TRUST ACCOUNT RULES. What You Should Know About Fee Agreements and Setting Up Trust Accounts. Sara Rittman Rittman Law, LLC Jefferson City, MO 65101

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1 What You Should Know About Fee Agreements and Setting Up Trust Accounts Stepping Up & Stepping Out The New Lawyer Experience 2015 Sara Rittman Rittman Law, LLC Jefferson City, MO TRUST ACCOUNTS TRUST ACCOUNT RULES Major revisions to the trust account rules became effective 7/1/13. Many of the changes to Rule involve reorganization. Rule was divided into four separate rules. Rule continues to contain the primary rules related to attorneys obligations. Rule deals primarily with definitions. Rule has many of the requirements for financial institutions and overdraft reporting. The file retention portions of the rule have been moved to Rule Additional information about the changes is available at: A recently revised Trust Account Handbook is available at SAFEKEEPING PROPERTY (a) A lawyer shall hold property of clients or third persons that is in a lawyer's possession in connection with a representation separate from the lawyer's own property. Client or third party funds shall be kept in a separate account designated as a "Client Trust Account" or words of similar import maintained in the state where the lawyer's office is situated or elsewhere if the client or third person consents. (1) Every client trust account shall be either an IOLTA account, non-iolta trust account, or exempt trust account. No earnings from an IOLTA account, a non-iolta trust account, or exempt trust account shall be made available to any lawyer or law firm, nor shall any lawyer or law firm have a right or claim to such earnings. Other property shall be identified as such and appropriately safeguarded. (2) A client trust account, whether IOLTA, non-iolta, or exempt must be in an approved institution. Every lawyer practicing or admitted to practice in this jurisdiction, as a condition thereof, shall be conclusively deemed to have consented to the overdraft reporting and production requirements mandated by the regulations adopted by the advisory committee. (3) Only a lawyer admitted to practice law in this jurisdiction or a person under the direct supervision of the lawyer shall be an authorized signatory or authorize transfers from a client trust account; Stepping Up & Stepping Out Trust Accounts & Fees Page 1 of 40

2 (4) Receipts shall be deposited intact and records of deposit shall be sufficiently detailed to identify each item; (5) Withdrawals shall be made only by check payable to a named payee, and not to cash, or by authorized electronic transfer; and (6) No disbursement shall be made based upon a deposit: (A) if the lawyer has reasonable cause to believe the funds have not actually been collected by the financial institution in which the trust account is held; and (B) until a reasonable period of time has passed for the funds to be actually collected by the financial institution in which the trust account is held. (7) A reconciliation of the account shall be performed reasonably promptly each time an official statement from the financial institution is provided or available. (b) A lawyer may deposit the lawyer's own funds in a client trust account for the sole purpose of paying bank service charges on that account, but only in an amount necessary for that purpose. (c) A lawyer shall deposit into a client trust account legal fees and expenses that have been paid in advance, to be withdrawn by the lawyer only as fees are earned or expenses incurred. (d) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as provided in Rules to or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property. (e) When in the course of representation a lawyer is in possession of property in which two or more persons (one of whom may be the lawyer) claim interests, the lawyer shall keep the property separate until the dispute is resolved. The lawyer shall promptly distribute all portions of the property as to which the interests are not in dispute. Lawyers shall cooperate as necessary to enable distribution of funds that are not in dispute. (f) Complete records of client trust accounts shall be maintained and preserved for a period of at least five years after termination of the representation or after the date of the last disbursement of funds, whichever is later. Records may be maintained by electronic, photographic, or other media provided that they otherwise comply with Rules to and that printed copies can be produced. These records shall be readily accessible to the lawyer. Stepping Up & Stepping Out Trust Accounts & Fees Page 2 of 40

3 Upon dissolution of a law firm or of any legal professional corporation, the partners shall make reasonable arrangements for the maintenance of client trust account records. Upon the sale of a law practice, the seller shall make reasonable arrangements for the maintenance of records. Complete records shall include at a minimum: (1) receipt and disbursement journals containing a record of deposits to and withdrawals from client trust accounts, specifically identifying the date, source, and description of each item deposited as well as the date, payee, and purpose of each disbursement; (2) ledger records for all client trust accounts showing, for each separate trust client or beneficiary, the source of all funds deposited, the names of all persons for whom the funds are or were held, the amount of such funds, the descriptions and amounts of charges or withdrawals, and the names of all persons or entities to whom such funds were disbursed; (3) fee agreements, engagement letters, retainer agreements and compensation agreements with clients; (4) accountings to clients or third persons showing the disbursement of funds to them or on their behalf; (5) bills for legal fees and expenses rendered to clients; (6) records showing disbursements on behalf of clients; (7) the physical or electronic equivalents of all checkbook registers, bank statements, records of deposit, pre-numbered canceled checks, and substitute checks provided by a financial institution; (8) records of all electronic transfers from client trust accounts, including the name of the person authorizing transfer, the date of transfer, the name of the recipient and confirmation from the financial institution of the trust account number from which money was withdrawn and the date and the time the transfer was completed; (9) reconciliations of the client trust accounts maintained by the lawyer; (10) those portions of client files that are reasonably related to client trust account transactions; and (11) records of credit card transactions with clients to the extent permitted by law and the payment card industry data security standard. (g) Unless exempt as provided in Rule (a)(6) or all of the lawyer's trust accounts are non- IOLTA trust accounts, a lawyer or law firm shall establish and maintain one or more IOLTA accounts into which shall be deposited all funds of clients or third persons in compliance with the provisions in Rules to Stepping Up & Stepping Out Trust Accounts & Fees Page 3 of 40

4 (h) Every lawyer shall certify in connection with this Court's annual enrollment statement the financial institutions in which the lawyer has one or more trust accounts and that the lawyer or the law firm with which the lawyer is associated either maintains an IOLTA account with an eligible and approved institution or is exempt because the: (1) lawyer is not engaged in the practice of law; (2) nature of the lawyer's or law firm's practice is such that the lawyer or law firm does not hold client or third party funds; (3) lawyer is primarily engaged in the practice of law in another jurisdiction and not regularly engaged in the practice of law in this state; (4) lawyer is associated in a law firm with at least one lawyer who is admitted to practice and maintains an office in a jurisdiction other than the state of Missouri and the lawyer or law firm maintains a pooled trust account for the deposit of funds of clients or third persons in a financial institution located in such other jurisdiction and any interest or dividends, net of any service charges and fees, from the account is being remitted to the client or third person who owns the funds or to a nonprofit organization or government agency pursuant to the laws or rules governing lawyer conduct of the jurisdiction in which the financial institution is located; or (5) The lawyer maintains an exempt account. STEPS TO SET UP A TRUST ACCOUNT STEP 1 STEP 2 REVIEW THE RULE IOLTA OR NON-IOLTA (a)(3) FACTORS COST/BENEFIT ANALYSIS STEP 3 NOTIFY IOLTA IOLTA GET FORMS FROM IOLTA AND LIST OF BANKS From To open an IOLTA account(s): Stepping Up & Stepping Out Trust Accounts & Fees Page 4 of 40

5 -- download the Notice to Financial Institution and W-9 form -- take the forms to an approved financial institution to open an account(s) -- verify that the Tax Identification Number attached to the new account(s) matches the number on the W-9 form -- when the account(s) is opened, return the completed Notice form to the Foundation at the address or fax listed on the form. To file information to verify your compliance with Supreme Court rules related to trust accounting: -- complete the Trust Account Certification Form and return it to the Foundation at the address or fax listed on the form. Checklist for IOLTA account holders Ensure IOLTA account(s) is structured as interest-bearing Verify account(s) is placed in an approved financial institution (see Financial Institutions ) The Tax Identification Number on all IOLTA accounts should be , the number for the Missouri Lawyer Trust Account Foundation ( MLTAF ) All IOLTA account information is provided to MLTAF through the attorney enrollment Mandatory Trust Account Certification process Any subsequent changes to trust account information is timely reported to the Foundation at (573) Should you have any questions about IOLTA accounts or the Missouri Lawyer Trust Account Foundation, please call the Foundation office at (573) , or mltaf@moiolta.org. STEP 4 SET UP ACCOUNT(S) ALL TRUST ACCOUNTS MUST: o BE AT AN APPROVED FINANCIAL INSTITUTION APPROVED: ELIGIBLE AGREES TO REPORT OVERDRAFTS TO OCDC o BE INSURED Stepping Up & Stepping Out Trust Accounts & Fees Page 5 of 40

