Lawyer and client agree that lawyer will be paid $1,500 for bankruptcy representation. The fee agreement states that $300 of that amount will be used to pay the government filing fee and the remaining $1,200 is the lawyer’s fee.
May the portion of the fee that will be used to pay for costs be classified as part of a flat fee and treated as the lawyer’s property on receipt, or must the portion for costs be placed into the lawyer’s IOLTA account until the costs are incurred?
A sum paid in advance specified for expenses cannot be part of a flat fee agreement and must be placed in the lawyer’s IOLTA account and maintained there until the expenses are incurred.
Rule 1.5(a) states: “A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses.”
Rule 1.5(f)(2) provides in relevant part:
A lawyer may charge a flat fee for specified legal services, which constitutes complete payment for those services and is paid in whole or in part in advance of the lawyer providing the services. If agreed to in advance in a writing signed by the client, a flat fee is the lawyer's property on receipt, in which case the fee shall not be deposited into a trust account under Rule 1.15A.
It is clear by the plain terms of RPC 1.5(f)(2) that a “flat fee” agreement can only cover specified “legal services” and does not include advance payments to cover anticipated expenses.
Rule 1.15A(c)(2) provides:
Except as provided in Rule 1.5(f), and subject to the requirements of paragraph (h) of this Rule, a lawyer shall deposit into a trust account legal fees and expenses that have been paid in advance, to be withdrawn by the lawyer only as fees are earned or expenses incurred.
Thus, advances for expenses paid in conjunction with a flat fee arrangement for legal services must be deposited into the lawyer’s trust account. If the payment is advanced as one check it should be deposited into the lawyer’s IOLTA account, and the fee portion should be withdrawn when the check clears.
This opinion does not address a flat fee agreement where the fees and costs are not segregated and specified or where the costs are variable.