Ethical Basis for Legal Fees

The amount or basis of the fee should be agreed upon in the engagement letter, with a clear understanding between the parties as to reimbursement for costs and expenses. The basis of termination of services by either party should be established with the appropriate termination procedure.

A new client agrees to pay an attorney a flat fee of $1,500 in advance. The attorney deposits the payment in a trust account. The attorney then spends 3 hours drafting a document for the client at a billing rate of $300 per hour, resulting in billable time worth $900. The client does not like the draft and terminates the representation and asks for a refund. How much should be refunded? Should the attorney refund the unbilled portion ($600) of the flat fee? What are the applicable guidelines?

The amount or basis of the fee should be agreed upon in an engagement letter, with a clear understanding between the parties as to reimbursement for costs and expenses. The basis of termination of services by either party should be established with the appropriate termination procedure.

Factors To Determine 
Reasonableness of Fees

The Virginia State Bar, in its Virginia Rules of Professional Conduct, provides that a lawyer’s fee shall be reasonable (Rule 1.5). In determining reasonableness of the fee, factors to be considered include:
  • time and labor required, the novelty and difficulty of the legal questions, and the requisite legal skill;
  • likelihood that acceptance of employment will preclude other employment by the lawyer;
  • fee customarily charged locally for similar legal services;
  • amount of the fee involved and the results obtained;
  • time limitations imposed by the client or by circumstances;
  • nature and length of the professional relationship with the client;
  • experience, reputation, and ability of the lawyer; and
  • whether the fee is fixed or contingent In Virginia, the rules stipulate that the lawyer’s fee shall be adequately explained to the client. 
This writer believes that the most important attribute in hiring g a lawyer and determining a fair fee is:
  • experience
  • reputation, and 
  • ability of the lawyer
When the attorney has not regularly represented the client, the basis or rate of the fee shall be communicated to the client, preferably in writing, before or within a reasonable time after beginning the representation.
According to the Virginia rules, a fee may be contingent on the outcome of the matter for which services are rendered, except in a domestic relations matter or a criminal defense case. A division of a fee between lawyers not in the same firm may be made if the client consents to it, the terms are disclosed to the client, the total fee is reasonable, and the client’s consent is obtained in writing in advance of rendering legal services

Advances
With regard to terms of payment, an attorney may require advance payment of a fee, but is obliged to return any unearned portion. Virginia 
Rule 1.16(d) provides that, upon termination of representation, an attorney shall take steps to protect a client’s interests, such as refunding any advance payment of fee that has not been earned.

According to opinion summaries prepared by McGuireWoods LLP lawyer Thomas E. Spahn and based on letter opinions issued by the Virginia State Bar, charging interest on unpaid bills is not per se unethical, but an "automatic imposition of a uniform finance or interest charge" ignores a "personal element of the attorney-client relationship." The following would be required before the lawyer could ethically charge interest: the lawyer and client "have reached an agreement as to the amount of attorneys' fees to be charged, the client is capable of paying the same but desires that the payment be deferred for the client's convenience;" "the client at all times has the right to prepay any remaining balance of the fee without penalty;" the lawyer may not charge interest on any fees that remain unearned; "there is a reasonable expectation that a client has the ability to pay the agreed upon fee and the interest thereon;" should a fee dispute arise, "every effort should be made to work out an amicable resolution of differences which arise between the attorney and client."

According to Spahn’s summaries, a lawyer may not "sue a client for a fee unless to prevent fraud or gross imposition by the client." Overall, the Bar indicated that use of a credit card "is a preferable alternative to charging interest for the financing of legal fees."

District of Columbia Fee Rules

By comparison, the District of Columbia Bar, in its D.C. Rules of Professional Conduct, provides standards governing fees in a client-lawyer relationship (Rule 1.5 Fees). Under this rule, a fee must be reasonable, and reasonableness of a fee is determined by factors to be considered, including time and labor required, difficulty of legal questions, requisite legal skills, and other factors involved in computation of the fee.

In D.C., the basis of an attorney’s fee must be communicated to a new client in writing prior to or within a reasonable time after regular representation has begun. An outcome-based contingency fee may apply unless prohibited by law or representation is for a criminal defendant.

According to the D.C. rules, a fee between lawyers not in the same firm may be divided only if in proportion to the services performed by each lawyer or if each lawyer assumes joint responsibility for the client, provided that the client has been advised in writing of the lawyers’ identity and the client has affirmatively consented to the arrangement.

A lawyer may require advance payment of a fee, but the D.C. rules require that any unearned portion be returned to the client. If the Bar has established an arbitration or mediation procedure for resolving fee disputes, the lawyer should consider complying with the prescribed procedure.


With regard to fees earned, fixed fees are considered earned on completion of each stage of the legal services described in an agreement. The client should be made aware, in writing, that a refund will not be made once substantial services have been performed, even if the client should pass away or for any other reason, including a change in the law.