In re Mance, 980 A.2d 1196 (D.C. 2009)

Brief Summary
The District of Columbia Court of Appeals held that flat fees do not become attorney property — and therefore must be held in trust — until earned by the attorney. Moreover, it is unreasonable to consider a fee “earned” before the attorney renders any services.

Complete Summary
Attorney Robert Mance agreed to represent a client for a flat fee. Mance deposited the fee into a client trust fund. The client terminated Mance early in the representation. Mance agreed to return the client’s initial payment, but after waiting nearly three months to receive the money, the client filed a complaint with Bar Counsel. Although Mance returned the money a week later, Bar Counsel — despite the client’s wishes — pursued the complaint.

Bar Counsel argued that Mance’s conduct violated, inter alia, Rule 1.15(d) of the D.C. Rules of Professional Conduct. Rule 1.15(d) generally requires lawyers to treat fees paid in advance as client property until earned. The point at which client property becomes attorney property is significant because, under Rule 1.15(a), the two types of property cannot be commingled. The Board of Professional Responsibility found that Mance’s flat fee was not an advance fee and instead characterized it as attorney property which was earned on receipt. The Board therefore sanctioned Mance for commingling his own property (the flat fee) with client property by depositing the fee in a client trust fund. Bar Counsel took exception to this interpretation of Rule 1.15 and appealed.

The District of Columbia Court of Appeals agreed with Bar Counsel, holding that a flat fee paid at the beginning of representation is an advance of unearned fees and, under Rule 1.15(d), is client property until earned. Drawing from the Rule 1.5 requirement that fees must be reasonable, the court held that it is unreasonable to consider a fee to be earned on receipt unless the fee is an engagement retainer designed simply to ensure the availability of the attorney.

Also significant to the court’s decision was the policy embedded in Rule 1.7(b), which gives clients the right to terminate representation. This right, the court noted, could be impaired if clients considering termination were faced with the prospect of forfeiting a flat fee paid in advance.

The court noted, however, that a flat fee is permissible to the extent the client consents to an arrangement whereby the attorney earns portions of the fee upon reaching certain milestones.

Finally, and because Rule 1.15(d) was not clear on its face, the court made its holding prospective. The court therefore adopted the Board’s recommended sanction of public censure based on a failure to timely return funds.

Significance of Opinion
Some District of Columbia lawyers may be surprised by the court’s holding in light of the language of Rule 1.15(d). This continues to be an issue in which the results can vary from jurisdiction to jurisdiction and are still unclear in a number of jurisdictions.

This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.

REGISTER NOW for the Ninth Annual Legal Malpractice & Risk Management Conference

March 3-5, 2010
The Westin Chicago River North Hotel
320 North Dearborn Street
Chicago

Attend the industry's premier annual event focused on current and important developments in the law and litigation of malpractice claims, legal malpractice insurance and risk management strategies. Each conference panel examines recent case law and significant developments throughout the last year. One and one-half days will be devoted to legal malpractice (March 3-4), and one and one-half days will be devoted to risk management (March 4-5).

Earn up to 15 hours of CLE credit, including up to 6.50 ethics credit!

Conference Topics

Legal Malpractice Sessions (March 3-4)

• Standing to Sue, Privity and Duty of Disclosure
• Significant Developments in Litigating Legal Malpractice Claims
• What's Your Little Secret? They Want to Know
• Judgmental Immunity — A Modern Look at the Legal Profession's Oldest Defense 
• Insurance Coverage Update: The Year in Review – Prior Knowledge Redux and the Definition of Professional Services
• 2009 LMRM Case Updates and Statutory Causes of Action
• Stump the Panel

Legal Malpractice/Risk Management Cross-Over Sessions (March 4)

• The Insurance Marketplace and Considerations
• Who is the Client and Standing to Sue – Successor Entities, Affiliates and Subsidiaries
• Advance Conflict Waivers, Screening and How to Do It

Risk Management Sessions (March 4-5)

• The General Counsel Forum
• Suits for Fees/Mandatory Fee Arbitration
• Risk Management Considerations in Restructuring and Winding-Up Law Firms
• Managing Client and Law Firm Data, and What Gives When Client and Firm Policies Conflict?
• On the Horizon – The Slow Motion Revolution

Registration Fees

$1,300 for the Entire Conference - March 3-5
$925 for the Legal Malpractice Sessions Only - March 3-4
$925 for the Risk Management Sessions Only - March 4-5

Discounts (maximum 15% discount per registration)

Returning registrants receive 5% off the conference price
Multiple registrants receive 15% off when two or more colleagues from the same company register for the conference 

For more information, please visit www.LMRM.com or click here to Register Now!