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End-of-life notice: American Legal Ethics Library

As of March 1, 2013, the Legal Information Institute is no longer maintaining the information in the American Legal Ethics Library. It is no longer possible for us to maintain it at a level of completeness and accuracy given its staffing needs. It is very possible that we will revive it at a future time. At this point, it is in need of a complete technological renovation and reworking of the "correspondent firm" model which successfully sustained it for many years.

Many people have contributed time and effort to the project over the years, and we would like to thank them. In particular, Roger Cramton and Peter Martin not only conceived ALEL but gave much of their own labor to it. We are also grateful to Brad Wendel for his editorial contributions, to Brian Toohey and all at Jones Day for their efforts, and to all of our correspondents and contributors. Thank you.

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Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.


Pennsylvania Legal Ethics

1.5   Rule 1.5 Fees

1.5:100   Comparative Analysis of Pennsylvania Rule

Primary Pennsylvania References: PA Rule 1.5
Background References: ABA Model Rule 1.5, Other Jurisdictions
Commentary:

1.5:101      Model Rule Comparison

MR 1.5(a) provides that a lawyer's fee must be "reasonable." PA R-1.5(a) only requires that a lawyer not enter into an agreement for, charge or collect a fee that is "illegal or clearly excessive." The factors to be considered in determining the propriety of a legal fee under PA-R 1.5(a) are identical to the factors provided in MR 1.5(a), although the first factor to be considered under PA-R 1.5(a)(1) is the fixed or contingent nature of the fee.

MR 1.5(b) states that the basis or rate of the fee shall be communicated to the client, "preferably in writing," when the lawyer has not regularly represented the client. In contrast, PA R-1.5(b) mandates that the client receive written communication of the basis or rate of the fee.

The language of PA R-1.5(c) is identical to MR 1.5(c).

PA R-1.5(d) is identical to MR 1.5(d) with the exception that PA-R 1.5(d)(1) omits the particular provision of MR 1.5(d)(1) that prohibits a lawyer from entering into an arrangement for, charging or collecting a fee that is contingent upon the securing of a property settlement in a domestic relations matter.

PA R-1.5(e) omits the qualification contained in MR 1.5(e)(1) that any division of legal fees must be either in proportion to the services performed or by the assumption of joint responsibility for the representation. PA-R 1.5(e)(2) provides that division of fees is permitted if the total fee of the lawyers is not "illegal or clearly excessive," while MR 1.5(e)(3) only requires that the total fee be "reasonable."

1.5:102      Model Code Comparison

DR 2-106(A) provides that a lawyer "shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee." DR 2-106(B) states that a fee will be considered "clearly excessive" if "after a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee." The factors provided in DR 2-106(B) for determining whether a fee is reasonable are substantially identical to PA R-1.5(a), although PA-R 1.5(a) provides that the first factor to be considered is "whether the fee is fixed or contingent."

There is no counterpart to PA R-1.5(b) in the Disciplinary Rules of the Model Code. EC 2-19 states that it is "usually beneficial to reduce to writing the understanding of the parties regarding the fee, particularly when it is contingent."

There is no counterpart to PA R-1.5(c) in the Disciplinary Rules of the Model Code. EC 2-20 states that "[c]ontingent fee arrangements in civil cases have long been commonly accepted in the United States," but that "a lawyer generally should decline to accept employment on a contingent fee basis by one who is able to pay a reasonable fixed fee."

In comparison to PA R-1.5(d), DR 2-106(C) prohibits a contingent "in a criminal case", and EC 2-20 provides that "contingent fee arrangements in domestic relation cases are rarely justified."

With respect to PA R-1.5(e), DR 2-107(A) allows division of fees only if: "(1) The client consents to employment of the other lawyer after a full disclosure that a division of fees will be made. (2) The division is made in proportion to the services performed and responsibility assumed by each. (3) The total fee of the lawyers does not clearly exceed reasonable compensation."

1.5:200   A Lawyer's Claim to Compensation

Primary Pennsylvania References: PA Rule 1.5
Background References: ABA Model Rule 1.5, Other Jurisdictions
Commentary: ABA/BNA 41:101, ALI-LGL 50-54, Wolfram 9.1-9.6

1.5:210      Client-Lawyer Fee Agreements

A lawyer must clearly convey the intent of the parties when drafting the fee agreement, keeping in mind that any uncertainties in the agreement with respect to the lawyer's compensation will be construed against the lawyer as the drafter of the contract. Pa. Eth. Op. 93-201 (1994). A written fee agreement is strongly recommended to avoid or reduce unnecessary misunderstandings. PA-R 1.5 cmt.

1.5:220      A Lawyer's Fee in Absence of Agreement

In the absence of an agreement with a client regarding fees, an attorney may still seek compensation for services rendered under a theory of unjust enrichment. Watson v. City of Phila. (Commw. Ct. 1995).

1.5:230      Fees on Termination [see 1.16:600]

[The discussion of this topic has not yet been written.]

1.5:240      Fee Collection Procedures

As a general rule, a lawyer should not sue a client for nonpayment of fees. See Pa. Eth. Op. 87-77 (1987) (citing EC 2-23, which provides that attorney should avoid litigation with client over unpaid fees "unless necessary to prevent fraud or gross imposition by the client"). Instead, the use of arbitration, see 1.5:250 or mediation for fee disputes is encouraged before the lawyer resorts to litigation. See PA-R 1.5 cmt.

Under PA-R 1.8(j), see 1.8:1130, a lawyer seeking to collect unpaid fees from a client may assert an attorney's lien as a last resort. Pa. Eth. Op. 94-35 (1994); see also United States v. Fidelity Phila. Trust Co. (3d Cir. 1972). A lawyer or law firm may also hire a collection service to issue collection letters to delinquent clients. Phila. Eth. Op. 90-23 (1991) (permitting use of collection service as long as confidentiality of representation is maintained and collection service is paid on a non-contingent basis).

A lawyer should refrain from threatening a delinquent client with criminal liability unless the lawyer is suffering extreme financial hardship due to nonpayment. See Pa. Eth. Op. 87-176 (1987) (lawyer may not use threat of criminal prosecution to simply gain leverage over client and compel payment).

1.5:250      Fee Arbitration

A lawyer is encouraged to submit to fee arbitration in order to resolve a fee dispute if the fee agreement provides such a procedure. PA-R 1.5 cmt. But a provision in a fee agreement requiring mandatory arbitration of fee disputes creates pecuniary interests that are adverse to the client. Therefore, a lawyer is permitted to include such a provision in the fee agreement only if the disclosure and consent requirements of PA-R 1.8 are satisfied. Phila. B.A. Prof. Guid. Comm. Op. 88-2 (1988); (determining that client need not obtain independent counsel before agreeing to mandatory arbitration agreement). See also Phila. B.A. Prof. Guid. Comm. Op. 91-5 (1991)

1.5:260      Forfeiture of Lawyer's Compensation

In general, the client may recover fees paid to the lawyer if the lawyer's conduct violated a professional duty owed to the client. This rule stands even if the client also participated in immoral or illegal acts. Feld & Sons, Inc. v. Pechner, Dorfman, Wolfe, Rounick & Cabot (Super. Ct. 1983) (client convicted of perjury may recover fees from lawyers who advised and assisted criminal act). The purpose of the rule is two-fold: to discipline the particular lawyer, and to deter similar acts in the future. In re Eastern Sugar Antitrust Litigation (3d Cir. 1982) (stating that when ethical violation is particularly egregious, court may order return of fees paid for services rendered even before date of ethical violation).

1.5:270      Remedies and Burden of Persuasion in Fee Disputes

[The discussion of this topic has not yet been written.]

1.5:300   Attorney-Fee Awards (Fee Shifting)

Primary Pennsylvania References: PA Rule 1.5
Background References: ABA Model Rule 1.5, Other Jurisdictions
Commentary: ABA/BNA 41:301, Wolfram 16.6

1.5:310      Paying for Litigation: The American Rule

Pennsylvania follows the "American rule," which requires adverse parties in litigation to pay their own attorney's fees. Couy v. Nardei Enters. (Super. Ct. 1991). This rule is subject to few exceptions. See 1.5:330.

1.5:320      Common-Law Fee Shifting

[The discussion of this topic has not yet been written.]

1.5:330      Statutory Fee Shifting

A common law exception to the American rule, known as the common or equitable fund doctrine, has been codified in Pennsylvania at 42 Pa. Cons. Stat. 2503(8). Jones v. Muir (1986) (construing statute to codify common fund doctrine). Subdivision (8) of 2503 permits the award of attorney's fees to any participant in litigation who is awarded attorney's fees out of a fund within the court's jurisdiction pursuant to any rule relating to the award of attorney's fees from a fund within the court's jurisdiction. The common fund doctrine provides that when several people share an interest in a fund, and one or more of these people bring suit at their own cost to preserve that fund for the benefit of all, the court may exercise its equitable authority and order these people to be reimbursed for their attorney's fees from the property of the fund. Pennsylvania Ass'n of State Mental Hosp. Physicians v. State Employees' Retirement Bd. (Commw. Ct. 1984); see Couy v. Nardei Enters. (Super. Ct. 1991) (limited partners were entitled to receive attorney's fees from common fund when limited partners paid costs of arbitration that resulted in common fund and other members of partnership benefited from limited partners' efforts). The doctrine may be applied when the fund is before the court prior to litigation, or when the litigation created the assets of a fund that benefited a group of individuals "in the same manner as plaintiff." Pennsylvania Ass'n of State Mental Health Hosp. Physicians v. State Employees' Retirement Bd. (Commw. Ct. 1984) (quoting Mills v. Electric Auto-Lite Co. (U.S. 1970)).

A similar exception, referred to as the "common benefit" doctrine, authorizes the award of attorney's fees to individuals whose litigation has benefited a group or class of persons who did not participate in the litigation. The Pennsylvania Supreme Court has yet to adopt or reject the common benefit doctrine. Jones v. Muir (1986).

1.5:340      Financing Litigation [see 1.8:600]

[The discussion of this topic has not yet been written.]

1.5:400   Reasonableness of a Fee Agreement

Primary Pennsylvania References: PA Rule 1.5(a)
Background References: ABA Model Rule 1.5(a), Other Jurisdictions
Commentary: ABA/BNA 41:301, ALI-LGL 46, Wolfram 9.3.1

1.5:410      Excessive Fees

PA-R 1.5(a) proscribes "clearly excessive" fees and provides eight factors to be used when determining whether a fee is unethically high. See PA-R 1.5(a)(1)-(8); see also Feingold v. Pucello (Super. Ct. 1995) (finding proposed contingency fee of 50% of recovery "breathtakingly high"). The court may exercise its equitable power to reduce the amount of fees charged when its determines that the fees are "blatantly unreasonable." PNC Bank v. Bolus (Super. Ct. 1995) (reducing fee charge of over $70,000 for filing one document with prothonotary to confess judgment on note).

1.5:420      "Retainer Fees:" Advance Payment, Engagement Fee, or Lump-Sum Fee

A "retainer" may refer to a payment that the lawyer (1) will hold and credit against legal costs that are incurred; (2) considers a "minimum fee" to be credited against legal services that are provided, but will also not be refunded if legal services are not rendered; and (3) expects to be an engagement fee that is "non-refundable" regardless of whether the lawyer performs legal services. Pa. Eth. Op. 95-100 (1995).

With respect to the advance payment retainer fee, the lawyer must return any portion that remains unearned after services are performed. PA-R 1.5 cmt. Because the Rules do not provide a clear position otherwise, there is no general prohibition against the deposit of an advance payment retainer fee into the lawyer's operating account. Rather, the "appropriate inquiry should be the expectations of the parties" when determining whether the lawyer should have placed the advance fee in escrow instead. Thus, a lawyer may deposit the advance fee in the lawyer's operating account if the client is provided with a written statement pursuant to PA-R 1.5(b) or a written agreement that discloses to the client how the fee will be held. Pa. Eth. Op. 95-100 (1995).

Similarly, absent a written statement satisfying PA-R 1.5(b) or a written agreement stating that the minimum fee is non-refundable, a minimum fee is treated as an advance payment retainer fee with respect to payment and deposit. Pa. Eth. Op. 95-100 (1995).

PA-R 1.5 does not contain an express prohibition of a "non-refundable" retainer. As a fee agreement, however, such a retainer may not be "illegal or clearly excessive" under PA-R 1.5(a). See Pa. Eth. Op. 95-100 (1995) (suggesting that, under certain circumstances, portion of non-refundable retainer must be returned to client to prevent retainer from being considered "clearly excessive" under PA-R 1.5(a)); see also Pa. Eth. Op. 93-201 (1994) (non-refundable retainer may be considered unreasonable fee if client terminates relationship before services are fully rendered). The lawyer must provide the client with a clear, written statement if the lawyer plans to deposit the non-refundable retainer in the lawyer's general operating account, rather than in escrow. Pa. Eth. Op. 95-100 (1995).

1.5:430      Nonrefundable Fees

[The discussion of this topic has not yet been written.]

