Kevin McGoff Discusses Flat Fee Arrangements and the Crucial Role of Communication
A recent Indiana State Bar Association Legal Ethics Committee opinion says lawyers who charge clients flat fees considered earned on receipt shouldn’t deposit the fees in their Interest on Lawyer Trust Account (IOLTA), but should put the money in the firm’s operating account. Some lawyers aren’t convinced this makes sense, according to the Indiana Lawyer.
“I see pretty bright lines, personally,” said Kevin P. McGoff, Bingham Greenebaum Doll LLP general counsel and Professional Liability Team leader. McGoff, who also serves on the ISBA Legal Ethics Committee, said the Supreme Court has encouraged flat fee arrangements between lawyers and clients as a way to bring certainty to legal costs. The ethics opinion stresses the crucial role of clear communication about the fee agreement.
“The simplest way to look at it in my view is if you’re charging a flat fee to a client for services, you need to state that in a consent letter,” McGoff said, in which case the fee should be deposited in the firm’s operating account. This is contrary to the handling of retainer fees paid in advance, which must be deposited in IOLTA and transferred to operating accounts after they are earned and billed to the client.
McGoff said there are instances in which a lawyer may charge a flat fee for a matter, but also reserve some funds. For example, there could be a scenario in which a client in a criminal case agrees to pay a lawyer $10,000 if a case goes to trial, but agrees to a $5,000 flat fee if the case is resolved with a plea. In that instance, if the client paid $10,000 upfront, $5,000 would be held in IOLTA and refunded to the client if a plea was accepted. The key is clarifying the terms in the contract for services.
“It can be a good narrative with the client,” McGoff said of clarifying the details of fee agreements.