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The ABC's of Fees

Posted By Colleen Glatfelter, Tuesday, March 1, 2016

By Leanor Bailey Hodge, Professionalism Committee Member

Did you know that in North Carolina, there is no such as thing as a non-refundable fee?   This is true without regard for the type of fee structure used in the representation.  Rule of Professional Conduct 1.5 governs fees.  It provides in part that “a lawyer shall not make an agreement for, charge, or collect an illegal fee or clearly excessive fee….”  N.C. Rules of Prof’l Conduct Rule 1.5(a).  There are four types of fee structures that are commonly used in North Carolina:  general retainer, advance payment, flat fee, and contingent fee.  A general retainer exists when a client pays consideration at the beginning of a representation to reserve the exclusive services of a lawyer, but the payment is not used to pay for actual representation.  This fee is earned upon payment.  Many lawyers confuse the general retainer structure with the advance fee.  An advance fee structure exists when a client deposits a sum of money with the lawyer against which sum the lawyer will bill, usually on an hourly basis, as legal services are rendered.  The advance fee payment belongs to the client until it is earned by the lawyer.  The lawyer must refund the unearned portion of the fee upon termination of the lawyer-client relationship.  The third type of fee structure is the flat fee.  The flat fee is paid at the beginning of the representation for a specified legal service on a discrete legal task or isolated transaction that is to be completed within a reasonable amount of time (e.g. drafting a deed, handling a traffic ticket).  The flat fee pays for all legal services rendered in connection with the transaction regardless of the amount of time the lawyer expends on the matter.  When charging a flat fee, the lawyer should take care to confirm with the client whether the flat fee is earned upon receipt or upon completion of the legal task.    The last type of commonly used fee structure is the contingent fee.  The contingent fee is contingent on the outcome of the matter for which the legal service is rendered.  If the fee arrangement provides for payment of a contingent fee, the fee agreement must be in writing signed by the client.  Also, the written contingent fee agreement must state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal; litigation and other expenses to be deducted from the recovery; and whether such expenses are to be deducted before or after the contingent fee is calculated.  N.C. Rules of Prof’l Conduct Rule 1.5(c).  All legal fees in North Carolina are refundable.  Regardless of which fee structure you choose, you may be required to refund all or part of the fee if the fee is determined to be unearned or clearly excessive and thus in violation of Rule 1.5(a).

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