As a small firm practitioner representing businesses and their owners, you have requested an opinion on the propriety of offering your clients a periodic "subscription" for clients who envision the need for legal services and would find it helpful to secure the availability of counsel in a cost-effective manner.
Following what you see as a trend toward "subscription" plans in other industries, you would offer a package of legal services in exchange for a set monthly, quarterly or annual fee. Although you have yet to formulate the details of these plans, you would envision writing a certain number of letters, reviewing a certain number of documents or taking a certain number of telephone calls as part of the "package." Should clients require work beyond the scope of their plans, you would bill for these services at a specified hourly rate under a separate retainer agreement.
You ask our opinion on whether such fees must be placed into your client trust account, on the extent to which portions of this fee must be refunded to clients who do not avail themselves of your services, and on a dollar amount that would be considered "reasonable."
To the extent that this arrangement guarantees your availability to serve the client, it incorporates elements of an "engagement fee." An "engagement fee" is a fee for the attorney to accept a case, to be available to handle it, and not represent another party. See Docket Nos. 1993-20, 1993-24, and 1992-41. Originally used in a litigation context, engagement fees were once used to ensure an attorney's availability by precluding the lawyer from representing an adversary. Unlike a retainer for actual legal advice and services, clients paid this fee to ensure that the lawyer refrain from working for anyone adverse to that client.
Since there is no requirement that the attorney provide any additional legal service, true engagement fees are earned upon receipt and should not be deposited into a client trust account. Id.; see also Docket No. 1987-09 (upfront payments are "ethically proper so long as the amount involved is reasonable"); Docket No. 1988-21 (upholding earned retainers in such circumstances). So long as this "availability fee" is reasonable, it may be placed in the attorney's operating account as earned when received.
Unlike a traditional engagement fee, your subscription plan would compensate you not simply for your availability, but also for offering clients a discrete menu of services available upon request at no additional cost. Those who foresee the need for certain assistance may welcome an opportunity to pay a modest fee to reserve the services of an attorney who will provide them upon request without additional charges. It is conceivable that you could take on two subscription clients who had no conflict when their subscriptions started, but developed a conflict during the course of the subscription period. As such, you cannot guarantee your availability to a client in the same manner as an engagement fee arrangement would.
Considering the potential benefit to clients who may not be able to afford traditional fee arrangements, we believe that there is merit to subscription plans which promise availability (absent an unforeseeable conflict) and some services. However, there was considerable debate among members of our committee on whether one may place these fees into a firm’s operating account prior to rendering services for the applicable period.
Under MARPC 1.15(c), one need not place retainers into trust if “the client gives informed consent, confirmed in writing, to a different arrangement.” Under MARPC 19-301.0(f), “informed consent” requires that “the attorney has communicated adequate information and explanation about the material risks of and reasonable alternatives to the proposed course of conduct.” Given that subscription service plans are a new and evolving fee and service model, the material risks may be difficult to foresee, and such is good reason for attorneys to approach this model cautiously and modestly. At a minimum, the subscription plan must fully inform the client of the following:
The specific services to be provided in exchange for the subscription fee and any limitation on the client’s use of these services within a particular service period;
The method by which a subscribing client may request such services and the time frame within which such services are to be provided;
The benefits of a subscription which would reserve your availability for representation, but which would also compensate you for providing the specified services upon request and without additional charge;
The risks associated with this form of representation. Although it may be hard to predict all risks associated with this plan, you minimally must inform the client that conflicts of interest and other legal issues may later arise which could preclude you from rendering some or all of these services;
The situations in which additional charges would apply for any of the services listed, and whether additional retainer agreements would be required for more extensive work;
Since these fees will be earned irrespective of whether the client actually requests such service, you should advise subscribers that the plan may not work to their advantage if they do not use available services;
The circumstances under which subscription fees must be refunded to the client, including a provision that fees would, at a minimum, be refunded if the attorney fails to render some or all of the services requested; and
The client’s right to cancel the subscription at any time, subject to the refund policy specified.</li>
A disclosure that subscription fees will be deposited into the attorney’s operating account upon receipt, subject to refund of the entire subscription fee if the attorney was not available to provide the specified services upon request.
