15th Annual Seminar on Professional Responsibility, presented on Friday, September 21, 2012.

3. Business Transactions with Clients &
Duties to Prospective Clients
presented by Chris Weber
Kegler, Brown, Hill & Ritter
2012 Professional Responsibility Seminar
September 21, 2012

4. Prospective Clients
• Tattoogate + RPC 1.18 = Urban Meyer
• ODC v. Cicero
• Board recommended 6-month suspension!!

5. Issue #1: “Prospective Client”
• “A person who discusses with lawyer possibility of
forming A/C relation.”
• Rife or Epling
• Rife – tattoo parlor/drug dealer/memorabilia
collector
• OSU Players exchanged memorabilia for tats

6. Issue #1: “Prospective Client”
• April 1, 2010 – FBI raid
• April 2 – Rife meeting with Cicero?
• April 2 – e-mail to Tressel
• Warns Tressel / Rife’s felony record – stay away
• April 2 – Rife meets another attorney

7. Issue #1: “Prospective Client”
• April 15 – Rife meeting with Cicero
• April 16 e-mails to Tressel – “Pryor & Rife Update”
• “I had Rife in my office for 1 ½ hours last night”
• “If he retains me, and he may, . . .”
• “He wanted my opinion yesterday on his situation”
• “I have to sit tight and wait to see if he retains me, but at
least he came in last night to do a face to face with me.”

8. Issue #1: “Prospective Client”
• Board Finding: Rife = prospective client
• E-mails
• Rife testimony
• Other attorney testimony
• Cicero’s credibility

9. Issue #2: Information Revealed
• RPC 1.18(b) – “shall not use or reveal information
learned in consultation”
• E-mails to Tressel:
• Revealed what discussed at April 15 mtg.

10. Issue #2: Information Revealed
• “Terrell gave him some type of MVP trophy”
• Has cleats, jerseys, game ball, rings
• “He is in really big trouble”
• Feds offered 10-year prison term
• “He wanted my opinion”

11. Issue #2: Information Revealed
• Board Finding: revealed information learned in
consultation
• Cicero argument: “public knowledge”
• But, tells Tressel “keep confidential”

12. Issue #3: Sanction
• Board – 6 month actual suspension
• Aggravation

13. Issue #3: Sanction
• Prior discipline
• Selfish – “primary purpose in sending e-mails to Tressel
was to protect OSU players and program”
• “Self-aggrandizement”

14. Issue #3: Sanction
• ODC Brief – “respondent’s desire to be eyes and ears of
OSU football program”
• “Loyalty to OSU football program trumped loyalty to
prospective client”

15. Other Issues
• RPC 1.18(c)
• DQ’d from representing other side
• Learn “significantly harmful” info
• Unless consent from both
• Or

16. Other Issues
• RPC 1.18(d)(2)
• Limit info received
• Screened – no fee
• Notice to prospective client

17. Business Transactions with Clients
• Rule 1.8(a) - permissible IF:
– Terms fair/reasonable for client
– Explain in writing
– Terms
– Risks/disadvantages to client
– Any reasonable alternatives
– Lawyer’s role
– Advisable to consult with another lawyer
– Client consent in writing signed by client

18. What IS Covered
• Ownership interest in client
• Joint ventures
• Loan/sales transaction
• Stock in lieu of fee – ABA Opinion 00-418
• 1.5(a) – reasonable fee

19. What IS Covered
• Ancillary services (title; real estate)
• Mortgage to secure fee
• Opinion 2004-8

20. What IS NOT Covered
• Standard fee agreements
• Transactions offered to general public

21. Client Identity
• Identify client
• Corporate client (not affiliates)
• Transactions with affiliates not covered

22. Disciplinary Cases
• Strict compliance required
• Even if no harm
• Even if sophisticated client

23. Disciplinary Cases
• Loans from client
• ODC v. Wickerham, 2012 Ohio 2580
• ODC v. Squire, 2011 Ohio 5578
• Col. Bar v. Keisling, 2010 Ohio 1555
• Non-legal services for client (painting work)
• Akron Bar v. Gibson, 2011 Ohio 628

