What Clients Should Look for in Their Retainer Agreements

Summary: The attorney is free to negotiate terms in the retainer agreement that are most beneficial to the attorney, subject to the California Rules of Responsibility and the laws applicable to retainer agreements.  These rules and laws recognize that it is the public policy of California to protect clients as consumers of legal services and to promote integrity in the legal profession.  Clients and potential clients should know about them, even if the agreement has already been signed.

One of the benefits of retaining an attorney is the fiduciary duties that attorneys generally owe the client.  These duties require the attorney to look out for the best interests of the client and to even put the client’s interests ahead of his own.  However, many people do not consider that  before the attorney is hired, the attorney  can act in his own self-interest.

Before hiring an attorney, every client should know what to expect from the attorney-client relationship, and one area that is especially important is the retainer agreement.  This is the document that defines the duties and obligations between the client and the attorney, and when fairly drafted, can be the client’s most important evidence if the relationship for some reason breaks down.

The retainer agreement must be in writing to be enforceable.  There are a few exceptions, such as (i) when the reasonably foreseeable total expense is less than $1000; (ii) the services are rendered during an emergency when it is impractical to enter into a written agreement; (iii) if the services are generally the same as those previously rendered to the client; (iv) the client waives his or her right to a written agreement;  or (v) the client is a corporation.  Cal. Bus. & Prof. C. § 6148(d).

At minimum, the written contract must contain the basis of compensation (usually the hourly rate or flat fee), the general nature of the legal services to be rendered, and the respective responsibilities of the attorney and the client.  Cal. Bus. & Prof. C. § 6148(a).

There are additional requirements in contingency cases.  When an attorney agrees to represent a client on a contingency basis, it means that some portion of the attorney’s compensation depends on the outcome of the case.  A typical example is an attorney who agrees to sue a negligent driver on behalf of an accident victim for 30% of any money recovered, but agrees that if the attorney is not successful, the client does not have to pay for the services.  A contingency representation also occurs if only a portion of the compensation is contingent on the outcome.

The contingency fee agreement must state what the contingency fee is (usually the attorney’s percentage of the recovery); how costs will affect the contingency fee and the client’s recovery (in other words, whether the costs will be deducted before or after the attorney takes his or her fee); and whether the client could be required to pay the attorney for related matters not covered by the contingency fee contract.  The contract must also state that the fee is not set by law but is negotiable.  Cal. Bus. & Prof. C. § 6147(a).

Contingency fee rates in medical malpractice cases are further subject to the limits specified by law, which currently are 40% of the first $50,000; 33.3% of the next $50,000; 25% of the next $500,000; and 15% of the amount over $600,000.  Cal. Bus. & Prof. C. § 6146.

The attorney is obligated to know these rules, and to apply them, even if the client is unaware.  However, often the attorneys do not comply with these statutes.  If the attorney does not provide a written retainer agreement, or omits any of the required terms, then the agreement is voidable by the client.  This means that the attorney is not entitled to the fee as stated in the contract, but instead is entitled only to a “reasonable fee” based on the work performed.  The contract is voidable at any time the services are performed, or in some cases, even after the legal services are performed.  However, the statute of limitations may limit the ability of the client to recover any fees paid in violation of these consumer protection statutes.  Cal. Bus. & Prof. C. § 6148(b).

Retainer agreements are written by attorneys and are difficult for the layperson to understand.  Sometimes, it is a good idea just to have a second set of eyes take a look.  If you think that your retainer agreement does not comply with the law, or you have concerns about how your attorney has been responding to your queries, managing your case, or paying out your settlement, do not wait.  Contact us for a free consultation.

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