Freedom to Contract and Flat Fees

Furthering my discussion of the proposed amendments to the Texas Disciplinary Rules of Professional Conduct …

If you want to give me a very large gift, you may. The government will not, as a general rule, interfere. If you have giver’s remorse, neither law nor equity will require that I return the gift except in narrow circumstances—where I have defrauded you or taken advantage of some particular vulnerability of yours, for example.

If you don’t want me to represent you, you don’t have to have me represent you. The government will not force you to, except in narrow circumstances.

If I want to work for you for free, I may. The government will not, as a general rule, interfere. If I change my mind and demand payment, neither law nor equity will require that you pay me for my time.

If I don’t want to work for you at all, I don’t have to. The government will not (again, as a general rule) force me to.

These general rules are the foundations of freedom to contract: we can do what we want with our property and our precious time. If you can give me a very large gift, you can pay me a very large sum to work for you, a very small one, or anything else we agree on. If I can work for you for free or refuse to work for you at all, I can demand any payment I like for my services. And if you don’t have to have me represent you, you can decline to pay whatever I demand for my services.

Generally. You may not defraud me or hire me to do something illegal, and I may not defraud you.  Legal fees are not a free-for-all because clients often come in vulnerable positions to lawyers, and lawyers shouldn’t take advantage of people’s vulnerability, so I may not charge an unconscionable fee (the standard under the current Texas Disciplinary Rules of Professional Conduct: “A fee is unconscionable if a competent lawyer could not form a reasonable belief that the fee is reasonable”). Other than that, contract principles apply and should apply.

Exceptions to the freedom to contract should be justified. So what justifies barring flat fees?

The public-policy argument is that clients should be able to change lawyers, and that a flat-fee contract hampers the client in changing lawyers: if the client can’t get back part of the fee paid to Lawyer A, he might not have money to hire Lawyer B.

But most clients never want to change lawyers, and saving from themselves those who hired the wrong first lawyer and didn’t prepare for the contingency of a change of counsel doesn’t justify depriving the rest of their right to contract, especially since flat fees are good for clients, and public policy strongly supports their continued existence.

What other argument is there for doing away with flat fees? Hourly fees are more susceptible to fraud and overreaching.

2 responses to “Freedom to Contract and Flat Fees”

  1. Having some interest in such matters . . . contracts work best, it seems to me, when they’re free agreements between two parties who are free to walk away, and the role of regulation should be on matters around the freedom to walk away. A person sitting at home with a sizeable bank account (say, the stereotypical “white collar” about-to-be-accused) may have very little knowledge, but does have a lot of freedom in choosing representation. Put the same guy in jail, and in an orange jumpsuit, and it’s less so. But it’s not zero, or anything close to that. With a little determination, the guy sitting in jail, whether in Harris County or elsewhere, can interview multiple CDLs, and make an at least partially-informed decisions as to what lawyer and what terms can work for him. Much of that, of course, in reality, depends on the interviewed CDL being men and/or women with ethics. (An unethical CDL can cheat the guy no matter where he sits.)

    Taking away the guy’s right to contract — to agree to a flat fee that, absent special circumstances, his new CDL gets to keep — is an imposition on his right to contract mainly if flat fees are not forbidden; in the other scenario, all CDLs are forced to agree to hourly fees, which is peachy-keen for the defendant, as long as one assumes that a: flat fees are bad for him, and b: the Myth of the Last Move is utterly true.

    It isn’t. It’s a lie. The (ethical, just to pick a subset) CDL has other moves — require a retainer that might exceed what a flat fee or flat-minus-trial-fee fee might have been; move to another jurisdiction, with freer rules . . . etc.

    The persons disadvantaged by the prohibition are the CDLs who really want to serve the given client, but keep the money they’re paid for sure, and the clients for whom the flat fee is a better deal than an hourly one.

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