HOW TO COLLECT YOUR FEE WITHOUT GETTING DISBARRED. Written and Presented by:

HOW TO COLLECT YOUR FEE WITHOUT GETTING DISBARRED Written and Presented by: JESSICA Z. BARGER Wright & Close, LLP One Riverway, Suite 2200 Houston, Texas 77056 713.572.4321 Co-written by: MARIE JAMISON Wright & Close, LLP State Bar of Texas 39 TH ANNUAL ADVANCED CIVIL TRIAL COURSE San Antonio July 13-15, 2016 Dallas August 17-19, 2016 Houston October 26-28, 2016 CHAPTER 13

JESSICA ZAVADIL BARGER Partner barger@wrightclose.com Jessica has experience in both trial and appellate matters. In private practice, she assisted in or handled all phases of litigation for a wide variety of clients involved in insurance defense and coverage, products liability, premises liability, personal injury, and commercial lawsuits in state and federal court. At the court of appeals, she researched legal and factual issues, made recommendations to the judges, and assisted the judges in drafting and editing opinions regarding a wide variety of complex civil and criminal appeals, as well as original proceedings. Experience Partner, Wright & Close, LLP, 2012 - Present Associate, Wright & Close, LLP, 2010 2011 Associate, Wright Brown & Close, LLP, 2007 2010 Staff Attorney, Fourteenth Court of Appeals, 2005 2007 Associate, Chamberlain Hrdlicka White Williams & Martin 2004 2005 Associate, Phelps Dunbar 2002 2003 Briefing Attorney, Fourteenth Court of Appeals 2001 2002 Certifications Board Certified in Civil Appellate Law by the Texas Board of Legal Specialization Memberships State Bar of Texas (Appellate Section) Houston Bar Association (Appellate Section)

Education J.D., South Texas College of Law 2001 Law Review, Associate Note & Comment Editor 2000 2001 Varsity Moot Court, Brief Writer 1999 2001 B.A., Political Science and History, Concordia College 1998, with honors Admissions State Bar of Texas State Bar of Minnesota

TABLE OF CONTENTS I. SCOPE... 1 II. COLLECTING FEES FROM AN ADVANCE PAYMENT OR RETAINER... 1 A. Fees a Lawyer is Allowed to Collect and Keep from an Advance Payment or Retainer under Rules 1.14 and 1.15(d).... 1 1. Earned vs. Unearned... 1 2. Non-refundable Retainer vs. Advance Payment... 3 3. Claiming Disputed Fees vs. Holding Disputed Fees... 4 B. How Can You Collect Your Fees?... 4 III. ARBITRATION PROVISIONS AND DISPUTED FEES... 5 A. Types of Arbitration Clauses: Binding vs. Non-appealable... 5 B. How Far Can You Challenge an Arbitration Decision without Violating the Disciplinary Rules?... 6 IV. ADDITIONAL TIPS AND TAKEAWAYS... 6 i

Cases TABLE OF AUTHORITIES Bennett v. Comm n for Lawyer Discipline, No. 14-14-00470-CV, 2016 WL 1165783 (Tex. App. Houston [14th Dist.] 2016, no pet. h.)... 2, 3, 5 Cluck v. Comm n for Lawyer Discipline, 214 S.W.3d 736 (Tex. App. Austin 2007, no pet.)... 3, 4 Comm n for Lawyer Discipline v. Guajardo, No. 01-11-00824-CV, 2012 WL 5545090 (Tex. App. Houston [1st Dist.] 2012, no pet.)... 2, 3 Denver City Energy Assocs., L.P. v. Golden Spread Elec. Coop., 340 S.W.3d 538 (Tex. App. Amarillo 2011, no pet.)... 5 E. Tex. Salt Water Disposal Co. v. Werline, 307 S.W.3d 257 (Tex.2010)... 5 Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266 (Tex. 1992)... 5 Royston, Rayzor, Vickery & Williams, L.L.P. v. Lopez, 467 S.W.3d 494 (Tex. 2015)... 6 Other Authorities Tex. Comm. on Prof l Ethics, Op. 431, 49 Tex. B.J. 1084 (1986)... 3, 4 Tex. Comm. on Prof l Ethics, Op. 580 (March 2008)... 4, 7 Tex. Comm. on Prof l Ethics, Op. 582 (April 2008)... 5 Rules Tex. Disciplinary R. Prof l Conduct 1.04... 3 Tex. Disciplinary R. Prof l Conduct 1.15(d)... passim Tex. Disciplinary R. Prof l Conduct 3.02... 1, 5, 6 Tex. Disciplinary R. Prof'l Conduct 1.14... passim Tex. Disciplinary R. Prof'l Conduct 8.04... 7 Page ii

HOW TO COLLECT YOUR FEE WITHOUT GETTING DISBARRED I. SCOPE There are quite a few ethical issues involved in fee collection and many applicable disciplinary rules regarding the same. This article is designed to explore the ethical considerations involved in collecting (or keeping) attorney s fees under Texas state law, particularly when a client pays a retainer or an advance payment for legal services. Hopefully this article will promote thought and reevaluation of your fee agreements, billing practices, and client relationships. II. COLLECTING FEES FROM AN ADVANCE PAYMENT OR RETAINER There are several disciplinary rules that regulate the manner in which a lawyer may collect fees. The disciplinary rules most relevant to this article and collecting fees from an advance or retainer are Disciplinary Rules 1.14 and 1.15(d). Rule 1.14, commonly referred to as the safekeeping provision, provides in relevant part: (a) A lawyer shall hold funds and other property belonging in whole or in part to clients... that are in a lawyer s possession in connection with a representation separate from