Ethics in Brief

Ethics in Brief is designed to present ethical issues that practitioners might well face on a daily basis. It is a service of the Legal Ethics Committee of the San Diego County Bar Association.

Ethical and Best Practices Considerations in Dealing with Client Billing and Fund Handling Disputes

Imagine a client who during the course of your representation of her disputes your billings and your handling of her funds. Such a client may file a State Bar complaint potentially triggering a State Bar investigation or worse. The Ethics in Brief article appearing April 9, 2018 discussed best billing practices. This article will focus on ensuring compliance with State Bar rules relating to billings and financial records, on avoiding financial disputes over billings and on measures to minimize your risk of destroying a client relationship. The referenced rules are found in the State Bar Act and the California Rules of Professional Conduct (CRPC).

What does the State Bar Act and the CRPC require of you?

CRPC Rule 3-700(D)(2), entitled “termination of employment,”  requires that counsel “promptly refund any part of the fee paid in advance that has not been earned.” Chapter 4 of the CRPC entitled “Financial Relationship with Clients” identifies counsel’s obligations regarding the handling of funds and the provision of accounts to clients.

For example, Rule 4 – 100 requires a member to maintain complete records of all funds, securities, and other properties of a client coming into the possession of the member or law firm and to render appropriate accounts to the client regarding them; to preserve such records for no less than five years; and to comply with any order for an audit of such records issued pursuant to the rules of procedure of the State Bar. If the client requests a bill it shall be provided within ten days of the request subject to several exceptions. Business and Professions Code section 6148.

Further, at all times during the representation, a member  shall “promptly pay or deliver, as requested by the client, any funds, securities, or other properties in the possession of the member which a client is entitled to receive.”

Finally, Rule 4 – 100 details the nature of the financial records which must be maintained. Such records include a written ledger for each client on whose behalf funds are held setting forth the  client’s name, details about the receipt of funds and their disposition; a journal for each bank account that sets forth the name of the account and debit and credit related information; all bank statements and canceled checks; and each monthly reconciliation.

Also, relevant to any fee dispute is CRPC Rule 4 – 200 which proscribes any “illegal or unconscionable fee” and sets forth 11 factors that are to be taken into account in determining the “unconscionability of a fee.”

What can you do proactively to minimize the risk of a client complaint to you and to the State Bar about a fee or other financial dispute?

The April 9, 2018 Ethics in Brief article relates how a bill or invoice is a means of both educating a client as to the value of the work done and persuading a client that the charge is appropriate and fair. Such communication and education will go a long ways towards minimizing disputes and any potential State Bar complaint.

The engagement agreement is another tool that can be used to educate clients and to minimize the risk of disputes and State Bar action. The engagement agreement is the occasion on which the client is asked to agree to the charges to be imposed for representation and should detail how those charges are calculated. A provision providing for a discrete time for a client to challenge a bill may very well have a beneficial effect in minimizing the risk of a postponed complaint about a bill.

A budget or estimate also will assist in controlling expectations. Monthly statements that are detailed in their specification of the services rendered and the value of those services are an important step.

If a dispute arises, presumably you have complied with the requirements of CRPC Rule 4 – 100 and are in a position to provide the client with not only monthly invoices but additional financial information required by the rule. The best advice is to be extremely responsive to a client concern or complaint by providing whatever information and justification is appropriate to attempt to mitigate the dispute.

In addition, if the amount in dispute is not substantial an accommodation with the client by way of a settlement may be appropriate rather than having to deal with a State Bar investigation and potentially putting your license at risk. In such a settlement counsel may request a waiver of any potential malpractice claim together with a Civil Code section 1542 waiver assuming that the client is provided with proper guidance in writing of the consequences of such a settlement.

Finally, accommodation of a client complaint and not stonewalling will go a long way to diffusing a dispute.

Charles Berwanger is a partner with Gordon Rees Scully Mansukhani, LLP.

**No portion of this summary is intended to constitute legal advice. Be sure to perform independent research and analysis. Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**