Risky Business: Fee Agreements, Bank Accounts and Record Keeping Requirements Under the Pennsylvania Rules of Professional Conduct or What You Don’t Know Will Hurt You

Last updated on February 20th, 2022 at 02:50 pm

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Sleepless nights are a criminal defense attorney’s lot in life, full of worry about all the things that can and do go wrong in the high-stakes work of protecting individual liberty. But there is one more thing you should be worried about: your office’s compliance with the Pennsylvania Rules of Professional Conduct and Rules of Disciplinary Enforcement that apply to fees, fee agreements and banking.

If you are like most criminal defense lawyers, you often charge a flat fee for services and deposit that fee directly into an operating account. This conduct may violate Rule 1.15 of the Pennsylvania Rules of Professional Conduct and expose you to disciplinary sanctions if certain procedures relating to the handling of money and fee agreements are not in place. This article provides an overview of both Rule 1.15, the Rule of Safekeeping Property, and Rule 1.5, the Rule governing Fees and provides a few easy steps to maintaining fiscal and professional health.  

            Rule 1.5(b) and Rule 1.15(i): Magic Words for Fees and Fee Agreements

The primary function of the disciplinary system is “not to punish but rather to protect the public and uphold the integrity of the profession.” Office of Disciplinary Counsel v. Clayton  William Boulware, No. 97 DB 2011 (D.Bd. Opinion 2013).  Both these interests are implicated in an attorney’s management of the attorney-client relationship and OPM – other people’s money. The first step is the fee agreement itself. Rule 1.5(b) requires that “[w]hen the lawyer has not regularly represented the client, the basis or rate of the fees shall be communicated to the client, in writing, before or within a reasonable time after commencing the representation.” This rule does not require a formal engagement letter or fee agreement, just some “writing” that memorializes the agreement between the lawyer and the client on payment. However, the fee agreement/engagement letter can be so much more and, as a best practice, it should be. A fee agreement is your opportunity to set the stage for the relationship and ensure that the client understands all the terms of the engagement. Think about including the following terms in your standard agreement:  

  1. Scope of the engagement: be clear about the matter in which you will enter your appearance and the stages of the matter that are covered by the fee; See Rule 1.2 (c) (“A lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances and the client gives informed consent.”).
  • Who will be working on the file: if applicable, state that associates or contract attorneys may be used at your discretion to assist with legal research or appear in court, if necessary. Clients can be confused when this happens and failure to inform the client appropriately of a different lawyer attending a court appearance can lead to a disciplinary inquiry.
  • How long files will be maintained and in what form: there is no Rule that requires that a file be maintained past the end of the engagement; however, Rule1.15 (c), though not cross-referenced in 1.5, requires that the fee agreement be kept for five years from the date that the engagement ends. In my firm, I inform the client that I will keep a digital copy of the case file for at least three years and I keep a copy of the fee agreement for a minimum of five years.
  • Modes of communication: Attorneys are now including language in their agreements that confirms that email communication, with its attendant risk, is an acceptable form of communication and that the client agrees to communicating through email. However, more and more clients are communicating via text messages. These are hard to maintain in the file and may include important information that needs to be preserved. If you do not wish to communicate important information over text messages, include that in your fee agreement. If you do accept text messages, use an app to pull them off your phone and preserve them for future use. Here’s one that our firm uses on iphones: https://imazing.com/; for androids use https://www.mobikin.com/assistant-for-android/.
  • Set expectation about communication: Include in your letter that you will do your best to respond to any email or text within 24 hours, and that any important information will be conveyed promptly.
  • Termination: Set out the terms of termination, including that the client is always free to terminate your services, but that you will give appropriate notice before terminating the relationship. What is appropriate may vary, depending on the case. Before you terminate a client: read Rule 1.16 which sets out guidelines for when and how termination is appropriate.

            Convey these terms in clear, easy to understand language as any claimed misunderstanding later will be your responsibility to explain.[1]  Most importantly, as a best practice, which can be critical if there is a future need to defend the terms of the engagement, have the client counter-sign the fee agreement.

 Rule 1.5 contains no requirement that the fee agreement stipulate whether the fee is to be maintained in a trust account or can be deposited in the operating account. However, in ODC v. Ostrowski, 135 DB 2008 (2009) the Board found that language in Attorney Ostrowski’s fee agreement that a fee was a “flat fee” failed to specify that the funds were nonrefundable and earned upon receipt and therefore, should not have been deposited directly into the attorney’s operating account. The Board stated: “The mere language that the $3,000 was a “flat fee” is insufficient to transform the retainer automatically into Respondent’s personal property. Respondent should have deposited the funds into a trust account. It is crucial that a client understand how money is handled by the attorney.” If you are negotiating a flat non-refundable fee – include the magic words in your agreement: non-refundable AND “earned upon receipt.” Once you include this language, theoretically, at least according to Ostrowski, you should be able to deposit the fee in your operating account without fear. However, the belt and suspenders approach that I recommend incorporates a requirement included in Rule 1.15 (i) which applies when advanced fees are deposited into an operating account. The Rule states:

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, unless the client gives informed consent, confirmed in writing to the handling of fees and expenses in a different manner. (Emphasis added – note that this is one of the few places in the Rules where informed consent requires confirmation in writing.)