1.5:500   Communication Regarding Fees

Primary Pennsylvania References: PA Rule 1.5(b)
Background References: ABA Model Rule 1.5(b), Other Jurisdictions
Commentary: ABA/BNA 41:101, ALI-LGL 50, Wolfram 9.2.1

PA-R 1.5(b) requires that a client who has not been regularly represented by a lawyer receive from that lawyer a written statement regarding the basis or rate of the fee that will be charged. See In re Anon. No. 103 D.B. 90 (Disp. Bd. 1992) (placing attorney on two months probation for, among other violations, failing to set forth basis for fee of over $2,500, the unearned portion of which client sought to regain); In re Anon. No. 32 D.B. 90 (Disp. Bd. 1991) (issuing informal admonition against attorney who failed to provide new client with written communication regarding basis of $500 fee); Phila. B.A. Guid. Comm. Op. 91-15 (1991) (advising attorneys who sought to establish "900" number for answering legal questions that they must provide clear language designating fee to be charged for service in order to comply with PA-R 1.5(b)). An attorney who fails to provide the basis or rate of the fee in writing before or within a reasonable time after beginning representation may be precluded from seeking recovery for services rendered to the client under a quantum meruit theory after client rejects the product of the services. Feingold v. Pucello (Super. Ct. 1995) (refusing to allow attorney to seek restitution for services provided for client when alleged contingency fee was oral and client rejected fee and work product).

1.5:600   Contingent Fees

Primary Pennsylvania References: PA Rule 1.5(c)
Background References: ABA Model Rule 1.5(c), Other Jurisdictions
Commentary: ABA/BNA 41:901, ALI-LGL 46, 47, Wolfram 9.4

The court will scrutinize a contingent fee agreement more carefully than a noncontingent agreement to insure that the contingent fee is reasonable and to prevent the attorney from taking "unfair advantage" of the client. Miernicki v. Seltzer (Super. Ct. 1983), aff'd (1984); see also Estate of Murray v. Love (Super. Ct. 1992) (stating that court has ability under Pa. R. Civ. Pro. 2206(c) to approve or fix contingent fee agreements payable out of minor's share of wrongful death settlement). PA-R 1.5(c) provides the minimum elements of permissible contingent fee agreement. In general, a contingent fee must be determined from the amount of actual recovery by the client and not from the amount of verdict rendered. Miernicki v. Seltzer (Super. Ct. 1983) (citing supporting cases; holding that lawyer can only recover 10% contingent fee from amount client received rather than from entire verdict), aff'd (1984). Under certain circumstances, the lawyer may choose to offer a "reverse" contingency fee agreement that obligates the client to pay a percentage of the amount that the client saved as a result of the lawyer's services. See Pa. Eth. Op. 93-204 (1993) (discussing contingent fee charging percentage of amount lawyer saves client in tax appeal).

In the personal injury contingent fee context, the lawyer may not take as additional payment any amounts representing counsel fees sanctions from the opposing party that the client received by order of the court. Phila. B.A. Prof. Guid. Comm. Op. 95-14 (1995) (finding that lawyer cannot go beyond contingent fee agreement, which only provides for payment of percentage of client's recovery).

A fee agreement that fixes a final fee based upon the value of the services performed is not a contingent fee and, therefore, need not always be in writing. Eckell v. Wilson (Super. Ct. 1991) (finding that fee lacks risk associated with contingent fee where attorney will not receive payment unless litigation is successful).

1.5:610      Special Requirements Concerning Contingent Fees

[The discussion of this topic has not yet been written.]

1.5:620      Quantum Meruit in Contingent Fee Cases

[The discussion of this topic has not yet been written.]

1.5:700   Unlawful Fees

Primary Pennsylvania References: PA Rule 1.5(d)
Background References: ABA Model Rule 1.5(d), Other Jurisdictions
Commentary: ABA/BNA 41:901, ALI-LGL 48, Wolfram 9.3.2; 9.4

1.5:710      Contingent Fees in Criminal Cases

PA-R 1.5(d)(2) prohibits a lawyer from representing a criminal defendant in criminal case on a contingent fee basis. See Commonwealth v. Little (Super. Ct. 1992) (allowing attorney to withdraw from representation of criminal defendant who insisted upon contingent fee agreement). Civil litigation and administrative proceedings related to the criminal case are typically not subject to this prohibition. See Pa. Eth. Op. 92-183 (1993) (permitting representation on contingent basis in habeas corpus proceedings); Pa. Eth. Op. 92-76 (1992) (permitting representation on contingent basis in tax appeal where criminal charges have only been threatened). But see Pa. Eth. Op. 89-174 (undated) (prohibiting representation on contingent basis in civil forfeiture proceeding because such proceeding is criminal in character).