6 o BE DESIGNATED AS A CLIENT TRUST ACCOUNT OR WORDS OF SIMILAR IMPORT IF IOLTA: TITLED W/ MO LAWYER TRUST ACCOUNT FOUNDATION AS FIRST OWNER, THEN LAWYER OR FIRM NAME ACCOUNT USES FOUNDATION S TAX ID FOUNDATION S NAME MUST BE ON ACCOUNT, BUT NEED NOT BE ON CHECKS TYPE OF ACCOUNT CHECKING SAVINGS STEP 5 SET UP RECORD KEEPING SYSTEM MANUAL COMPUTERIZED If you will be using QuickBooks, I recommend that you get one of these books and study it before setting up the account in QuickBooks: Law Practice Accounting Using QuickBooks -- QuickBooks Version: 2012 or Earlier Purchase from: QuickBooks in One Hour for Lawyers By Lynette Benton Purchase from the ABA at: STEP 6 USE ACCOUNT DEPOSIT FUNDS OF OTHERS SETTLEMENTS ESCROW TYPE FUNDS ADVANCE EXPENSE PAYMENTS Stepping Up & Stepping Out Trust Accounts & Fees Page 6 of 40

7 DEPOSIT UNEARNED FEES DISBURSE ADVANCE FEE DEPOSIT NON-REFUNDABLE FEE (Does not ethically exist in MO) MINIMUM FEE FLAT FEE CONTINGENT FEE BEFORE FINAL STATEMENT TO CLIENT EARNED FEES, REASONABLY PROMPTLY, AFTER NOTICE TO CLIENT FUNDS DUE CLIENTS & THIRD PARTIES PAYMENTS FOR WHICH FUNDS ARE HELD (EXPENSES, MEDICAL PROVIDERS, ETC.) DO DISBURSE FUNDS PROMPTLY TIPS DON T DISBURSE FUNDS UNTIL YOU KNOW THEY ARE IN THE ACCOUNT (DEPOSIT IS COLLECTED OR GOOD FUNDS) DO KEEP TRUST ACCOUNT RECORDS SEPARATE DIFFERENT LOCATION DIFFERENT COLOR/STYLE CHECKS DON T KEEP YOUR OWN FUNDS IN THE TRUST ACCOUNT DON T PAY PERSONAL OR OFFICE EXPENSES WITH A TRUST ACCOUNT CHECK EVEN IF IT IS USING EARNED MONEY DON T DO ANYTHING WITH THE TRUST ACCOUNT BASED ON MEMORY OR GUESSING CHECK YOUR RECORDS! Stepping Up & Stepping Out Trust Accounts & Fees Page 7 of 40

8 DON T WITHDRAW FUNDS FROM THE TRUST ACCOUNT AS A CASH WITHDRAWAL OR BY A CHECK WRITTEN TO CASH DO RECONCILE THE ACCOUNT MONTHLY OCDC EXPECTS 3 WAY RECONCILIATION INCLUDING LEDGERS DO HAVE PROPER CONTROLS ON THE ACCOUNT TO PREVENT UNAUTHORIZED USAGE. YOU ARE RESPONSIBLE! DO RETAIN RECORDS FOR 5 YEARS AFTER TERMINATION OF THE REPRESENTATION DO STUDY THE RULE TO MAKE SURE YOU ARE RETAINING ALL OF THE RECORDS THAT MUST BE RETAINED Trust Account Misconceptions Misconception 1: It is permissible to keep a cushion of firm funds or your own funds in your trust account. Truth: Rule (e) provides: A lawyer may deposit the lawyer's own funds in a client trust account for the sole purpose of paying bank service charges on that account, but only in an amount necessary for that purpose. Therefore, you should only have your own money in the account in amount necessary to pay bank service charges. It is not permissible to keep a minimum balance of your own money in your trust account. Bank service charges should be relatively small in amount and should be something that you can anticipate. Ideally, you would make arrangements with your bank to withdraw all of these charges from your operating account so there would be no need to keep any of your own funds in the trust account. If your bank indicates that you must keep a minimum balance in your IOLTA account, contact the IOLTA office at to see if they can assist you in working this out with your bank. Misconception 2: It is permissible to leave earned funds in your trust account indefinitely. Truth: In order to avoid commingling, your funds must be disbursed from the account promptly. For an hourly billing situation, this usually means that earned funds will be disbursed on a monthly billing cycle. However, this cycle or interval could vary, depending on the type of fee arrangement. Misconception 3: It is permissible to write a check directly from the trust account for firm or personal expenses, as long as the check is based on funds that belong to you or your firm. Stepping Up & Stepping Out Trust Accounts & Fees Page 8 of 40

9 Truth: This is another form of commingling. In re Coleman, 295 S.W.3d 857, 866 (Mo. banc 2009) states: While it may be true that Mr. Coleman did not misuse funds by using client funds to pay personal bills or convert any client funds, he did use his IOLTA account for personal use. [Footnote omitted]. That is strictly prohibited. Misconception 4: It is not necessary to reconcile the trust account each time a statement is received from the bank, as long as the account is not overdrawn. Truth: There is no way to ensure that funds are being handled properly without reconciling the account when a new statement is received. Rule (a)(7) requires that a reconciliation be performed promptly each time an official statement is available. Misconception 5: It is permissible to have insufficient funds to cover a check or other debit from the trust account, as long as the account has overdraft protection. Truth: Banks are required to report all insufficient funds situations involving trust accounts to OCDC, regardless of whether the item was paid. Absent a bank error, there should not be an insufficient funds situation on a trust account. Misconception 6: It is only necessary to wait until the funds from a deposit show up as available or cleared on the trust account to disburse funds based on that deposit. Truth: Rule (a)(6) prohibits disbursement until a reasonable period of time has passed for the funds to be actually collected by the bank. The bank is required to make the funds available through a provisional credit, within a short time after deposit. However, this provisional credit is subject to reversal. The best idea is to discuss this issue with a knowledgeable person in a position of authority within your bank. Ask what is a reasonable time for a deposit to be collected or good funds, when there is nothing unusual about the deposit. You must use this terminology because it has a specific meaning in banking law. If you ask when the funds are available or cleared, you will not get the information you need. Two other ways to make sure it is safe to disburse funds based on a deposit include having the deposit made by wire transfer and sending the deposit for collection. Both of these will require working with the bank and will probably involve a fee for you, if you send it for collection, or the party wiring the funds. Misconception 7: All trust accounts are IOLTA accounts. Truth: The trust account should only be an IOLTA account if the funds are small enough in amount or will be held for a short enough period that the costs of establishing a separate, interestbearing account will outweigh the earnings. In other words, it is a cost/benefit analysis. If the income will outweigh the costs, the account must be a separate account, with the interest going to the client or third party for whom you are holding the funds. Stepping Up & Stepping Out Trust Accounts & Fees Page 9 of 40

10 This analysis may yield different conclusions at different times. For example, it will be less likely to be worthwhile to establish a separate account if the available interest rate is 1% than if it is 5%. As a result, the rule provides that this analysis rests in your sound judgment and you will not be subject to discipline for exercising your judgment in good faith. The relevant provisions are found in Rule (a): (2) a lawyer or law firm shall deposit in an IOLTA account all funds of clients and third persons from whom no income could be earned for the client or third person in excess of the costs incurred to secure such income, and all other client or third person funds shall be deposited into a non-iolta trust account; (3) in determining whether client or third person funds should be deposited in an IOLTA account or non-iolta trust account, a lawyer shall take into consideration the following factors:. (A) the amount of interest that the funds would earn during the period they are expected to be deposited; (B) the cost of establishing and administering a noniolta trust account for the benefit of the client or third person, including the cost of the lawyer's services and the cost of preparing any tax reports required for interest accruing to the benefit of a client or third person; (C) the capability of financial institutions or lawyers or law firms to calculate and pay interest to individual clients or third persons; (D) any other circumstance that affects the ability of the client or third person funds to earn income in excess of the costs incurred to secure such income for the client or third person; (4) the determination of whether the funds of a client or third person can earn income in excess of costs as provided in Rule (c)(3) shall rest in the sound judgment of the lawyer or law firm, and no lawyer shall be charged with an ethical impropriety or breach of professional conduct based on the good faith exercise of such judgment; (5) the lawyer or law firm shall review the account at reasonable intervals to determine if changed circumstances require further action with respect to the funds of any client or third person; and. Misconception 8: Formal Opinion 128 means that flat fees are no longer allowed or that attorneys with flat fee agreements must keep track of hours. Truth: This is completely false. However, flat fees, just like any other fee, must be placed in the trust account until the portion of the fee withdrawn is earned. Various methods may be used to determine when the fee has been earned. Hours worked would be one approach but stages or benchmarks met is another acceptable approach. Most flat fee cases will have various stages that can trigger a sweep of fees from the trust account. These stages need not be stages in court, but they may be. For example, requesting a recommendation on a traffic ticket could be considered a stage although nothing formal occurs in court, at that point. Filing an Answer or Entry of Appearance could also be a stage. The key is that the amount withdrawn must reasonably equate to the value provided, in relation to the entire Stepping Up & Stepping Out Trust Accounts & Fees Page 10 of 40

11 representation covered by the fee agreement. In addition, the client must be notified of the withdrawal to have an opportunity to dispute it. This notification can also take various forms. If you address the stages and the portion to be withdrawn in your fee agreement, you can simply notify the client that that stage has occurred. If the stages are not addressed in your fee agreement, you will need to notify the client that the stage has occurred and the amount or percentage you will be withdrawing. Excerpts from In re Coleman, 295 S.W.3d 857 (Mo. banc 2009): OCDC discovered that Mr. Coleman regularly deposited checks for settlement proceeds into his IOLTA account. When a settlement check cleared the bank, it was Mr. Coleman's practice to pay out the client's share of the settlement proceeds to the client. Once his clients were paid, Mr. Coleman sometimes would leave his share of the settlement proceeds in the account and write checks to pay personal obligations directly out of the IOLTA account. Mr. Coleman did not keep records or ledgers identifying deposits into the account. OCDC amended its previously filed information to add an additional count, alleging that Mr. Coleman mishandled his IOLTA account by failing to hold client and third-party property separate from his own property. * * * * Mr. Coleman further admits that he wrote personal checks out of his IOLTA account. The bank records of that account establish that personal checks were written by Mr. Coleman at a time when a client's funds were in the account. These facts are sufficient to establish that Mr. Coleman violated Rules 4-1.2, 4-1.7, , , and * * * * Violation of Rule Rule (c) states: A lawyer shall hold property of clients or third persons that is in a lawyer's possession in connection with a representation separate from the lawyer's own property. Client or third party funds shall be kept in a separate account[.] FN7 Mr. Coleman violated this rule. He admits that, from January to July 2008, he regularly deposited settlement proceeds into his IOLTA account for the purpose of allowing the settlement checks to clear. Mr. Coleman acknowledges that, after each check cleared, he paid the client the client's portion of the settlement. He then regularly paid personal obligations out of his portion of settlement proceeds that remained in his IOLTA account. Mr. Coleman argues this was not a violation of Rule because there are no other funds in his IOLTA account, except [Mr. Coleman's]. Mr. Coleman misunderstands Rule (c). Rule (c) explicitly states that there must be an account for client and third-party funds that is kept separate from any account holding an attorney's own funds. While it may be true that Mr. Coleman did not misuse funds by using client funds to pay personal bills or convert any client funds, he did use his IOLTA account for personal use. FN8 That is strictly prohibited. Rule , Comment 1. Commingling personal and client funds is only permissible when necessary to pay bank service charges on [the IOLTA] account. Rule , Comment 2. Any funds owed to Mr. Coleman Stepping Up & Stepping Out Trust Accounts & Fees Page 11 of 40

12 should have been transferred into a personal account before the money was withdrawn via a check. Contrary to Mr. Coleman's argument that there were never client funds in the account when he wrote personal checks, records from his bank show that, during the time he kept his personal funds in the IOLTA account and wrote personal checks to expend the funds, there were client funds in the account. This is a classic example of prohibited commingling of attorney and client funds. Additionally, accurate records must be kept regarding which part of the funds is the lawyer's. Rule , Comment 2. When questioned about the identity of the owner of specific deposits, Mr. Coleman was unable to say to whom the money belonged. Excerpts from In re Farris, --- S.W.3d WL (Mo. banc 2015): B. Farris Cannot Avoid Responsibility by Blaming his Ex-Wife Farris does not deny that he was obligated to hold $93,000 in trust for these clients and their medical creditors. Nor does he deny that this money was transferred in his name to his office operating account, where it was spent for his benefit. Nevertheless, Farris insists that he committed no misconduct and violated no Rules because all of this was his ex-wife s fault. Farris claims that his then-wife took over and controlled the administrative, financial and accounting matters of the office. Resp. Br. at 8. He testified to the DHP that he shouldn t have trusted a spouse who turned out to be a thief, that he made a mistake of trusting a thieving spouse, and that this is merely a case of an attorney who was taken advantage of by his thieving spouse that caused this problem. The evidence tells a different story. * * * * Not only is Farris argument refuted by the facts, it also is immaterial. Farris is not insulated from discipline so long as he authorizes someone else to make the improper transfers and expenditures instead of doing them himself. Nor is Farris insulated as long as he stays ignorant of the improper nature of each transfer or expenditure at the precise moment it occurs. Under Rule , Farris is accountable for the misappropriation of client funds whether he physically makes the transfers and expenditures himself or his wife makes them with his authorization and for his benefit. The duty to safeguard and properly distribute trust account funds is nondelegable. If an attorney relies on a non-lawyer in fulfilling this duty, the attorney bears the risk of the other s non-performance. Matter of Williams, 711 S.W.2d 518, 520 (Mo. banc 1986). Accordingly, regardless of whether Farris ex-wife misused the authority Farris had given her, Farris alone is responsible for fulfilling the obligations and responsibilities imposed upon him by the Rules. C. Farris Cannot Avoid Responsibility by Failing to Keep Records Even though Farris attempt to blame his ex-wife fails because the evidence shows he knew he had misappropriated his clients money, his defense raises a more significant issue. Rule (d) 14 requires each attorney to keep detailed records showing, among many other things, the source of every deposit to and the purpose of every disbursement from that attorney s trust account. These records must also show, for each separate client or trust beneficiary, the source of Stepping Up & Stepping Out Trust Accounts & Fees Page 12 of 40

