duties, the arrangement is designed to give the client the upper hand in the event of a billing dispute. Subject to ethical restrictions, the attorney always has the option to withdraw to cut his or her losses.
Screening Clients Still Important
No matter how one writes the agreement, there is no written substitute for attorneys screening their clients well in the first place, including doing some "due diligence" on the matter itself, and in deciding at the first sign of trouble (not just before trial) that it is time to withdraw.
The legal services agreement that follows can be modified to provide for fixed or contingent fees.
Copyright © 1995, 1998 John W. Toothman