1.5:720      Contingent Fees in Domestic Relations Matters

Under PA-R 1.5(d)(1), a lawyer may not charge a contingent fee in a domestic relations matter where the client seeks to obtain a divorce or determine the amount of alimony or support. See Pa. Eth. Op. 94-05A (1994) (prohibiting attorney from representing client in support or alimony case on contingent fee basis where arrearage continues to accumulate); Phila. B.A. Prof. Guid. Comm. Op. 94-13 (1994) (approving representation of client seeking spousal and child support where fee agreement provides that client must pay fee irrespective of whether support payments are obtained); Phila. B.A. Prof. Guid. Comm. Op. 90-15 (1990) (allowing attorney to defer receipt of fee until equitable distribution claim is concluded as long as fee agreement provides that fee is due regardless of result); see also Damiano v. Damiano (Super Ct. 1988) (holding that law firm representing former wife in support claim may not receive contingent fee payment from arrearage that husband must pay to state agency). Representation on a contingent basis in other domestic relations matters is not forbidden by the plain language of the rule. See Pa. Eth. Op. 94-05B (1994) (approving representation of client on contingent fee basis in equitable distribution case); Pa. Eth. Op. 89-118 (undated) (permitting attorney to charge client contingent fee when engaged to challenge prenuptial agreement).

1.5:730      Other Illegal Fees in Pennsylvania

[The discussion of this topic has not yet been written.]

1.5:800   Fee Splitting (Referral Fees)

Primary Pennsylvania References: PA Rule 1.5(e)
Background References: ABA Model Rule 1.5(e), Other Jurisdictions
Commentary: ABA/BNA 41:701, ALI-LGL 59, Wolfram 9.24

PA-R 1.5(e) provides the requirements that two lawyers must meet when deciding to enter into a fee-splitting or referral agreement. See Pa. Eth. Op. 90-139 (1990) (stating that although rule requires that lawyer obtain client's consent to fee splitting agreement, lawyer is not obligated to explain details of agreement to client); Phila. Bar Ass'n Prof. Guidance Comm. Op. 92-1 (1992) (approving payment of referral fee to estate of lawyer who referred clients during his lifetime as long as client consents and total fee is not excessive); Phila. Bar Ass'n Prof. Guidance Comm. Op. 87-24 (1988) (cautioning lawyer to avoid "clearly excessive" fees if lawyer enters into employment agreement with firm and agreement contains provision that lawyer must pay firm 50% of fees earned by lawyer if lawyer leaves firm and firm's clients retain lawyer). But Pennsylvania law may also prohibit fee splitting with a lawyer who has violated an ethical rule, and a lawyer may not split a fee with a nonpracticing lawyer or a nonlawyer. See In re Eastern Sugar Antitrust Litigation (3d Cir. 1982) (prohibiting splitting of fee with law firm that engaged in conduct violating Canon 9 of Code of Professional Responsibility); Office of Disciplinary Counsel v. Jackson (1994) (ordering private reprimand of attorney who split fee with suspended attorney); see also 5.4:200. A disbarred or suspended attorney may receive a percentage of a fee pursuant to a referral agreement or services rendered before disbarment or suspension. Phila. B.A. Prof. Guid. Comm. Op. 89-26 (1989); see Phila. B.A. Prof. Guid. Comm. Op. 93-3 (1993) (authorizing payment of referral fee to lawyer who is either prosecuted or convicted of criminal charges and/or disbarred or sanctioned for ethical violations as long as referring lawyer was "in good standing" when referral was made and requirements of PA-R 1.5(e) are met). PA-R 1.5(e) does not apply to the division of fees among current partners in a law firm. See Phila. B.A. Prof. Guid. Comm. Op. 92-19 (1992) (permitting sharing of fees among partners in law firm even though not all attorneys in firm are licensed to practice in Pennsylvania).

A lawyer seeking to sell his or her practice must consider the disclosure and consent requirements of PA-R 1.5(e)(1) if the lawyer plans to split fees temporarily with the lawyer who buys the practice. See Phila. B.A. Prof. Guid. Comm. Op. 96-1 (1996) (approving sale of practice to another lawyer with condition that selling lawyer receive percentage of fees received by purchasing lawyer from selling lawyer's former clients over five-year period). Similarly, the two new firms that result from the dissolution of a parent firm must comply with PA-R 1.5(e)(1) if the firms plan to split fees for work completed before the dissolution. Phila. B.A. Prof. Guid. Comm. Op. 89-28 (1990).