13 all funds deposited, the identity of the client or third person for whom the attorney is holding those funds, and the date, payee and purpose of each disbursement of those funds. No attorney who has complied with Rule (d) can claim, as Farris does, that he did not know someone he had authorized to make transfers from his trust account was doing so improperly. Such a claim would be refuted both by the existence of the Rule (d) records and the fact that the attorney kept them. Thus, one of the twin purposes of Rule (d) is to ensure that an attorney always knows what money is being moved into or out of the trust account and why. The other purpose of Rule (d) is to ensure that, if a problem arises with an attorney s trust account, the OCDC and this Court are not forced to depend on the attorney s self-serving memory and claims that he did not know. 14 This provision is now found at Rule (f). The Court abandons the purposes of Rule (d) if it allows a lawyer s failure to maintain the required records to work to that attorney s benefit. To avoid this result, the failure to comply with Rule (d) must give rise to an inference of knowledge, particularly when the attorney tries to defend a charge of misappropriating trust account funds on grounds that the required documents plainly would support or refute had the attorney kept them. * * * * To be clear, disbarment is not automatic. See In re Belz, 258 S.W.3d at 43 ( Disbarment is most often appropriate in misappropriation cases, but this Court will nonetheless consider the presence of aggravating and mitigating factors in each case when assessing the appropriate punishment. ). However, disbarment constitutes the baseline sanction for misappropriation. Id. at 42. See also Matter of Mendell, 693 S.W.2d 76, 78 (Mo. banc 1985) ( We follow our recent cases holding that an appropriate remedy for willful conversion or misappropriation of client s funds is disbarment. ); In re Fenlon, 775 S.W.2d at 142 ( It is always grounds for disbarment when an attorney has misappropriated the funds of his client, either by failing to pay over money collected by him for his client or by appropriating to his own use funds entrusted to his care. );23 In re Oliver, 285 S.W.2d 648, 655 (Mo. banc 1956) ( Misconduct of attorneys in converting and using money held in a fiduciary capacity has been before us in other cases. We have uniformly held such conduct justifies disbarment. ) (quoting In re Conner, 207 S.W.2d 492, 499 (Mo. banc 1948)). PAYING CLIENT EXPENSES WITH A CREDIT CARD OCDC takes the position that you may not use a credit card that gives you any type of reward to pay client expenses. This is what an OCDC paralegal said in a 2013 CLE: There s no rule that says you cannot use a credit or debit card but again, you re going to have to be very careful. If you use a credit card it must be a dedicated card that you only use for client expenses. The card must be paid off monthly and Stepping Up & Stepping Out Trust Accounts & Fees Page 13 of 40

14 you must be able to provide a specific accounting of all charges to that account. Trust me, if I see that you are paying by credit card I m going to ask you for those credit card statements for every month that those transactions take place. And you also cannot use a credit card with any type of reward or incentive program -- no cash back, no credits for shopping, none of it, no Discover. So you have to be very careful about that, those transactions. ACCEPTING CREDIT CARD PAYMENTS It is becoming common for lawyers to accept payments by credit card. All debits must come out of the lawyer s operating account and deposits must go into the trust account or operating account, as designated by the lawyer, when the transaction is processed, based on the nature of the transaction. There are a couple of companies that will allow this designation regarding the account into which the funds are to be deposited. Two of those companies are LawPay ( and LawCharge ( The Missouri Bar has arranged for a member with discount LawPay ( It is not permissible to allow the credit card processing company to have the ability to debit the trust account for chargebacks, fees or for any other purpose. Stepping Up & Stepping Out Trust Accounts & Fees Page 14 of 40

15 Example of Trust Ledger in Clio: TRUST LEDGER EXAMPLES You opened your trust account on August 1, You have six clients funds in your trust account. CLIENT TYPE OF MATTER Mae Geld Personal Injury w/ client deposit for expenses contingent fee Danny Soare Personal Injury attorney advances expenses contingent fee Jenny Fizzell Municipal (BAC) flat fee $250 Ella Dunn Dissolution -- $100/hour ($2500 advance fee payment) Tom Cross Criminal (Assault) flat fee ($5000) Harold Himmel Estate Planning flat fee ($1000) Mae Geld is a substantial personal injury case arising from an automobile accident. However, there are issues of comparative fault and you are unwilling to advance the expenses. You obtain an advance deposit of $1,000 for expenses. You enter into a written contingent fee contract on the gross amount for 25% if settled before trial; 33% once trial begins; 40% if appealed. She hired you on August 8, You proceed with case preparation and filing, incurring expenses in the process. Along the way, you need an additional advance deposit for Stepping Up & Stepping Out Trust Accounts & Fees Page 15 of 40

16 expenses, which Ms. Geld provides. The case settles before trial for $50,000 on December 15, You have the client sign a settlement statement showing the funds received and how all of those funds will be disbursed. After the settlement check has time to be collected by your bank, you disburse the client s share of the funds to the client, less amounts she has authorized you to pay to third party medical providers. You also disburse your attorney fee to your operating account and you pay the third party medical providers. Danny Soare is a minor personal injury case arising from a knee injury in a slip and fall. Liability seems fairly clear and the case is not likely to have a lot of expenses, so you agree to advance the expenses. You enter into a written contingent fee contract on the gross amount for 25% if settled before trial; 33% once trial begins; 40% if appealed. He also hires you on August 8, Mr. Soare hires you on August 8, You incur minimal expenses of $50 and settle the case before trial for $5,000 on October 16, Jenny Fizzell has been charged with driving with an excessive blood alcohol content. On August 7, 2000, you agree to represent her for a flat fee of $250. The case goes to trial on August 21, Tom Cross has been charged with assault. You agree to represent him for a flat fee of $5,000. He pays your fee on August 9, He pleads guilty to a lesser offense on February 15, Harold Himmel wants to have various estate planning documents (Will, beneficiary deed, etc., prepared). Based upon your initial conference with him, you agree to provide these services for a flat fee of $1,000. You agree with him that you will withdraw half of the fee upon delivery of a draft of the estate plan and that you will withdraw the remainder of the fee upon completion of the estate plan. Ella Dunn is the petitioner in a dissolution involving property, child custody and child support. You agree to represent her for $100 per hour. You inform her that she must pay your fees in advance and require an advance fee deposit of $2500 before you will begin work on her case. You explain your written contract to her, making sure she understands that it is likely she will have to pay more than $2500 and that you will bill against the $2500 on an hourly basis. When the advance deposit falls to a certain level, it will be necessary for her to promptly advance more funds. Failure to do so may result in withdrawal. You bill her on a monthly basis and withdraw your attorney fee from the trust account, after she has had time to receive your bill and object. Due to attorney fees and expenses, it is necessary for you to have her provide an additional advance fee deposit of $1500 on November 17, In February of 2001, it appears that the case will go to trial. You request an additional advance fee deposit of $3000. On March 19, 2001, the case settles. You spend significant additional time working out the exact language of the settlement agreement and getting it approved by the court. On April 6, 2001, you refund the unused advance fee deposit to the client. Trust Ledgers The following documents are examples of manual trust ledgers. Stepping Up & Stepping Out Trust Accounts & Fees Page 16 of 40

17 Separate TRUST LEDGER ledger for Trust Acct.: Standard each client Mae Geld File No. PI [Client or person with interest in funds] Ledger required by Rule (f) Date Description of Transaction & Source of Deposit/to whom disbursed & For whom held 8/8/00 Advance Deposit for Expenses (Mae Geld) 8/16/00 Medical Records (Regional Hospital) Check # Funds Paid Funds Rec d Running Balance 1,000 1, /15/00 Filing Fee /22/00 Expert Witness Review (Dr. Hilfe) /18/00 Insurance payment Med. Pay (ABC Insurance) 3,000 3,325 10/27/00 Disburse Medical Pay to Client 111 3, /27/00 XYZ Court Reporting - Court Reporter Fees Depo of Witness /3/00 Advance Deposit for Expenses (Mae Geld) 1,000 1,125 11/17/00 Expert Witness Fee Depo (Dr Hilfe) 11/17/00 XYZ Court Reporting - Court Reporter Fee Depo of Expert /15/00 Settlement Check (Regressive Insurance Co.) 50,000 50,225 12/22/00 Disbursement to Client ,250 19,975 12/22/00 Attorney Fee ,500 7,475 12/22/00 Payment to B. Hert, M.D ,000 4,475 12/22/00 Payment to M. Owt, M.D ,500 2,975 12/22/00 Payment to Regional Hospital 123 2,975 0 Stepping Up & Stepping Out Trust Accounts & Fees Page 17 of 40