            This is where it gets a little tricky: my interpretation of Ostrowski and the Rule’s description of fees to “be paid in advance” is that a fee agreement that describes a fee as “non-refundable” and “earned upon receipt” should not be considered to be an “advance” fee that is required to be deposited into a Trust Account. However, to protect yourself from a later determination that you are not correctly characterizing the fees as “the lawyer’s property” —  which I have seen happen – state in your fee agreement that you are not depositing the fees into your trust account and have the client counter-sign the agreement. Here is a suggested version of the language that you can use:

We have agreed that the fee in this matter is a flat, non-refundable fee which is earned upon receipt and covers the following work (insert scope of the engagement.) As such, it will not be placed in an attorney trust account to be billed against.

            This language should protect you both ways: first by establishing that you are not receiving an advance fee that has to be deposited into an IOLTA and second by getting the client’s informed consent to deposit the fee in the operating account, notwithstanding how the fee is characterized.

Rule 1.15: The Rule of Safekeeping Property: Trial Balances, Record-Keeping Requirements and Three-Way Reconciliations.

Rule 1.15 is complicated: it has twenty sub-sections and twelve interpretive comments. Subsection 1.15 (a) alone has eleven separate sub-parts providing definitions that apply to the balance of the Rule. Broadly speaking, Rule 1.15 imposes 5 duties on an attorney holding funds in trust for others:

  1. The lawyer has a duty to keep funds and property separate from the lawyer’s own property. This duty includes a prohibition against depositing the lawyer’s own money into the IOLTA, including not promptly removing fees.
  • The lawyer has a duty to give notice of the receipt of any funds or other property.
  • The lawyer has a duty to maintain appropriate records of any property, particularly money, held on behalf of another for five years. The Rule requires that fee agreements, all bank records of transactions, a check registry showing the date, payee, amount and purpose of each check, and records of trial balances be maintained for five years and be available for inspection. The Rule also specifies that each client’s funds must be kept track of in a general ledger in a separate sub-account. Once each month, the sub-accounts, the general ledger and the IOLTA bank statement must be reconciled and proof of that monthly reconciling be maintained for five years.
  • The lawyer has a duty to render an accounting of any funds held in a fiduciary capacity on request. Rule 1.15 (c)(3) mandates that the required records kept for the IOLTA be made available upon demand to either the Pennsylvania Lawyers Fund for Client Security or the Office of Disciplinary Counsel. Failure to provide these documents within 10 days can itself be grounds for discipline and a Petition for Temporary Suspension of the attorney. See Pa.R.D.E 221(g)(3) (“Failure to produce Pa.R.P.C. 1.15 records in response to a request or demand for such records may result in the initiation of proceedings pursuant to Enforcement Rule 208(f)(1) or (f)(5) (relating to emergency temporary suspension orders and related relief), the latter of which specifically permits Disciplinary Counsel to commence a proceeding for the temporary suspension of a respondent-attorney who fails to maintain or produce Pa.R.P.C. 1.15 records after receipt of a request or demand authorized by subdivision (g) of this Rule or any provision of the Disciplinary Board Rules.”)
  • The lawyer has a duty to promptly deliver funds or other property to the person who is legally entitled to them.

The record-keeping requirements of Rule 1.15 are stringent and failure to comply with them is grounds for discipline, whether a client lost money or the failure to maintain records was due to a lack of familiarity with the Rules. However, the good news is that adherence to the Rule is easily accomplished, once the correct office procedures are in place. Many accountants and bookkeepers specialize in IOLTA requirements and can economically and efficiently provide the systems you need to maintain compliance. If you regularly use an IOLTA account and this description of the requirements that are attendant to it are a surprise to you, it’s not too late to correct any errors. Fixing a situation before the Disciplinary Board comes calling is far better than fixing it after they have discovered your issues.

And the best part is – once you fix it, you can go back to worrying about the important things in your practice – winning your next case!

Ellen C. Brotman, of BrotmanLaw in Philadelphia, represents individuals before licensing boards, providing effective, caring and efficient assistance. She has served as an assistant federal defender in Philadelphia and practiced in small, medium and large firms with a focus on criminal defense, appellate advocacy, professional responsibility and ethics.

You can also find this article, as published, here.

[1] CNA, an insurer that provides coverage for attorneys has created a helpful online toolkit that includes many good forms: