There is a lot of information available about Referendum 2011 and we hope we have provided some materials that make the information easier to digest. Late last week, we received a question asking about a concern from some criminal defense lawyers that the proposed amendments, if passed, would turn fee collection in the criminal defense world on its head. To get the best answer possible, we asked past chairs of the Texas Disciplinary Rules of Professional Conduct Committee the question and following below is the quick answer and then a more in-depth answer from past chair Lillian Hartwick. We hope this is helpful to Texas lawyers as they think about the proposed rules.

From the TDRPC Committee chairs: 

"This concern may be a reference to proposed Rule 1.15 (regarding safekeeping of property). This rule does nothing to harm defense counsel, but defense counsel should be aware that there may be obligations under other laws on how to handle fees not yet earned. Criminal defense lawyers should not have an ethical problem with this rule but should review the law on commingling client and lawyer funds when the lawyer has possession of unearned fees. The proposed rule does not change this law (and it could not) and puts criminal defense lawyers in no worse or better position than the current rule."

For a more in-depth explanation of the discussion leading up to the proposed rule, here is a historical explanation from Lillian Hartwick, former chair of the TDRPC Committee:

The ABA Model Rule:

(c) A lawyer shall deposit into a client trust account legal fees and expenses that have been paid in advance, to be withdrawn by the lawyer only as fees are earned or expenses incurred.

The Texas proposal:

(d) A lawyer shall deposit unearned fees and advanced expenses into a client trust account, to be withdrawn by the lawyer only as fees are earned or expenses are incurred.

Following is the explanation by the Committee (in its report) regarding why it rejected that provision—

ABA Paragraph (c) This paragraph tells lawyers that legal fees and expenses paid in advance shall be deposited into the client trust account, to be withdrawn only as earned. The Task Force also adopted this paragraph. The Committee did not adopt this paragraph. Lawyers use different terms to label advance payments. Sometimes they are called flat fees. Sometimes agreements with clients make it clear that fees paid in advance are non-refundable retainers or flat fees. Sometimes clients agree that the lawyer has earned the fee when it is received. The validity of such agreements will depend on many factors, such as the work actually done, the client’s sophistication and the client’s desire to hire a particular lawyer. The variations on these agreements and the different results in the case law depending on the facts involved make this area not suitable for the blanket rule proposed by the ABA.

During the court conference in March 2008, the committee continued to suggest that the issue that the ABA was targeting be handled in the comments. (The committee actually suggested this comment during the conference: "When a lawyer receives from a client moneys that constitute a prepayment of a fee, the lawyer shall handle that fee in accordance with this rule until the lawyer has earned the fee.") Part of the committee’s concern was that some readers wouldn’t know an “advance fee” (the rule contains “advance”) from a “flat fee,” causing the rule language to be unclear. However, given reasoning from the Court, the committee ultimately agreed to the inclusion in the rule, as long as comments made clear that there were many kinds of fee agreements, implying that a flat fee agreement was certainly a possibility, but that it should be clear (to the lawyer, as well as to the client) and agreed to by the client. Thus, no one in the conference was anticipating making a flat fee (or even advance fee) arrangement go away. However, the goal was to make lawyers think about any differences between those two types of fee agreements (and Texas case law may suggest they’re the same, such that criminal defense lawyers should find some other term to use or not use a term and simply be descriptive in a written fee agreement with the client).

The criminal bar should understand that (except for the problem of commingling, which is a violation of this rule) its problem would be with applicable law, not this rule, as indicated in the proposed comment: “Paragraph (d) addresses unearned fees. Fee agreements sometimes state that the fee is a flat fee, advance fee, nonrefundable retainer, or some other kind of fee. But without regard to the label, if the fee is a prepayment for services, paragraph (d) requires a lawyer to deposit the fee into a trust account until it is earned. Applicable law, not these Rules, determines when a fee is earned.” If a criminal defense lawyer takes money that applicable law says belongs to the client, the lawyer has violated a number of the Rules.