24. Insurance Coverage
• American Guarantee and Liability v. Flangas
McMillan Law Group, 2012 WL 628511 (D. Nev.
2012)
• 2 Partners – controlling interest in Oak Park
• Sued for malpractice

25. Insurance Coverage
• Policy - “Business enterprise exclusion”
• Claim relating to business which insured has
controlling interest
• Carrier avoids shifting lawyer’s business loss

26. Firm Policy
• Firm may prohibit transactions
• Require management approval

27. Thank You!
Chris Weber, Director
cweber@keglerbrown.com
(614) 462-5415

28. Alternative Fee Structures
presented by Rasheeda Khan
Kegler, Brown, Hill & Ritter
2012 Professional Responsibility Seminar
September 21, 2012

29. Alternative Fee Arrangements:
The Flavors
• Fixed or Flat Fee – Most popular form of alternative
billing
• Blended Hourly Rate – Client pays the same rate
regardless of who within the firm performs a task
• Monthly Retainer – Client pays regardless of how
many hours the firm actually works on that client’s
matters each month

30. Alternative Fee Arrangements:
The Flavors
• Retainer Plus – Flat fee is supplemented with an hourly rate if
a specified number of hours per month of the firm’s time for
the client is exceeded
– Can be used as an internal marketing opportunity to do other work if
the maximum number of hours are not met in a month.
• Task-Based Fees – Assign a dollar amount to each stage of a
representation, transaction as well as litigation.
– Charge $A for negotiation services
– Charge $B for handling interrogatories
– Charge $C for other discovery work

31. Alternative Fee Arrangements:
The Flavors
• Contingent Fees – Can include allowing for a discounted rate
in exchange for allowing the firm to recover more if legal
services produce a desired result
• Floor and Ceiling – Tells the client what the minimum and
maximum fee will be for a certain set of services.
• Fair Fee – For regular clients. Charging a flat fee or discounted
hourly rate and then working out with the client at the end of
the representation how much more the firm should receive as
a “fair fee” using the factors listed in RPC 1.5.

32. Tips to Make it Work
• Research your historical data
• Continue to track your time and tasks performed
• Start with established clients and a clear idea of what
the representation will involve
• Carefully draft the fee agreement – if you can,
address what happens if the representation ends
early.

33. Recent Flat Fee Case:
Kasowitz, Benson Torres & Friedman, LLP v. Duane Reade, 2012
N.Y. App. Div. LEXIS 5824

34. Kasowitz, Benson Torres & Friedman, LLP
v. Duane Reade
The underlying case:
• Duane Reade is in a contract dispute with Cardtronics
regarding surcharge fees generated from ATM
machines located in Duane Reade drug stores.

35. Kasowitz, Benson Torres & Friedman, LLP
v. Duane Reade
• Under an agreement between JP Morgan Chase and
Cardtronics, all of the ATM machines located in
Duane Reade stores have a Chase insignia. Chase
customers did not pay a surcharge fee.

36. Kasowitz, Benson Torres & Friedman, LLP
v. Duane Reade
• Dispute between Duane Reade and Cardtronics
focused on amount of money Cardtronics would pay
Duane Reade for the Chase customers.

37. Kasowitz, Benson Torres & Friedman, LLP
v. Duane Reade
• Duane Reade retains Kasowitz firm – Daniel Goldberg
– in anticipation of litigation with Cardtronics.
• Kasowitz Firm: 375 lawyers – 7 offices

38. The Fee Agreement
• $1M Flat Fee for the Cardtronics litigation – plus –
“success fee”

39. The Fee Agreement: 3 E-mails
• “Success Fee” = contingency fee equal to 20% of
whatever new value from the damages over the life
of the Cardtronics contract in excess of $4 million
Duane Reade recovers after asserting its breach of
contract claim against Cardtronics.