Beyond the parameters of the plan itself, your subscription plan must inform subscribers of reasonably available alternatives, including the option of placing their fees into a trust account until earned at the end of the service period. Although subscribers may qualify for refunds regardless of where these fees are deposited, you must explain that funds held in an operating account are subject to greater risk, which may make it more difficult to get a refund in the event of your death, bankruptcy or other event which may impair the liquidity of your assets. Finally, your subscription plan should expressly affirm the client’s right to consult with other counsel before entering into it. See DC Bar Opinion 355.
Although this Committee has, in some circumstances, upheld what we called “nonrefundable” retainers, we have only used this label in situations where such retainers are both reasonable and truly “earned.” See Docket Nos. 1987-09 and 1988-21. Other ethics committees that have approved of plans similar to yours would prohibit attorneys from labeling fees as “nonrefundable.” See, e.g., DC Bar Opinion 264, NYC Bar Ethics Opinion 1996-5 (permitting prepaid legal services so long as fees are refundable). Recognizing the heightened scrutiny that courts have placed upon alternate fee arrangements, see, e.g., Attorney Grievance Comm’n v. Stinson, 428 Md. 147, 50 A.3d 1222 (2012), you should avoid the “nonrefundable” label and draft your subscription plan to specify those circumstances in which fees will, in fact, be refunded.
Regardless of the manner in which legal services are arranged, attorneys may only earn fees to the extent that they are “reasonable.” “An attorney shall not make an agreement for, charge, or collect an unreasonable fee” under Rule 1.5(a) of the Maryland Attorneys’ Rules of Professional Conduct.
To determine whether a fee is reasonable, MARPC 1.5(a) establishes the following factors:
<ol>
1. the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;</li>
2. the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment of the attorney;</li>
3. the fee customarily charged in the locality for similar legal services;</li>
4. the amount involved and the results obtained;</li>
5. the time limitations imposed by the client or by the circumstances;</li>
6. the nature and length of the professional relationship with the client;</li>
7. the experience, reputation, and ability of the attorney or attorneys performing the services; and</li>
8. whether the fee is fixed or contingent.</li>
</ol>
The rule does not expressly address subscription plans. But, regardless of whether a given client takes advantage of these services in a given period, we believe that plans which make legal services more affordable when aggregated among a larger group of clients may be “reasonable.” Like prepaid legal services plans (or legal “insurance” products), a subscription model enables the attorney to reduce the cost of legal services by spreading it among a larger group of clients.
Because the profitability of a subscription plan increases as utilization decreases, we would caution you to consider the means by which you would meet the needs of your clients if things do not go according to plan. Hence, if a larger number of subscribers take advantage of your services than you anticipated, we would question whether you overextended your availability and promised more service than you can reasonably and competently deliver. Despite the reduction in the overall cost of legal services, a subscription model should not reduce the quality of representation provided and each subscriber is entitled to the same level of professionalism, competence and diligence as any other client.
Subscription fees must meet the reasonableness requirements of MARPC 1.5. Given the factors listed in MARPC 1.5(a), reasonable dollar amounts may vary in relation to the customary charges in your region, the nature of the services offered, your level of experience and a variety of other considerations. Thus, rather than express an opinion on what dollar amount would be reasonable, we must defer to your market research and adherence to MARPC 1.5 to establish appropriate fees
Whether a given plan meets these and other ethical requirements is a highly fact-dependent inquiry. Indeed, we must caution attorneys who choose to implement such plans to anticipate potential pitfalls, to incorporate indicia of reasonableness in their engagement agreements, and to ensure that each client is fully informed regarding every aspect of the arrangement.
Recognizing the need for innovative approaches to the delivery of legal services, our committee spent several months reviewing the merits and the mechanics of your proposed model. Lacking ethical rules which expressly address these approaches in Maryland, we cannot guarantee that the Court of Appeals would share the views expressed in this opinion and would encourage you to proceed with caution. Given the importance of alternative fee arrangements to the profession and to the public at large, we hope that the Court’s Standing Committee on Rules of Practice & Procedure will promulgate appropriate rules to meet this growing need.
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<h3>Concurrence and Dissent</h3>
<strong>Concurrence</strong>
As a small firm practitioner representing businesses and their owners, you have requested an opinion on the propriety of offering a periodic “subscription” plan for clients who envision the need for legal services and would find it helpful to secure the availability of counsel in a cost-effective manner.
