I regularly check the posts in the Maryland Lawyers group on Facebook. Posts often contain useful general information about the courts, such as with MDEC. Other times, lawyers share potential client referrals. But mostly I check because I want to keep abreast of the issues that we, as lawyers, find worthy of a group discussion.
Yes, this includes ideas for this column.
A few weeks ago, I followed a group discussion about a rule change on whether a flat fee needed to be put in escrow. The original post, and the comments, focused on when the lawyer was permitted to pay himself.
The post apparently originated because of changes to Maryland Rule 19-301.15(c). The thread in part questioned how fees paid at the outset of a matter could ever have been put in an operating account rather than an Interest on Lawyer Trust Account.
What I found interesting is that the proposed rule change should not affect how most lawyers handle flat fees. Why is this? Lawyers should not put fees in their operating account until after the fee has been earned, and a flat fee isn’t earned until the work is substantially completed. Such has been the rule in Maryland for a while.
That said, many lawyers want to structure fee agreements so that they can be paid as early as possible in a proceeding. It can be done with a proper understanding of the rules, old and new.
First, the old. Fees in Maryland are primarily governed by 2 rules — Md. Rules 19-301.5 and 19-301.15. Rule 19-301.5 is entitled “Fees” while Rule 19-301.15 is “Safekeeping Property.”
The basics are easy. Fees must be reasonable, and Rule 1.5(a) enumerates the factors to be considered in determining if a fee is reasonable. Further, nearly all agreements must be in writing. And, of course, fees in some cases can be contingent upon the outcome of the case.
One of the better discussions on fees is Maryland Supreme Court Justice Jonathan Biran’s opinion in Attorney Grievance Comm’n v. Jones 484 Md. 155 (2023). In the opinion, Biran explains various fee structures, including advanced payments and general retainers.
An advance payment is exactly what it seems — a payment to an attorney for future services. Such a payment remains the client’s property until earned by the attorney. A flat fee is a type of advance payment. Unlike an advance payment, a “general retainer” is “a fee paid, apart from any other compensation, to ensure that a lawyer will be available for the client if required.”
Meanwhile, Rule 19-301.15 requires the lawyer to keep separate the clients’ property and to account to clients for property in the lawyer’s possession.
Invariably, lawyers structured their engagement letters whenever possible to have fees be earned when paid.
The court and the rules committee have spoken again. Both have expressed their preference for money being placed in an IOLTA. In this regard, Rule 19-301.15(c) is being amended to remove the provision which allowed a lawyer to deposit funds directly into an operating account rather than an IOLTA account in certain circumstances if the client gave “informed consent, confirmed in writing, to a different arrangement.”
The new rule requires all legal fees and expenses that have been paid in advance to be put in IOLTA, and only to be withdrawn by the attorney as fees are earned or expenses incurred.
My sense is we are nearing the end of the flat-fee earned-when-paid designation. But, fortunately, there are ample ways to structure a fee agreement that allows the lawyer to be paid periodically.
Just put the stages in the retainer agreement. Break the case into stages. Allocate the fee as you deem fit, as long as it’s reasonable. Consider allocating a portion of the fee for preliminary hearings, motions hearings, discovery and pretrial motions.
With these strategies, lawyers can still ethically get funds before committing to work for a client while giving clients the satisfaction that the lawyers can’t be paid before they actually do the work. It’s a win-win.
Craig Brodsky is a partner with Goodell, DeVries, Leech & Dann LLP in Baltimore. For over 25 years, he has represented attorneys in disciplinary cases and legal malpractice cases, and he has served as ethics counsel to numerous clients. His Legal Ethics column appears monthly in The Daily Record. He can be reached at csb@gdldlaw.com.
This article originally appeared in The Daily Record on December 4, 2024.
Goodell DeVries defends various professionals in Maryland, the District of Columbia, and Virginia, including lawyers and law firms. Many of these cases are ethics matters involving Bar Counsel. If you have questions about the above or are a Maryland lawyer facing discipline, please contact us at EthicsHelp@gdldlaw.com.
