March 15, 2014 • By Dennis Beaver
“There probably isn’t a lawyer who hasn’t heard the famous Greed is Good speech recited by actor Michael Douglas, playing corporate raider Gordon Gekko in the 1987 film Wall Street,” observes Los Angeles-based attorney Aaron Shechet.
“But his own greed didn’t prove to be such a good thing for Gekko,” notes Shechet’s wife and law partner, Leigh Chandler, “as he was sentenced to spend over 10 years in prison for insider trading, just like real Wall Street crooks today.”
The accomplished legal duo frequently serves the Los Angles County and Santa Monica Bar Associations as fee arbitrators. Shechet has testified as an expert witness in a million dollar attorney fee dispute.
“This Gekko-type personality is a magnet for many lawyers, where greed is standard operating procedure. One of the sneaky ways clients are victimized is through the use of fee agreements written in such a way as to make it appear there will never be a refund under any circumstances, no matter how little actual work is done,” he observes.
This is a true retainer so that I am available and the fee is non refundable
When attorney fees are expected to exceed $1,000, California law requires a written, signed fee agreement, which must explain how the client is billed.
“Let me make this clear from the outset,” Chandler underscores, “Just because you see language like this in a retainer agreement, it doesn’t make it so!
• No refunds, fee earned upon payment;
• You are paying for my availability;
• This is a true, classic retainer assuring my availability to handle your case.
“Clients want to trust us – and trust is essential to the attorney/client relationship.
Fee agreements are almost never questioned. Instead, clients will trust that what is contained therein is legal.
“Who wants to even think that your lawyer would have language in the fee agreement that wasn’t right, or that the document is set up in such a way as to take advantage of clients?”
Counselor, if you want state bar trouble then use this language
Here is an example of language the couple often finds in retainers which leads to fee disputes— and has landed attorneys in hot water with the State Bar:
• The $5,000 you have paid is a true retainer, meaning that I agree to be available to handle your case. It is not refundable under any circumstances.
“50 years ago when there were not so many lawyers, it was common to have a lawyer ‘on retainer,’ as availability of legal services was limited. Today, with our glut of lawyers, there is never going to be a problem finding an attorney, and you almost never see this “classic” retainer justified or used correctly.
“But if it is a true retainer, when the lawyer does work for the client, those legal services must be billed separately in addition to the retainer which has already been paid,” Chandler underscores.
“In these ‘non-refundable true retainer’ fee agreements, a few paragraphs later, the contract sets out how much the lawyer’s hourly fee is and almost always states that it is deducted from the $5,000, and if the remaining money dips below a certain amount, the client is required to bring the account back up. “So, what you really have is an advance fee payment, not a true retainer.”
Unethical + unconscionable fee agreements = You’re asking for trouble
“You would be surprised at how often we see fee agreements which contain one word-non-refundable—which the lawyer knows cannot be enforced against the client, but the client will usually be completely in the dark.,” Shechet tells You and the Law.
“More than half the time when clients dispute fees-often in criminal and family law cases-we find fee agreements which are both unethical and unconscionable where lawyers label all money they are paid as non-refundable fees.
“But the California Rules of Professional Conduct require unearned fees to be refunded to the client,” he points out.
“Can you imagine paying your lawyer $5,000 on Monday to start your divorce, on Tuesday morning phoning and explaining that you have reconciled, and then be told that nothing will be refunded?
“Or, paying $10,000 for an attorney to handle your DUI case and the next day calling and telling the lawyer you have decided to just plead guilty, and not be offered a refund?” Chandler asks.
“This is behavior which shocks the conscience, which we call unconscionable. Lawyers cannot keep fees which are unconscionable. These are not simply made up fact situations – they have really occurred. And that’s why clients need to protect themselves,” the couple strongly maintain.
We’ll look at what to do, next time.
Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.