Following what you see as a trend toward legal “subscription” plans in other industries, you would offer a package of legal services in exchange for a set monthly, quarterly or annual fee. There are resource guides for lawyers that suggest offering subscription plans and discuss their value, attributes and complications, noting, in some, that there will be ethical rules that can help guide their formulation. See: https://lawyerist.com/client-service/pricing; https://myshingle.com/ 2014/ 02/articles/ethics-malpractice-issues/legal-subscription-services-revisited-ethics-edition/ and https://www.abajournal.com/news/article/With-technology-law-firm-subscription-plans-can-produce-steady-income-and-better-serve-clients.
Although you have yet to formulate the details of a plan, you envision writing a certain number of letters, reviewing a certain number of documents or taking a certain number of telephone calls as part of the “package.” Should clients require work beyond the scope of their plans, you would bill for these services at a specified hourly rate under a separate retainer agreement.
Specifically, you ask:
Will this monthly engagement fee be deemed a "fee advance" if the client knows they can call me for answering a quick question? What amount is "reasonable" for an engagement fee?
Ultimately, you are asking the Committee whether fees received under a subscription plan are “engagement fees” (or comparable thereto), and thus, earned upon receipt and can be immediately deposited into your operating account.
As you were advised on the MSBA Ethics Hotline, the answers to your questions are the same– it depends. The determination of when a fee is “earned” ultimately is a question of law. We stated almost 30 years ago that, “The Committee on Ethics does not issue opinions on questions of law and it cannot opine as a matter of ethics when a fee is earned.” Ethics Docket 1993-20.
What we can say is what we wrote 20 years ago when this Committee addressed the question whether an attorney could ethically enter into a general retainer agreement with clients and prospective clients pursuant to which the lawyer would receive a fee in a monthly or annual amount to assist the clients with specific legal matters. The Committee answered: “In short, while the Committee does not perceive any ethical improprieties in the prepaid legal services plan you have generally described, the devil is in the details. For this reason, the Committee has forewarned previous inquiries regarding this subject.” Ethics Docket 2000-39.
It is still our opinion that under the Maryland Attorneys' Rules of Professional Conduct (MARPC), subscription fee plans are ethical so long as the fees meet the reasonableness requirements of MARPC 1.5. The committee collectively feels that the question of whether a given subscription model is ethical is a highly fact dependent inquiry, and one that should not be undertaken lightly.
Due to the nature of periodic subscriptions, one can foresee the possibility that a subscription period could pass without any substantial legal work performed for a subscriber client. In such a scenario, retaining the full fee could cause the Court of Appeals to find the fee “unreasonable” and thereupon subject the attorney to severe discipline. See, Atty. Griev. Comm’n v. Stinson, 426 Md. 147 (2012).
In Stinson, the Court of Appeals sanctioned an attorney for handling legal fees as “engagement fees” when the only obligation imposed on the lawyer under her fee agreements “was nothing more than that ethical obligation imposed on all lawyers when they agree to provide legal services to a client.” Id. at 184 (i.e., willingness to provide legal services to the clients, ensuring her availability to the clients, and willingness to provide legal services for a reasonable fee). Notably, the attorney’s “Engagement Fee Agreement” clearly stated that the fee under the agreement was “nonrefundable.” Id. at 158.
The Stinson Court specifically noted that the “Engagement Fee Agreement” did not reflect that the alleged engagement fee was paid because: 1) The attorney was precluded from representing another party; 2) The attorney’s expertise and experience in the relevant area of law justified the fee; 3) The attorney was required to prioritize the client’s work over that of other clients; 4) The attorney would need to hire additional staff in order to carry out the client’s work; or 5) The attorney would need to turn away work she otherwise would have undertaken. Id. at 184.
Similarly, in an opinion addressing a question concerning a flat fee we stated, “As noted, Rule 1.5 requires that a fee be reasonable. Accordingly, circumstances may arise after representation has begun which may compel an attorney to make a refund of all or a portion of a . . . fee.” Ethics Docket 1993-20.