the lawyer s own property. Such funds shall be kept in a separate account, designated as a trust or escrow account.... (b) [A] lawyer shall promptly deliver to the client... any funds or other property that the client... is entitled to receive and, upon request by the client..., shall promptly render a full accounting regarding such property. (c) When in the course of representation a lawyer is in possession of funds or other property in which both the lawyer and other persons claim interests, the property shall be kept separate by the lawyer until there is an accounting and severance of their interest. Tex. Disciplinary R. Prof l Conduct 1.14, reprinted in Tex. Gov t Code Ann., tit. 2, subtit. G, app A, (Tex. State Bar R. art. X 9). The safekeeping rule requires a lawyer to place fees that still belong to the client in a trust or escrow account. Those fees must remain in a trust account until earned, and if never earned, must be returned to the client upon request. But how should a lawyer handle funds when a client disputes whether a 1 retainer or part of a retainer has not been earned? May a lawyer ask for a nonrefundable retainer without performing any work on a case and still comply with Rule 1.14? Rule 1.15(d) provides in relevant part: Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client s interest, such as... refunding any advance payments of fees that has not been earned. Tex. Disciplinary R. Prof l Conduct 1.15(d). Rule 1.15(d) mandates that a lawyer refund to the client any advance payment that has not been earned upon termination of representation. But is a lawyer required to refund an advance payment if there is a dispute over what is earned? What constitutes an advance payment? Can a lawyer ask for a nonrefundable retainer (versus an advance payment) without performing any work on a case and still comply with Rule 1.15(d)? Other disciplinary rules may come into play depending on the circumstances of collecting a fee, including Rules 1.04 and 3.02. See Tex. Disciplinary R. Prof l Conduct 1.04(a) (listing factors considered in determining the reasonableness of a fee that an attorney is entitled to charge a client), 3.02 (a lawyer must minimize the burdens and delays of litigation). A. Fees a Lawyer is Allowed to Collect and Keep from an Advance Payment or Retainer under Rules 1.14 and 1.15(d). 1. Earned vs. Unearned A lawyer may collect and place in his operating account fees that have been earned. Typically, lawyers collect an advance payment (or what we often refer to as a retainer) and bill against the retainer. It is probably safe to assume that a fee is earned if: i) The services rendered meet the reasonableness factors listed in Disciplinary Rule 1.04, ii) The lawyer invoices the client for the reasonable services, and iii) The invoice is sent to the client. Once the fee has been earned, the lawyer may move that portion of the retainer or advance payment from his trust account to his operating account. A few appellate courts have addressed whether funds are earned that warrant discussion in this article. In Comm n for Lawyer Discipline v. Guajardo, the First Court of Appeals reviewed a disciplinary appeal brought by the Commission for Lawyer Discipline (the Commission ). No. 01-11-00824-CV, 2012 WL 5545090 (Tex. App. Houston [1st Dist.] 2012, no pet.). In August 2008, Guajardo was retained by

Maurice Khan to assist with an immigration matter for Khan s fiancée. Id. at *1. No formal agreement was drafted, and other than invoices for fees and expenses, all agreements between the parties were oral. Id. Khan initially paid Guajardo $5,355. Id. Guajardo began filing certain forms with the Department of Justice and State Department, requesting permission for Khan s fiancée to enter the state. Id. In September 2008, Guajardo decided to file a writ of habeas corpus in federal court in the District of Columbia. Id. Guajardo s office called Khan and requested an additional $2,450 to file the writ. Khan immediately paid this amount, even before Guajardo sent the invoice for the writ services. Id. Because Guajardo was not licensed to practice in the District of Columbia, she needed to secure local counsel to appear pro hac vice. Id. However, Guajardo was not able to find local counsel and the writ was rejected. Id. After the writ was rejected, Guajardo applied the $2,450 to other costs incurred in the case. On October 24, 2008, Guajardo sent Kahn an invoice for $4,135. Id. at *2. The invoice did not list the costs and fees related to the writ but still applied the $2,450 to other services rendered, leaving a $4,135 balance. Id. Kahn paid the remaining balance. The following year, Kahn terminated Guajardo and demanded Guajardo to return $9,000 of unearned attorney s fees. Id. (emphasis added). Guajardo refused to return any fees, and Kahn filed a complaint with the State Bar. The Commission initiated disciplinary proceedings against Guajardo, and she elected to proceed in a district court. 