The Ohio Supreme Court’s Board of Professional Conduct has released a new advisory opinion clarifying the propriety of flat-fee arrangements and the manner in which such fees must be accounted for. The state’s Rules of Professional Conduct require a lawyer to deposit flat fees and expenses paid in advance into a client trust account only to be withdrawn as the fee is earned and expenses are incurred.
An “earned upon receipt” flat fee, on the other hand, is deemed earned upon payment regardless of the amount of future work performed. These fees need not be placed in a trust account.
Unlike Ohio, Alabama rejected the concept of fees being earned upon receipt. “In Alabama, if you have a flat fee, that money goes into the trust account, not to be distributed until earned. Even if it weren’t required by the Alabama opinion, I think that’s good business practice,” says Joshua D. Jones, co-chair of the Section of Litigation’s Securities Litigation Committee.
“In my experience, in-house lawyers love flat-fee arrangements because it gives them some certainty, and they value certainty over a lot of other considerations,” says Josh. “There are three things to take into account before agreeing to a flat-fee arrangement, first, they work best in the litigation context when you are dealing with a series of cases with underlying similarities. Second, it’s important that both the client and the lawyer have experience with the type of case. It is difficult to build a flat-fee arrangement that works for both sides if one or both sides have a level of uncertainty with the type of work involved. Third, it’s important to have a process built in to the agreement that allows you to take specific matters out of the flat-fee structure.”
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