In light of Stinson and Ethics Docket 1993-20, we caution attorneys who choose to implement a subscription fee model to recognize the potential pitfalls in advance, incorporate indicia of reasonableness in their engagement agreements with clients, and fully inform the client in the agreement regarding every material aspect of the engagement.
Moreover, we encourage The Court of Appeals Standing Committee on Rules of Practice and Procedure to outline a clearer structure for the use of subscription fees by the legal profession.
As to handling fees generated from a subscription plan, MARCP 1.15(c) says that an attorney need not place retainers into a trust account if “the client gives informed consent, confirmed in writing, to a different arrangement.” MARCP 19-301.0(f) defines “informed consent” and requires that “the attorney has communicated adequate information and explanation about the material risks of and reasonable alternatives to the proposed course of conduct."
Thus, you should develop an engagement contract that fully describes to the client how the plan will work and how the fees are to be earned, held and disbursed, including any rights to a refund, as well as the material risks to the client and reasonable alternatives. You may wish to look at our opinions and opinions from other states such as D.C. Opinion 355 for suggestions on the type of information a client should be provided when discussing the balance between earned fees and those in trust to satisfy the informed consent requirements of the Rules. (1)
Regardless of the terms of the engagement, retrospective analysis of the fee may lead to a conclusion of unreasonableness and should that occur, all or part of the fee becomes refundable regardless of the terms of an engagement agreement. We again commit to your reading the Stinson case.
Finally, a lawyer embarking on this business model should foresee that conflicts between subscribers might occur; therefore, it would be prudent to address in the engagement agreement how the lawyer will identify and resolve conflicts in conformity with the Rules of Professional Conduct.
<strong>Dissent</strong>
Frank disagreements and discussions followed by reasoned consensus is the norm for the Ethics Committee. Nevertheless, this Committee has struggled for months over your questions to formulate a written response in which all members would join. It is now firmly clear that further discussion will not bring us to consensus. Accordingly, the time has arrived to finalize and issue our responses to your inquiry.
In summary, it appears nearly all of the Committee can agree that a subscription plan, in theory, can comply with the Rules of Professional Conduct. Where members differ is over the details regarding what must be included in a subscription plan’s engagement agreement in order for it meet the ethical requirements of our profession.
The foregoing concurrence reflects what a substantial minority of the Committee believes should be this Committee’s opinion. In our view, it is both unnecessary under the Rules of Professional Ethics, and unreasonable in practice, for this Committee even to suggest that an attorney in Maryland must advise a new or potential client of the right to consult with another attorney to review a proposed engagement agreement. We believe the majority’s citation to D.C. Opinion 355 in support of this proposition is misplaced. D.C. Opinion 355 does not reach such a conclusion, but rather merely cites a footnote to a comment to the definition of “informed consent.”
We similarly believe it is unwarranted and impractical to list a host of considerations of which a client must be informed in an engagement agreement given the variety of plans that creative attorneys could conceive, each generating potential ethical pitfalls specific to the facts of the plan as drafted.
As we stated above, “The committee collectively feels that the question of whether a given subscription model is ethical is a highly fact dependent inquiry, and one that should not be taken lightly.” We would encourage any attorneys considering such a plan to take our warning to heart.
Although we join in the rare step of issuing a written dissent, we respect the majority’s differing views and value the work of the author of the majority opinion and its adherents. We just disagree with an approach that seems overly intrusive into a lawyer’s business, beyond our scope, and offering solutions for problems that may not even exist in a subscription plan that has not yet been fully envisioned.
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<ol>
<li>D.C. Opinion 355 discusses flat fees and specifically does not discuss prepaid legal service plans. See: D.C. Op. 355 footnote 6. The Committee reaffirms its advice in its Opinion 1993-20 regarding flat fees, but suggests consideration of the District’s Committee’s exhortation that engagements be in writing, even when not required especially where alternative fee arrangements such as flat fees, subscription plans, prepaid legal services plans, among others, form the basis of the attorney client contract. Because subscription plans bear a greater relationship to prepaid legal services plans than flat fees, this Committee does not adopt the D.C. Opinion 355 as a perfect analog but recognizes its value in conceptualizing the basis for establishing “informed consent.” We note again and stress that under Rule 1.15 if the engagement allows funds to be placed in an operating account before the work is performed, then the agreement must be in writing.</li>
</ol>