18 TRUST LEDGER Trust Acct.: Standard Danny Soare [Client or person with interest in funds] File No. PI Date Description of Transaction & Source of Deposit/to whom disbursed & For whom held 8/8/00 Client Hires Firm Check # Funds Paid Funds Rec d Running Balance 10/16/00 Settlement Check (Defendant) 5,000 5,000 10/27/00 Attorney Fee + $50 Medical Record 112 1,300 3,700 Expense 10/27/00 Disbursement to Client 113 3,700 0 TRUST LEDGER Trust Acct.: Standard Jenny Fizzell [Client or person with interest in funds] File No. MU Date Description of Transaction & Source of Deposit/to whom disbursed & For whom held 8/7/00 Client Payment for Fee (Jenny Check # Funds Paid Funds Rec d Fizzell) 8/21/00 Case Tried 9/7/00 Attorney Fee Running Balance Stepping Up & Stepping Out Trust Accounts & Fees Page 18 of 40

19 TRUST LEDGER Trust Acct.: Standard Tom Cross [Client or person with interest in funds] File No. CR Date Description of Transaction & (Source of Deposit) Check # Funds Paid Funds Rec d Running Balance 8/9/00 Client Payment for Attorney Fee 5,000 5,000 (Tom Cross) 2/15/01 Plea Agreement 3/7/01 Disbursement of Fee to Operating 128 5,000 0 TRUST LEDGER Trust Acct.: Standard Harold Himmel [Client or person with interest in funds] File No. EP Date Description of Transaction & (Source of Deposit) Check # Funds Paid Funds Rec d Running Balance 8/10/00 Client Payment of Attorney Fee 1,000 1,000 (Harold Himmel) 9/7/00 Partial Attorney Fee Delivery of Estate Plan Draft 10/7/00 Remainder of Attorney Fee Stepping Up & Stepping Out Trust Accounts & Fees Page 19 of 40

20 TRUST LEDGER Trust Acct.: Standard Ella Dunn [Client or person with interest in funds] File No. DI Date Description of Transaction & (Source of Deposit) Check # Funds Paid Funds Rec d Running Balance 8/8/00 Advance Fee Deposit (Ella Dunn) 2,500 2,500 8/15/00 Circuit Clerk Filing Fee ,375 9/7/00 Attorney Fee 8 hours ,575 10/7/00 Attorney Fee 1.5 hours ,425 10/16/00 Investigator Fee ,125 11/7/00 Attorney Fee 2 hours /17/00 Advance Fee Deposit (Ella Dunn) 1,500 2,425 12/7/00 Attorney Fee 3 hours ,125 1/8/01 Attorney Fee -.5 hours ,075 2/7/01 Attorney Fee 16 hours 125 1, /12/01 Advance Fee Deposit (Ella Dunn) 3,000 3,475 2/15/01 XYZ Court Reporting - Court ,825 Reporter Fees Depos of Client & Mr. Dunn 3/7/01 Attorney Fee 4 hours ,425 3/19/01 Case Settles 4/6/01 Attorney Fee 8 hours ,625 4/6/01 Refund Unused Fee to Client 130 1,625 0 Stepping Up & Stepping Out Trust Accounts & Fees Page 20 of 40

21 FEES A. Reasonable Rule 4-1.5(a): (a) A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. The factors to be considered in determining the reasonableness of a fee include the following: (1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; (3) the fee customarily charged in the locality for similar legal services; (4) the amount involved and the results obtained; (5) the time limitations imposed by the client or by the circumstances; (6) the nature and length of the professional relationship with the client; (7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and (8) whether the fee is fixed or contingent.. B. Billing 1. Timely Clients are more likely to pay bills they receive in a timely manner. If they receive the bill long after the services have been provided, they are more likely to question the bill or be unhappy about it. No one likes to be surprised by a large balance that has built up over a period of time. Timely billing also helps you keep track of the status of your client s account. Too often, attorneys wait until a critical point in the representation before deciding to withdraw. 2. Accurate Even small errors can cause a client to question a bill. Once the client starts questioning one entry, it is more likely that the client will question others. This may even lead to questioning your billing in general. 3. Communication a. Fee Arrangement The best way to start out your billing process is to make sure that the client understands the fee arrangement. This is best done with a written fee agreement or engagement letter. A client who Stepping Up & Stepping Out Trust Accounts & Fees Page 21 of 40

22 does not understand or remember the fee arrangement is much more likely to question your billing. Some fee agreements must be in writing and signed by the client. Contingency fee arrangements must be in writing, signed by the client, pursuant to Rule 4-1.5(c). Rule 4-1.2(c): A lawyer may limit the scope of representation if the client gives informed consent in a writing signed by the client to the essential terms of the representation and the lawyer's limited role. b. Work Done Be sure you have communicated to the client the work you have done. One of the best ways to do this is to send a copy of all correspondence, pleadings, etc. to the client. Also be sure that the entries on your billing describe your work in an understandable fashion. C. Attorney Liens Sections and , RSMo, establish the attorney liens available in Missouri. An article from the Journal of The Missouri Bar explains these liens. Go to: D. Retaining Lien and Charging Lien A retaining lien allows an attorney to hold the client s file until the attorney s fees are paid. Missouri does not recognize this lien. The Supreme Court has stated that the file belongs to the client. In re Cupples, 952 S.W.2d 226 (Mo. banc 1997). The charging lien is not recognized in Missouri, in light of the statutory attorney fee liens. ADVISORY COMMITTEE MISSOURI BAR ADMINISTRATION FORMAL OPINION #115, as amended ATTORNEY MAY NOT WITHHOLD PROPERTY BELONGING TO HIS CLIENT TO ENFORCE PAYMENT OF FEES OR EXPENSES. Question: May a Missouri Attorney ethically withhold from his client papers, books, documents or other personal property which belong to the client and came to the attorney in the course of his professional employment to enforce payment of fees or expenses owed to the attorney by the client? Answer: It is the opinion of the Advisory Committee that under the Rules of Professional Conduct, such action by an attorney is improper. The Advisory Committee is of the opinion that the file belongs to the client, from cover to cover, except for those items contained within the file for which the attorney has borne out-of-pocket expenses such as, but not limited to, transcripts. The attorney may retain those items until such time as he is reimbursed for the out-of-pocket expense Stepping Up & Stepping Out Trust Accounts & Fees Page 22 of 40