1 A few months later, some of the forms filed by Guajardo were approved, and Kahn s fiancée was allowed entry into the United States. Id. In the disciplinary matter, the Commission argued Guajardo violated Rule 1.15(d) by not refunding money to Kahn when the federal writ was rejected and then applying the money to other fees and costs incurred relating to other filings. Id. at *3. Specifically, the Commission claimed that when the writ was rejected and Guajardo withdrew her fees and costs associated with the writ, she was required to reimburse the payments made for those fees and costs and had no authority to apply the payment to any other fees and costs incurred by Guajardo. Id. The First Court disagreed with the Commission and upheld the trial court s directed verdict in favor of Guajardo. Id. Citing Rules 1.02 and 1.15(d), the First Court held that Guajardo s work on the writ was within the scope of her original representation of Kahn and his fiancée. Because the writ and other filings fell under one representation and not separate cases or representations Guajardo could apply the funds to services she had rendered. Id. Guajardo invoiced the client for services, the services were rendered and fell within the scope of the agreed representation, and the invoice was sent to the client. Thus, the fees kept by Guajardo were earned, and she did not violate Rule 1.15(d). Id. In Bennett v. Comm n for Lawyer Discipline, the Fourteenth Court considered whether a disputed fee was earned, when it was earned, and if there was a violation of Rule 1.15(d). No. 14-14-00470-CV, 2016 WL 1165783 (Tex. App. Houston [14th Dist.] 2016, no pet. h.). Bennett was retained by Gary Land and paid a $50,000 retainer. Id. at *2. Bennett billed and invoiced Land for approximately $71,000. Id. Bennett applied the $50,000 retainer and invoiced Land for the remaining $21,000. Land subsequently terminated Bennett s legal representation, disputed Bennett s invoice, and demanded a minimum $35,000 refund. Id. Bennett refused, and the parties arbitrated the dispute per their fee agreement. The arbitration panel found in favor of Land and awarded him $27,500. The arbitration award was confirmed by a trial court. Id. at *3. Bennett appealed the confirmation award and was unsuccessful on appeal, at the intermediate level and Texas Supreme Court. The $27,500 was paid to Land after the unsuccessful appeals. Land filed a complaint, and the Commission initiated a disciplinary proceeding against Bennett, claiming, among other things, that Bennett violated Rule 1.15(d) by refusing to return an unearned fee to Land. Id. at *4. The Fourteenth Court rejected the Commission s argument and found that Bennett had not violated Rule 1.15(d) because the rule requires an attorney to return an unearned fee upon the termination of representation. Id. at *5 (emphasis added). In this case, Bennett s termination occurred on August 3, 2011. Id. Because the question of whether the fee had been earned was not settled until July 2012, at the earliest, when the arbitration award was confirmed, Bennett did not fail to return an unearned fee upon his termination. He did not violate Rule 1.15(d). The takeaways from Guajardo and Bennett are that a fee is likely to be deemed earned when the services rendered are reasonable as described in Rule 1.04, the lawyer invoices the client for the services with details of the reasonable services rendered, and the invoice is sent to the client. Once the fee has been earned, the lawyer may move that portion of the retainer from his trust account to his operating account. If a client disputes whether a collected fee is earned, Rule 1.15(d) does not require the attorney to give that portion back to the client. See Bennett, 2016 WL 1165783, at *5. But the lawyer should segregate that disputed fee amount from the undisputed earned fees, which is discussed later in 1 See Tex. Disciplinary R. Prof l Conduct 1.14 (a lawyer may elect to have a disciplinary complaint heard in a district 2 court of proper venue, with or without a jury, or by an Evidentiary Panel )

