The Texas Bar’s Professional Ethics Committee recently advised that attorneys may renegotiate a flat-fee under certain circumstances with fairness as the overarching guideline.
The Committee explained that although the Texas Disciplinary Rules of Professional Conduct do not specify whether an attorney may renegotiate a fee agreement after litigation commences, Texas courts have held that renegotiating a fee agreement may be an acceptable practice. In those cases, courts indicated that special scrutiny is imposed on attorneys looking to renegotiate fees because of the burden that may be imposed on the attorney’s client.
The Committee’s opinion stressed two factors to consider when determining whether are negotiated fee is fair: the history of the attorney-client relationship and the client’s sophistication in similar matters. The first factor looks at the prior history between the attorney and the client. Citing Comment 2 from Rule1.04 of the Texas State’s Bar’s rule on attorney fees, the Committee concluded that “longstanding client relationships should be distinguished from new lawyer-client relationships” when determining whether a renegotiated fee is fair.
A longstanding relationship may connote a reasonable understanding on both sides as to the nature of representation that is promised in exchange for a flat fee. If the nature of the representation greatly expands due to unforeseen circumstances (e.g. a simple debt collection case receives a counterclaim that alleges a class action), then both sides may agree that a fee renegotiation is fair so that the attorney receives reasonable fees. On the other hand, in a new relationship, the burden generally remains on the attorney to reasonably anticipate the cost of representation.
The second factor, the client’s level of sophistication, pertains to a client’s prior experience with litigation. Although both the attorney and the client assume risks when agreeing to a flat-fee rate, it is presumed that the attorney is more knowledgeable about the appropriateness of the fee because he or she can anticipate the amount of time and effort needed for the representation.However, this presumption may be challenged depending on the client’s experience and sophistication. For example, a sophisticated corporate client whois familiar with litigation may possess the knowledge to properly anticipate the resources needed for representation. On the other hand, an individual client who has retained an attorney for the first time may lack the experience and insight as to the reasonable cost of litigation.
Thus, both the nature of the attorney-client relationship and the sophistication of the client should be considered before an attorney attempts to renegotiate a flat-fee. Read the full opinion here.
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