23 and then they must be immediately delivered to the client. Those items which have commonly been denominated as "work product" of the attorney actually belong to the client because those are the result of services for which the client contracted. The basis given for such action by attorneys in Missouri has been the so-called Attorney's Common Law Retaining Lien, said lien having existed in the English Common Law and being recognized in a number of states of which Missouri is not one. It is strictly a passive lien inasmuch as the attorney has no power to enforce payment other than to embarrass, inconvenience or to cause worry to the client by the withholding of his papers. The legal question of whether or not the Attorney's Common Law Retaining Lien exists has not been affirmatively answered by the Missouri Courts. The Advisory Committee recognizes the Statutory Attorney's Lien created in Missouri by the act of 1901 and it, in no way, is affected by this Opinion. This Lien is embodied in Sections and of the Missouri Revised Statutes It has been held to give the attorney a lien on the fund or funds produced for the client by his action where he filed a petition or counterclaim and/or where he has given sufficient notice to the defendant of the existence and nature of his contract with the plaintiff. Even if the Attorney's Common Law Retaining Lien were deemed to be in existence, the question of the ethical propriety of its exercise must still be answered with reference to the Rules of Professional Conduct. The situations under which this question normally arise will be where the attorney has withdrawn from the representation of his client or where the client has discharged the attorney because the representation has been completed or prior to the time of the completion of the representation. For purposes of this discussion, however, the aforementioned situations do not differ inasmuch as Rule 1.15(b) of Missouri Supreme Court Rule 4 states "Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this Rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request of the client or third person, shall promptly render a full accounting regarding such property." Furthermore, Rule 1.16(d) of Rule 4 of the Missouri Supreme Court Rules states that "Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client's interest, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee that has not been earned. The lawyer may retain papers relating to the client to the extent permitted by other law." (Emphasis added) If a lawyer wishes to keep a copy of the file for his own use or protection, then the lawyer must bear the costs of copying the file. The above quoted disciplinary rules require the lawyer to turn over such property to which the client is "entitled". It could be argued that the disciplinary rules constitute an exception which would include the property over which the lawyer has a recognized lien. However, in the opinion of the Advisory Committee, for a lawyer to force payment of his fees or expenses by resorting to a lien which can only be effective by causing embarrassment, inconvenience or worry to his client is for the lawyer to act in a manner totally inconsistent with the above-cited disciplinary rules and, further, is inconsistent with the spirit of his professional responsibility. This is particularly true since other Stepping Up & Stepping Out Trust Accounts & Fees Page 23 of 40

24 methods are available for use by an attorney for the collection of those fees and expenses to which he may be legally entitled. Adopted March 4, 1988 F. Collection 1. Collect in advance The absolute best way to make sure your fees are collectible is to collect them in advance. Fees collected in advance must be placed in a trust account until earned. Formal Opinion Offer alternative ways to pay a. credit card It is permissible for attorneys to accept standard merchant credit cards. Some specialty credit cards have raised concerns, in the past. b. payment plan If a client is willing, and seems able, to enter into a reasonable payment plan with you, this may be a way to collect without resorting to litigation. By agreeing to a payment plan, you may be able to get your bill out of the impossible category in your client s mind. c. transfer of asset or interest in asset An attorney may accept an asset or an interest in an asset in exchange for fees or to secure fees. You must comply with Rule 4-1.8(a) relating to business transactions with clients, in such situations. In re Snyder, 35 S.W.3d 380 (Mo. Banc 2001) is instructive on this subject. See, Rule 4-1.8(a). Be cautious about taking an interest in a client s workers compensation claim. See, G. Fee Dispute Resolution Fee dispute resolution programs are free programs, statewide, designed to help resolve fee disputes through mediation, arbitration, or both. If you can resolve a fee dispute by dealing with your client directly, great! However, many factors can create situations in which a neutral party will be able to facilitate a resolution. Be sure to inform clients who are not paying your bill, as well as those who are actively disputing your bill, about the fee dispute resolution program. In this process, as well as in litigation, you may disclose otherwise confidential information, but only to the extent reasonably necessary to defend or justify your fee. Rule 4-1.6(b)(3). H. Suing the Client Stepping Up & Stepping Out Trust Accounts & Fees Page 24 of 40

25 The Rules of Professional Conduct do not prohibit an attorney from suing a client for fees. The pros and cons should be carefully weighed and this option should be a last resort. Using the fee dispute resolution program is usually a better alternative. Advisory Committee of the Supreme Court of Missouri Formal Opinion 128 NONREFUNDABLE FEES This opinion addresses the issue of whether nonrefundable fees are ethically permissible in Missouri. In many instances, attorneys receive payment before the attorney has completed the services for which the payment is made. In some instances, attorneys refer to these payments as nonrefundable. These nonrefundable fees are often the subject of disciplinary complaints and fee disputes. Rule governs attorney fees and subsection (a) establishes the fundamental standard that attorney fees must be reasonable: A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. The factors to be considered in determining the reasonableness of a fee include the following: (1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; (3) the fee customarily charged in the locality for similar legal services; (4) the amount involved and the results obtained; (5) the time limitations imposed by the client or by the circumstances; (6) the nature and length of the professional relationship with the client; (7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and (8) whether the fee is fixed or contingent. (emphasis added). Stepping Up & Stepping Out Trust Accounts & Fees Page 25 of 40

26 Two types of cases provide good examples of situations in which supposedly nonrefundable fees are involved. The first example is the domestic relations case where the client pays a flat fee or makes an advance deposit on fees against which the attorney will bill on an hourly basis. Sometimes the attorney will describe all or part of the flat fee or initial payment as a nonrefundable or minimum fee. The second example is the criminal case in which the attorney charges a flat fee and describes the entire fee as nonrefundable. In these situations and others, the description of the fee as nonrefundable is misleading. Rule (d) requires any fee that has not been earned to be refunded at the end of the representation: Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client's interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee or expense that has not been earned or incurred. The lawyer may retain papers relating to the client to the extent permitted by other law. (emphasis added). If the representation was completed, the attorney will not be required to refund any of the advance deposit or flat fee, assuming the amount charged was reasonable. However, if the representation ended before the representation was completed, the attorney must analyze the factors set out in Rule 4-1.5(a) to determine the extent to which the attorney must refund all or a portion of the fees paid in advance. In addition, because an attorney may not charge or collect an unreasonable fee, the attorney must determine that the fee was reasonable, even if the representation was completed. Regardless of the terminology used to describe the fee, if the ultimate fee is unreasonable, taking into consideration the eight factors listed under Rule 4-1.5(a), the unreasonable portion must be refunded. In a domestic relations case, the attorney may have charged a significant fee for initially interviewing the prospective client or taking the case because once the attorney has received enough information it creates a conflict of interest under Rules or Once the attorney has sought and obtained information that could be significantly harmful, neither the attorney nor any other members of the attorney s firm from may accept representation of the opposing party or any other party with adverse interests. In other words, an attorney may charge a fee for initially intaking a prospective client or accepting a case, to the extent that it creates a conflict in a situation in which the attorney may have to decline representation of others involved in the case. If the representation terminates after that point, that fee is not accurately described as nonrefundable; it is earned. In light of the duty to explain the basis for the fee to the client, the attorney should explain that the fee is earned because of the attorney s inability to represent anyone else in the matter, rather than describing it as nonrefundable. The fee is only earned to the extent that the fee is reasonable in light of all of the circumstances. Representation in a criminal case may terminate early because the attorney withdraws, the client discharges the attorney or the prosecution dismisses the charges. In any of these situations, the Stepping Up & Stepping Out Trust Accounts & Fees Page 26 of 40

27 attorney may owe a refund. The amount of the refund should be based on the reasonable value of the legal services actually provided, taking into account all of the factors listed in Rule 4-1.5(a). Unless a mixed or hybrid fee arrangement it used, the flat fee should cover the entire representation on the matter. If not, the representation involves limited scope representation under Rule In that event, the fee agreement must be in writing and must clearly spell out what is and is not covered. For example, if the fee only covers representation of a criminal defendant for negotiating a plea but not for trial, it would involve limited scope representation. Similarly, representation in a dissolution case that only covers a noncontested dissolution involves limited scope representation. Representation, in any type of case, that excludes appeal is limited scope representation. Part of the confusion surrounding this topic may stem from the historical view that a flat fee is earned upon receipt for trust account purposes. However, in the course of reviewing that approach, we have determined that it is not consistent with the current Rules of Professional Conduct. Rule (f) states: A lawyer shall deposit into a client trust account legal fees and expenses that have been paid in advance, to be withdrawn by the lawyer only as fees are earned or expenses incurred. We believe that all flat fees must be deposited into a lawyer trust account and promptly removed when actually earned, similar to prompt removal of earned hourly fees. Flat fees could be removed based upon reaching a particular stage of a case or based on some other reasonable criteria, depending on the nature and circumstances of the representation. We have used the word fee rather than retainer in this opinion. Historically, a retainer was a fee paid simply for the attorney to maintain availability to a client. Currently, the term has taken on many meanings which are inconsistent with one another and which are confusing to clients. 1 We encourage attorneys to avoid using the term retainer when the attorney actually means an advance fee deposit, flat fee, initial deposit, etc. Attorneys best fulfill their duty of communication about fees under Rules and when they use plain language that clients are likely to clearly understand. May 18, See, Dowling v. Chicago Options Associates, Inc., 875 N.E.2d 1012, 1018 (IL 2007). Stepping Up & Stepping Out Trust Accounts & Fees Page 27 of 40

