Supreme Court Adopts Changes to Rules of Professional Conduct on Fees and Fee Agreements

In 1990, in an attempt to clarify the distinction between client fee payments that must be held in a trust account and those that should not be, the WSBA Board of Governors approved Formal Ethics Opinion No. 186, entitled “The Proper Handling of Advance Fee Deposits and Retainers.” In 2005, Formal Opinion 186 was withdrawn following the Supreme Court’s decision in In re Discipline of DeRuiz, 152 Wn.2d 558, 99 P.3d 881 (2004), in which the Court disciplined a lawyer for failing to return unearned money, rejecting the lawyer’s argument that a flat fee paid in advance for specific services was a “retainer” earned at the point of receipt. The withdrawal of Formal Opinion 186 created a void in guidance for lawyers with respect to the proper handling of advance fee payments. For this reason, in October 2007, the WSBA Board of Governors submitted suggested amendments to RPC 1.5 and RPC 1.15A to clarify these issues.

On October 28, 2008, following a public comment period, the Court adopted amendments to RPC 1.5 and 1.15A. A new paragraph (f) in RPC 1.5 creates two exceptions to the general rule that fees paid in advance of services remain the property of the client and must be kept in trust. The exceptions are: (1) availability retainers, and (2) flat fees for specified services. The rule, for both types of fee agreements, requires a writing signed by the client. Flat fees require an additional disclosure substantially similar to the form set out in the rule, the purpose of which is to advise the client that the fee will immediately be placed into the lawyer’s operating account, that payment of a flat fee in advance does not impair the client’s right to terminate the client-lawyer relationship, and that the flat-fee structure does not extinguish the possibility that the client may, or may not, have the right to a refund. The rule also requires the lawyer to take reasonable and prompt action to resolve a dispute relating to a designated flat fee or retainer. Companion amendments to RPC 1.15A clarify that except for a fee properly characterized as a retainer or flat fee under RPC 1.5(f), a lawyer must deposit fees paid in advance into a trust account, to be withdrawn by the lawyer only as fees are earned or expenses incurred.

The amendments, which were published in the advance sheets on November 18, 2008, became effective upon publication. A link to the complete text of the amendments is available at www.courts.wa.gov/court_rules/?fa=court_rules.adopted.