this article. If a fee dispute is arbitrated and resolved in favor of the former client, the lawyer must refund that amount to the client because there is then a legal determination that the fee is unearned. See id. 2. Non-refundable Retainer vs. Advance Payment Rule 1.15(d) requires an attorney to refund portions of an advance payment that have not been earned. But may an attorney require a new client to pay a nonrefundable retainer without performing any work on the case and keep the retainer? In Ethics Opinion 431 by the Texas Committee on Professional Ethics, that very question was presented: May an attorney ethically charge a non-refundable retainer? Tex. Comm. on Prof l Ethics, Op. 431, 49 Tex. B.J. 1084 (1986). Following other jurisdictions, the Committee concluded that: and: a retainer fee is payment to compensate an attorney for his commitment to provide certain services and forego other employment opportunities, non-refundable retainers are not inherently unethical. The Committee explained that a true retainer is not payment for services but an advance fee to secure a lawyer s services and remunerate him for loss of the opportunity to accept other employment. If the lawyer can substantiate that other employment will probably be lost by obligating himself to represent the client, then the retainer fee should be deemed earned at the moment it is received. If, however, the client discharges the attorney for cause before any opportunities have been lost, or if the attorney withdraws voluntarily, then the attorney should refund an equitable portion of the retainer. See id. In Cluck v. Comm n for Lawyer Discipline, the Austin Court of Appeals followed the reasoning in Ethics Opinion 431, and held that funds paid by a client was an advance payment and therefore not earned. 214 S.W.3d 736 (Tex. App. Austin 2007, no pet.). Cluck was retained by Smith to represent her in a divorce. Smith agreed in writing to pay Cluck a non-refundable retainer in the amount of $15,000. Id. at 737. The written agreement also provided that: 3 lawyer fees are to be billed at $150 per hour, first against non-refundable fee and then monthly thereafter. Id. The contract further stated that no part of the legal fee is to be refunded. Id. Smith paid the $15,000 and an additional $5,000 non-refundable fee after the divorce petition was filed. Smith later terminated Cluck as her attorney because she was dissatisfied with the lack of progress made by Cluck and Cluck s lack of responsiveness. Id. at 738. Smith asked for her file, a detailed accounting, and a refund of the $20,000, less reasonable attorney s fees and expenses. Id. Cluck told Smith she was not entitled to a refund because the retainer was non-refundable. Id. Smith filed a complaint, and the Commission commenced a disciplinary proceeding against Cluck. The trial court granted the Commission s summary judgment, found that Cluck violated Disciplinary Rules 1.04(a),(c), 1.14(a),(b), and imposed a fully probated suspension. Id. On appeal to the Third Court, Cluck argued that he did not violate the rules regarding refunding unearned fees. Id. at 739. Cluck claimed the: fee paid by Smith was a nonrefundable retainer that was earned at the time it was received and he was not obligated to hold the funds in a trust account because they did not belong in whole or in part to Smith. Id. Following Ethics Opinion 431, the Austin Court held that the payment was an advance. Specifically, the contract for legal services did not state that the $15,000 payment compensated Cluck for his availability or lost opportunities. Id. at 741. Instead, it stated Cluck s hourly fee would be billed against it. Additionally: if the first $15,000 secured Cluck s availability, it follows that he should not charge another retainer to resume work on the divorce. He was already retained for the purposes of representing Smith in the matter. Id. at 740. A fee is not earned simply because it is designated as non-refundable. Id. (quoting Tex. Comm. on Prof l Ethics, Op. 431). Ethics Opinion 611 further clarifies and confirms the conclusion in Opinion 431 and holding in Cluck. See Tex. Comm. on Prof l Ethics, Op. 611 (September 2011). Opinion 611 involved a matter wherein a lawyer proposed to enter into an employment agreement that required the client to pay at the outset an amount denominated a nonrefundable retainer to cover all services of the lawyer on the matter up to the time of

trial. The proposed agreement also provided that if a trial was necessary, the client would be required to pay additional fees for services at and after trial. The lawyer proposed to deposit the client s initial payment in his operating account. Citing Cluck, the Ethics Committee defined a nonrefundable retainer as payment to secure a lawyer s services and to compensate the lawyer for the loss of opportunities for other employment. A true retainer is not payment for services; payment for future services is an advance payment. See id. The Committee reasoned that a retainer is solely to secure a lawyer s future availability, which is fully earned at the time received. However, the lawyer is required to refund the nonrefundable retainer (a) if the lawyer is discharged for cause, but before the lawyer has lost opportunities for other employment, or (b) if the lawyer withdraws voluntarily. Id. The Committee concluded that a: legal fee relating to future services is a nonrefundable retainer at the time received