28 SOME CASES REGARDING FEES DISCIPLINARY CASES In re Cupples, 952 S.W.2d 226 (Mo banc 1997). In re Charron, 918 S.W.2d 257 (Mo. banc 1996). In re Waldron, 790 S.W.2d 456 (Mo. banc 1990). In re Snyder, 35 S.W.3d 380 (Mo. banc 2001). FEE AGREEMENT Layton v. Baris, 43 S.W.3d 390 (Mo. App. E.D., No. ED76562, February 20, 2001) FEE SPLITTING AMONG ATTORNEYS Londoff v. Vuylsteke, 996 S.W.2d 553 (Mo. App. E.D. 1999) Risjord v. Lewis, 987 S.W.2d 403 (Mo. App. W.D. 1999) QUANTUM MERUIT/ATTORNEY'S LIEN Kuczwara v. Continental Baking Company, 24 S.W.3d 712 (Mo. App. E.D. 1999) Goldstein and Price, L.C. v. Tonkin & Mondl, L.C., 974 S.W.2d 543 (Mo. App. E.D. 1998) Turpin v. Anderson, 957 S.W.2d 421 (Mo. App. W.D. 1997) Reid v. Reid, 950 S.W.2d 289 (Mo. App. E.D. 1997) Kansas City Area Transportation Authority v Main, 893 S.W.2d 861 (Mo. App. W.D. 1995). International Materials v. Sun Corp., 824 S.W.2d 890 (Mo. banc 1992). Plaza Shoe Store, Inc. v. Hermel, Inc., 636 S.W.2d 53 (Mo. banc 1982). CONTINGENT FEE -- CALCULATION/AMBIGUITY Specialty Restaurants Corporation v. Gordon R. Gaebler, P.C., 956 S.W.2d 391 (Mo. App. W.D. 1997). Brown v. Whitaker, 926 S.W.2d 1 (Mo. App. W.D. 1996). Baker v. Whitaker, 887 S.W.2d 664 (Mo. App. W.D. 1994). UNREASONABLE FEE In re Estate of Che-Brielle Walker, 16 S.W.3d 672 (Mo.App.E.D. 2000). Stepping Up & Stepping Out Trust Accounts & Fees Page 28 of 40

29 SELECTED INFORMAL ADVISORY OPINIONS RELATING TO FEES Informal advisory opinions are issued by the Chief Disciplinary Counsel under Rule The Chief Disciplinary Counsel only issues opinions to attorneys for their own guidance involving an existing set of facts. Informal advisory opinions cannot be issued on hypotheticals or regarding the conduct of an attorney other than the one asking for the opinion. Although an effort has been made to summarize the important facts of the question, not all details are included in each summary. Therefore, these summaries should be used only for general guidance. Only summaries are available; actual copies of the opinion request and answer are not available. Because only summaries are published and informal advisory opinions are not binding, informal advisory opinions are not usually formally withdrawn. It is necessary to look to the more recent opinions for the most current general guidance on any given issue. Prior to the year 2000, the first two digits of the opinion number indicated the year. Now, the first four digits indicate the year. INTEREST ON MONEY BORROWED FOR ADVANCED EXPENSES OPINION QUESTION: If Attorney borrows money in order to fund the litigation expenses in a case, may Attorney pass the interest on the loan through to the client? ANSWER: Attorney may pass these costs on to Attorney's client, under certain conditions. Attorney's client must agree to this arrangement, in general terms, at the outset of the representation. Assuming that these cases will be contingency fee cases, this arrangement should be covered in the written fee agreement. Additionally, Attorney should specifically explain this provision to the client, orally. At the time Attorney takes out any such loan, Attorney's client should agree to the terms of the loan before the money is borrowed. This additional agreement must also be in writing since it would be an addendum to the original fee agreement. CREDIT CARDS OPINION QUESTION: Attorney's firm received a letter from a company offering to set up an accounts receivable program that would allow the firm's delinquent clients the ability to pay fees with a credit card. Are there any ethical constraints in offering clients the ability to pay fees by credit card? ANSWER: It is permissible for Attorney to accept payment of legal fees through routine credit card transactions using standard credit cards such as Visa, Mastercard, Discover or American Stepping Up & Stepping Out Trust Accounts & Fees Page 29 of 40

30 Express. If Attorney's arrangement with the company would require any unusual arrangements involving the credit card transaction, the answer could change. OPINION QUESTION: Question 1. Under an hourly fee contract, may Attorney include a clause that, after presenting the client with bill, Attorney will wait a specified period of time. If the client has not paid the bill through other means by that time, Attorney will bill the amount to the client's credit card without the client separately signing the individual credit card slip? Question 2. In a criminal defense case, may Attorney include a clause in the contract that Attorney would take a certain fee up front. If a trial becomes necessary, Attorney would bill the additional fee associated with going to trial to the client's credit card without the client separately signing the credit card slip? ANSWER: The answer to both Attorney's questions is yes. The key to the situation is making certain that Attorney adequately communicates all of the ramifications of the agreement to the client. Simply including the written language in Attorney's contract would not be sufficient. Attorney has an obligation to orally point out the provision and make sure the client understands it. It is suggested that Attorney set an upper limit, in the contract itself, of the aggregate amount Attorney will bill on the credit card. The contract should provide that the amount specified could only be exceeded with the client's express written consent. Also, in addition to notifying the client of Attorney's intent to bill a specified amount against the credit card, Attorney should send the client a receipt or confirmation when Attorney actually bills the card. OPINION QUESTION: May Attorney accept credit cards for payment of fees? ANSWER: As a general rule, the answer is yes. However, this opinion does not imply blanket approval for any specific system an attorney may implement. Formal Opinion 112 which was issued in 1974 and indicated that this conduct was prohibited, because it would result in fee splitting, was withdrawn in INTEREST ON ATTORNEY FEES REPORTING DELINQUENT FEES TO CREDIT REPORTING AGENCY OPINION QUESTION 1: May Attorney charge interest on Attorney fees? ANSWER 1: Attorney may charge interest as long as it is a part of Attorney's initial contract with Attorney's client and it is adequately communicated to Attorney's client at that time. Additionally, Attorney must comply with all laws regarding charging interest, such as the federal Truth in Lending Law, if it is applicable to Attorney. QUESTION 2: May Attorney report delinquent debts to a credit reporting agency? Stepping Up & Stepping Out Trust Accounts & Fees Page 30 of 40

