American Bar ethics opinion: Fee change must be ‘reasonable’

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By Pat Murphy
Dolan Newswires

A lawyer must be prepared to show that modifications to the terms of an existing fee agreement were reasonable at the time changes were made, according to an American Bar Association ethics opinion.

Modifications to existing fee agreements are usually suspect because of the fiduciary nature of the attorney-client relationship.

Under Rule 1.5(b) of the ABA Model Rules of Professional Conduct, “[a]ny changes in the basis or rate of the fee or expenses shall also be communicated to the client.”

However, the ABA Standing Committee on Ethics and Professional Responsibility concluded that other professional rules impose additional duties on lawyers when modifying fee agreements, particularly those rules prohibiting “unreasonable fees” and requiring the communication of the terms of representation to the client.

Accordingly, in its opinion, the committee advised that “the lawyer must show that any modification was reasonable under the circumstances at the time of the modification as well as communicated to and accepted by the client.”

Regarding rate increases, the committee said that “[p]eriodic, incremental increases in a lawyer’s regular hourly billing rates are generally permissible if such practice is communicated clearly to and accepted by the client at the commencement of the client-lawyer relationship and any periodic increases are reasonable under the circumstances.”

But the committee warned that modifications “that change the basic nature of a fee arrangement or significantly increase the lawyer’s compensation absent an unanticipated change in circumstances ordinarily will be unreasonable.”

In addition, the committee explained that changes in fee arrangements that involve a lawyer acquiring an interest in the client’s business, real estate or other property would ordinarily require compliance with Rule 1.8(a), the general rule regarding business transactions with clients.