only if the fee in its entirety is a reasonable fee to secure the availability of a lawyer s future services and compensate the lawyer for the preclusion of other employment that results from the acceptance of employment for the client. Id. Furthermore, a nonrefundable retainer meeting this standard and agreed to by the client is earned at the time it is received and may be deposited in the lawyer s operating account. But, any payment for services that does not meet this requirement is not a retainer and must be deposited in the lawyer s trust or escrow account. Pursuant to Cluck and Ethics Opinions 431 and 611, a lawyer is not permitted to enter into an agreement with a client for a payment that is denominated a nonrefundable retainer if it is payment for future services rather than solely for the availability of future services. 3. Claiming Disputed Fees vs. Holding Disputed Fees A distinction can be, and has been made by the Texas Committee on Ethics, between disputed fees a lawyer is claiming and disputed fees a lawyer is holding. See Tex. Comm. on Prof l Ethics, Op. 580 (March 2008). The duty to promptly deliver to a client, upon termination of the representation, any funds that the client is entitled to receive is not triggered when there is a good-faith controversy between the lawyer and client regarding whether or not the client is entitled to receive the funds or property in question. Otherwise, Rule 1.15(d) would require a lawyer to give the client any and all funds the client requested, whether rightly or wrong. Such interpretation of the rule would be patently unreasonable and unfair. Accordingly, Rule 1.15(d) arguably does not apply 4 or govern a matter involving a fee dispute or disputed fees claimed by a lawyer. Rather, Rule 1.15(d) captures cases involving disputed fees held by a lawyer. In Ethics Opinion 580, the Committee concluded that a fee dispute did not trigger the application of Rules 1.14 or 1.15(d) because the lawyer was claiming the disputed fees, not holding disputed fees. See id. Id. In a case involving disputed fees claimed by a lawyer rather than disputed fees held by a lawyer, the discussion... of Rules 1.14 and 1.15(d) would not apply (because no client property held by the lawyer would be involved). B. How Can You Collect Your Fees? Many lawyers collect fees by securing a retainer or advance payment. As discussed above, a lawyer must segregate the earned from the unearned but may collect or bill against an advance payment. When an advance payment has been exhausted, lawyers may invoice the client for reasonable services and request payment for the services. Lawyers may also collect fees by charging a client s credit card. The Ethics Committee considered an interesting fee collection arrangement in Ethics Opinion 582. See Tex. Comm. on Prof l Ethics, Op. 582 (April 2008). In the Opinion, the Committee considered whether a lawyer may enter into a fee agreement in which the lawyer bills for his services and the client agrees that if payment is not made to the lawyer within 30 days of tender of the invoice, the lawyer may charge the client s credit card for the amount of the invoice. Because the facts of this opinion involve charging the client s credit card after the legal services have been performed, it is permissible for the funds received under the credit card payment arrangement to go into the lawyer s operating account. Id. However, a different rule applies if the client disputes the fee. It is not permissible for a credit card payment arrangement to negate the requirement that an attorney hold disputed funds separately. In ordinary circumstances, when a lawyer holds money or property of another and a dispute arises, a lawyer is required to segregate any disputed funds until the dispute is resolved. See Tex. Disciplinary R. Prof l Conduct 1.14(c). If such a dispute exists, the lawyer may charge the client s credit card for the disputed amount but the lawyer may not place that amount in his operating account. The Committee concluded that the Texas Disciplinary Rules of Professional Conduct do not

prohibit a lawyer s charging a credit card for attorney s fees that have been earned by the lawyer provided the client consents and the client s ability to challenge a disputed statement for legal fees is preserved. See Tex. Comm. on Prof l Ethics, Op. 582. III. ARBITRATION PROVISIONS AND DISPUTED FEES A. Types of Arbitration Clauses: Binding vs. Nonappealable This portion of the article explores arbitration clauses in fee agreements, and particularly examines the arbitration holdings in the Bennett case, discussed earlier in this paper. The Houston Court concluded that Bennett had violated Rule 3.02 in appealing the confirmation award because such appeal unreasonably increased the cost of the fee litigation and unreasonably delayed its