31 ANSWER 2: Attorney may disclose such information to the limited extent necessary in the course of attempting to collect the debt but not solely for the purpose of disclosing the information. OPINION QUESTION: May Attorney charge clients a finance charge on past due legal fees? ANSWER: Yes, as long as Attorney fully discloses this fact to the client before Attorney enters into a contract with the client. Additionally, Attorney must comply with any other provisions of law (for example, the federal Truth In Lending law) if they apply to Attorney's situation. This opinion does not address legal issues related to provisions of law other than the Rules of Professional Conduct. HOURLY FEE NONPAYMENT OPINION QUESTION: Attorney would like to add a provision to Attorney's standard engagement letter for civil cases, particularly domestic relations cases. Is it permissible to state in the engagement letter that if the client does not make payment, Attorney will stop working on his or her case? Attorney would like to state that Attorney will not continue to work on a client's case if no payments are made. ANSWER: Attorney may not include the provision Attorney proposes in Attorney's engagement letter. Under Rule 4-1.3, Attorney has an obligation to diligently represent Attorney's client, unless Attorney withdraws. If Attorney has not been paid, Attorney's option is to continue to diligently represent the client and seek payment, or seek to withdraw. Attorney may seek to withdraw under Rule (b), only if withdrawal may be accomplished without material adverse effect on the interests of the client. OPINION QUESTION: Attorney represents a client who had a fire at the client's home. Attorney was retained on an hourly basis. The client paid a portion of the attorney's fees, but has not made payments to Attorney for some time. The insurance company has issued a check payable to the client, Attorney, and some third parties. The client has asked Attorney to sign the check without payment. May Attorney refuse to sign the check unless Attorney is paid? ANSWER: Attorney may not refuse to sign the check without payment, if Attorney's client will agree to placement of any disputed funds in escrow. Attorney may not withhold Attorney's signature in a manner which will prevent Attorney's client from receiving undisputed funds. DOMESTIC RELATIONS -- CONTINGENCY FEE Stepping Up & Stepping Out Trust Accounts & Fees Page 31 of 40

32 OPINION QUESTION: Attorney has been approached by a client wishing to file a post dissolution Motion to Divide Omitted Marital Property. May Attorney represent the client on a contingent fee basis? ANSWER: Under the circumstances Attorney has described, a contingent fee arrangement would violate Rule 4-1.5(d)(1) if issues regarding alimony or child support can be raised or re-opened. If those issues cannot be raised, Attorney may take the case on a contingency fee basis. OPINION QUESTION: May Attorney represent clients on a contingency fee basis if the representation would involve collection of the accrued balance of overdue child support payments under a final judgment? ANSWER: Yes. OPINION QUESTION: May Attorney enter into a contingent fee contract to file a contempt action in which Attorney agrees that Attorney's fee will be a percentage of any amounts of any past due maintenance or child support collected as a result of filing the contempt action? ANSWER: Yes. OPINION QUESTION: May attorney take a domestic relations case on a contingent fee basis where the order granting the dissolution is final and neither alimony nor child support remain as issues? ANSWER: Yes. OPINION QUESTION: May an attorney take a domestic relations case involving distribution of property on a contingent fee basis? The order granting the dissolution is final but maintenance is still an issue. ANSWER: No, it is prohibited by Rule 1.5(d). OPINION QUESTION: May attorney enter into a contingent fee arrangement to collect on final judgment which was entered in a domestic relations case? Because payments to client as a result Stepping Up & Stepping Out Trust Accounts & Fees Page 32 of 40

33 of collection action will be in installments over a lengthy period, may attorney require that client irrevocably designate attorney as payee of the payments? ANSWER: The contingent fee arrangement is not prohibited. The irrevocable assignment implicates Rule 1.8(a) on conflicts of interest. FEE SHARING AND REFERRAL FEES OPINION QUESTION: Attorney asks if it is permissible to share fees with an attorney from another state who is not licensed in Missouri and who referred a workers compensation case to Attorney. ANSWER: Based on the information Attorney has provided, the other attorney would be receiving the fee as a referral fee rather than as a fee based on the proportion of work performed or joint responsibility under Rule 4-1.5(e). Referral fees are prohibited under Rule 4-7.2(c) unless the referring entity is a registered referral service under Rule OPINION QUESTION: Attorney is a member of XYZ firm. ABC firm has approached Attorney regarding an arrangement in which ABC firm would refer clients to XYZ and receive a portion of the retainer paid by the client to XYZ firm, in accordance with a schedule established by the two firms. No portion of the arrangement calls for ABC to continue to be responsible for the matter or for the client to consent. ANSWER: Based on the information Attorney has provided, the arrangement Attorney proposes would violate the requirements for permissible fee sharing under Rule 4-1.5(e). CONTINGENT FEE -- STRUCTURED SETTLEMENT OPINION QUESTION: Attorney has represented the client in negotiating a structured settlement. Attorney would like to have the attorney fee, which is based on a contingency fee contract, paid up front. Attorney would apply the contingent fee percentage to the present value of the settlement. Would this violate the rules? ANSWER: Attorney may take attorney's contingency fee up front if it is based on the present value of the structured settlement and Attorney has the consent of the client in the original contract or otherwise. MIXED FEE OPINION Stepping Up & Stepping Out Trust Accounts & Fees Page 33 of 40

34 QUESTION: Attorney has been approached by children of a decedent to represent them on a contingent fee basis in attempting to secure what they believe is their portion of their decedent's intestate estate. There is a dispute involving other family members. Is it appropriate to draw a contract where Attorney obtains a small retainer up front and agree to thereafter represent them on a contingency fee basis? ANSWER: The fee agreement Attorney proposes would not, on its face, violate Rule 4-1.5, relating to fees. The overall fee must be reasonable, taking into account the factors set forth in that rule. The reasonableness of the actual fee should be reviewed at the conclusion of the representation. OPINION QUESTION: May Attorney charge a client in a contingency fee case for the hourly rate of the legal assistant working on the case in addition to the contingent fee in a circumstance in which this was fully disclosed and understood by the client? ANSWER: As long as this arrangement is fully disclosed to and understood by the client it is permissible as long as it does not result in an unreasonable fee. If, at the conclusion of the matter, the fee is unreasonable under all of the circumstances, it would violate Rule FEE PAID BY THIRD PARTY OPINION QUESTION: Does Rule 4-1.8(f)(1) require Attorney to obtain a client's consent before representing that client for a fee, when the client's legal fees are being paid for by someone other than the client such as an insurance company? Is written consent from the insured/client required under Rule 1.8(f)(1)? ANSWER: Rule 4-1.8(f) does apply to the insurance defense situation. This is a situation involving third party payment and also multiple representation. It is necessary for the insured to consent to the third party payment as well as any other conditions or limitations imposed on the representation. The rules do not require that this consent be in writing, but it is recommended. OPINION QUESTION: Attorney would be paid a retainer by a title company to provide real estate related legal services to members of the public. No legal fees would be shared with the title company and Attorney would be independent of the title company in the course of representation. ANSWER: Attorney would have to follow the procedures in Rule 4-1.8(f) in addition to remaining independent under Rule Attorney must recognize that an attorney client relationship is formed with each member of the public for purposes of the confidentiality and conflict of interest rules. Stepping Up & Stepping Out Trust Accounts & Fees Page 34 of 40

35 OPINION QUESTION: [FACTUAL SITUATION 1 OMITTED] FACTUAL SITUATION 2: Attorney will be retained to represent drivers employed by a business in traffic ticket cases. Either the company or the drivers will retain Attorney. Attorney would charge a flat monthly fee per driver. Would this violate the rule on fees for months when a driver received no tickets? ANSWER: FACTUAL SITUATION 2: This arrangement would not violate Rule However, if the employer pays the retainer fee, special attention should be paid to Rule 4-1.8(f). SAMPLE FEE AGREEMENT Mailing Address: 1709 Missouri Boulevard. Suite 2 #314 Jefferson City, MO srittman@rittmanlaw.com ATTORNEY-CLIENT FEE AGREEMENT Sara Rittman ("Attorney"), will provide legal services to ("Client"), on the terms set forth below. 1. CONDITIONS. This Agreement will not take effect, and Attorney will have no obligation to provide legal services, until Client returns a signed copy of this Agreement and pays any initial deposit (advanced fee) called for in Paragraph SCOPE OF SERVICES. Client hires Attorney to provide legal services in the following matter(s):. Attorney will provide those legal services reasonably required to represent Client. Attorney will take reasonable steps to keep Client informed of progress and to respond to Client's inquiries. Client and Attorney agree that Attorney s services terminate once: (1) the complaint or any formal litigation is dismissed, (2) final disciplinary action is taken against Client by acceptance Stepping Up & Stepping Out Trust Accounts & Fees Page 35 of 40