resolution. Id. The arbitration provision provided that the arbitration award was binding and non-appealable. Which begs the question: Is binding arbitration ever appealable? Generally, confirmation of an arbitration award is appealable under section 171.098(a)(3) of the Texas Arbitration Act. However, because Texas law favors arbitration, appellate review of an arbitration award is extraordinarily narrow. E. Tex. Salt Water Disposal Co. v. Werline, 307 S.W.3d 257, 271 (Tex.2010). Courts review a trial court s confirmation of an arbitration award de novo. Denver City Energy Assocs., L.P. v. Golden Spread Elec. Coop., 340 S.W.3d 538, 544 (Tex. App. Amarillo 2011, no pet.). Arbitration is a: contractual proceeding by which the parties to a controversy or dispute, in order to obtain a speedy and inexpensive final disposition agree to submit their controversy to an arbitration process. See Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 268 (Tex. 1992). However, in the Bennett case, the Fourteenth Court of Appeals held that Bennett was not allowed to appeal the confirmation award under section 171.098 because the arbitration clause precluded that right. As discussed earlier in this article, Bennett v. Comm n for Lawyer Discipline is a disciplinary appeal in which a lawyer was disbarred by a district court judge for appealing an arbitration award. 2016 WL 1165783. After the former client terminated Bennett and disputed the fees paid, the parties arbitrated the fee dispute. Id. at * 2. The arbitration panel found in favor of Land and awarded him $27,500. The arbitration award was confirmed by a trial court. Id. Bennett appealed the confirmation award (at the intermediate level and Texas Supreme Court) and was unsuccessful on appeal. The $27,500 was paid to Land after the unsuccessful appeals. The Fourteenth Court of Appeals found that the language of the contract: 5 arbitrator s decision... shall be binding, conclusive and non-appealable pursuant to the Rules of the HBA Fee Dispute Committee prohibited any appeal of the trial court s confirmation award. Id. at *7 8. The Houston Court concluded that Bennett had violated Rule 3.02 in appealing the confirmation award because such appeal unreasonably increased the cost of the fee litigation and unreasonably delayed its resolution. Id. Would the outcome in the Bennett case been different if the arbitration clause had stated arbitration was binding but did not use the word non-appealable? Maybe. The Court of Appeals definitely focused on the word non-appealable when interpreting the contract. Another issue to consider in litigating arbitration clauses with clients is whether the provisions should be construed against the lawyer? Although Bennett clearly required his client to have separate counsel review the contract before signing, and the former client did so, the Court of Appeals still seemed to construe the contract against Bennett. The court did so despite some of the teachings in Texas Supreme Court opinions. See Royston, Rayzor, Vickery & Williams, L.L.P. v. Lopez, 467 S.W.3d 494 (Tex. 2015). Lopez involved an interlocutory appeal in the Texas Supreme Court, wherein the Court reviewed the enforceability of an arbitration provision in an attorneyclient employment contract. See id. The arbitration provision provided that the client and law firm would arbitrate disputes that arose between them, except for claims made by the law firm for recovery of its fees and expenses. Id. at 500. The client sued the law firm after settling the underlying litigation; the client claimed that the firm induced him to accept an inadequate settlement. Id. The law firm moved to compel arbitration, and the trial court denied the firm s motion. The firm filed an interlocutory appeal and mandamus proceeding in the Corpus Christi Court of Appeals to compel arbitration. Id. The appellate court affirmed the trial court s denial on the basis that the arbitration provision was unconscionable and unenforceable. Id. at 500 02. The law firm then filed a petition for review and writ of mandamus in the Texas Supreme Court. The Supreme Court concluded that the client did not prove that either the arbitration provision was substantively unconscionable or any other defense to the arbitration provision and, accordingly, reversed the appellate court s decision and remanded the case to the trial court to compel arbitration. Id. at 502-05. In construing the parties fee agreement, the Supreme Court stated: [W]e decline to impose... a legal requirement that attorneys explain to prospective clients, either orally or in writing, arbitration provisions in attorney-client employment

agreements. Prospective clients who enter such contracts are legally protected to the same extent as other contracting parties, for example, fraud, misrepresentation, or deceit in the contracting process. But prospective clients who sign attorney-client employment contracts containing arbitration provisions are deemed to know and understand the contract s content and are bound by their terms on the same basis as other contracting parties. Id. at 505. Thus, a lawyer is not required to explain to prospective clients arbitration provisions in a proposed fee agreement. Moreover, the Texas Supreme Court held that arbitration agreements are to be construed and treated the same as other contracts, despite the existence of a prospective attorney-client relationship. See id. at 504. Pursuant to Lopez, a lawyer is not required to explain the terms of the fee agreement to a prospective client, including a binding arbitration provision. Prospective clients who sign attorney-client employment contracts containing arbitration provisions are deemed to know and understand the contract s content. Furthermore, the existence of a potential attorney-client relationship does not create a unique duty to explain to a prospective client the terms of a fee agreement or arbitration provision. Id. The takeaway? When in doubt, explain all details of a fee contract to a prospective client and avoid using the word non-appealable as it implies something more than binding. Or, if the word non-appealable is used, the contract could state that: the arbitration award is binding and nonappealable except for those limited reasons listed in section 171.098 of the Texas Arbitration Act. B. How Far Can You Challenge an Arbitration Decision without Violating the Disciplinary Rules? Texas Ethics Opinion 580 addresses the issue of whether a lawyer s refusal to comply with an arbitration decision in a fee dispute with a client is a violation of Texas Disciplinary Rules of Professional Conduct 1.14 and 1.15(d). See Tex. Comm. on Prof l Ethics, Op. 580 (March 2008). The Committee addressed a situation where a lawyer and his client agreed in writing to submit a fee dispute to binding arbitration. Under the arbitration agreement, the arbitration decision was to be final. An arbitration was conducted by a fee dispute committee of the local bar and an arbitration award was made in favor of the client. However, the lawyer refused to abide by the arbitrator s award. The Committee determined that Rules 1.14 and 1.15(d) did not apply because the fees were disputed 6 disputed fees claimed by the lawyer, not held by the lawyer. Rather, the lawyer s refusal violated Rule 8.04(a)(3) that prohibits a lawyer from engaging in dishonest or fraudulent conduct. The Committee concluded that a: See id. lawyer s entering into an agreement to resolve a fee dispute by arbitration with the undisclosed intention of refusing to accept an unfavorable arbitration award would, in the opinion of the Committee, constitute conduct involving dishonesty, fraud, deceit, and misrepresentation in violation of Rule 8.04(a)(3). A lawyer who agrees in writing with a client or former client to submit a fee dispute to binding arbitration and then refuses to comply with the award violates the Texas Disciplinary Rules of Professional Conduct if the lawyer continues to hold property of the client or former client contrary to the arbitration award or if the lawyer in the particular case entered into the agreement to arbitrate with the intention of not complying with an award that was unfavorable to the lawyer. Id. The Fourteenth Court of Appeals held in Bennett that the lawyer could not challenge the arbitration decision beyond the confirmation award. But again, the arbitration clause expressly stated that the arbitration decision was non-appealable. In drafting your arbitration clause, be clear that while arbitration is binding, but avoid using the word non-appealable. Otherwise, you might forfeit rights to appeal an order confirming an arbitration award. IV. ADDITIONAL TIPS AND TAKEAWAYS If you seek to secure a true retainer nonrefundable retainer include language in the fee agreement that explains the payment is made to secure the lawyer s services and to compensate for the lawyer s loss of opportunity for other work and employment. Promptly invoice clients for services rendered, with enough details reflecting that the fees and expenses are reasonable under Rule 1.14. Place disputed fees in a trust or escrow account. Promptly refund fees if an arbitration award is rendered in favor of a former client and confirmed in the trial court, despite what the contract states.

At the very least, place the funds in the registry of the court immediately and before appealing. Carefully consider the language in your arbitration clauses. Perhaps omit non-appealable but emphasis binding arbitration. Be sure to segregate advance payments from earned fees and retainers. Carefully consider whether to proceed before a district court or evidentiary panel. 7