40. Goldberg’s September 8, 2006 E-mail
• Well, the upshot is that I came up with something
that I believe will be very attractive. We can do the
Cardtronics case for a flat $1 million, payable over 10
months as you suggested (exclusive of
disbursements), plus 20% of amounts recovered
above some number, as opposed to a percentage
payable from dollar one.

41. Goldberg’s September 8, 2006 E-mail
• Based on the numbers we have, which obviously are
approximations, we actually think the damages could
be between $10 and $11 million over the life of the
contract. So, I’m thinking of 20% of everything above
$4 million as the success fee portion. Thus, if we get
$10 million, the total fee would be $2.2 million (with
you keeping $7.8 million obviously). That’s $1 million
in flat fee, plus $1.2 million in success fee.

42. Goldberg’s September 8, 2006 E-mail
• That’s actually a bit lower than what I had previously
suggested of a discount off of time plus 20% …. What
do I need to do to put you in a new lawsuit today?

43. September 19, 2006 E-mails
Goldberg sends a follow up e-mail to Duane Reade’s
GC:
• “I would love to have our fee arrangement in place
by then so I can just tear into these guys.”
Client responds by e-mail the same day:
• “Go”

44. Kasowitz, Benson Torres & Friedman, LLP
v. Duane Reade
• Duane Reade and Cardtronics negotiate a settlement
of the litigation without Kasowitz.
– Duane Reade gets $1M
– Dismissal of any and all claims
– Termination of contract
– Removal of all ATM machines
• Kasowitz is asked to prepare the settlement
agreement.

45. Kasowitz, Benson Torres & Friedman, LLP
v. Duane Reade
• May 8, 2009 – Settlement Agreement Signed
• Same Day – Duane Reade and Chase enter into
placement agreement by which Chase would place
ATM machines in all Duane Reade stores. Over ten
years, Duane Reade would receive approximately
$18M.

46. Kasowitz, Benson Torres & Friedman, LLP
v. Duane Reade
• December 15, 2009 – Kasowitz submits its invoice to
Duane Reade for $7.1M
• Duane Reade refuses to pay over the $1M flat fee
• Kasowitz sues for BOK

47. Issue for Court
• Whether the success fee encompassed all the
benefits Duane Reade received from the contract
termination including revenues received from Duane
Reade’s new ATM placement contract with Chase.
• Answer: No.

48. NY Supreme Court Holding
• “If Kasowitz wanted to ensure that it would be
receiving a contingency fee based on any
developments with any other ATM machine
provides, Kasowitz should have explicitly written
such in its contingency fee. An omission or even a
mistake in a contract does not constitute an
ambiguity.”
• Lesson: Memorializing fee agreements in casual
emails is risky business!

49. JD Journal Headline
• “Kasowitz flattened by Flat-Fee Arrangement with
Duane Reade.”

50. Daniel Goldberg Bio
Selected Notable Representations:
• Duane Reade, the largest retail drug store chain in
the New York metropolitan area, in a wide range of
cases

51. Another Recent Case:
Disciplinary Counsel v. Summers (2012), 131 Ohio St.3d 467,
2012 Ohio 1144

52. Disciplinary Counsel v. Summers
• Went from hourly to flat fee
– Parents of client initially paid $1000 for expenses plus
$2500 retainer
• *Note: Rule 1.8(f) applies when someone other than the client is
paying the fee
– Summers reduced rate from $350 to $250

53. Disciplinary Counsel v. Summers
• Flat Fee Agreement – “This firm agrees to represent
you, through the investigation of the above
referenced case, and if necessary, through the trial,
and if necessary, sentencing, or other disposition of
the case. The amount of the flat fee agreed upon
between us is Fifteen Thousand Dollars ($15,000), in
addition to any and all amounts already paid to us.
That is all that you will owe, regardless of the time
that we will spend on your behalf.”

54. Disciplinary Counsel v. Summers
• Email to Client’s Parents – “The fee will be a final flat
full and total fee from August 1, 2008 on and that
will cover all of the Attorney fees for the matter to
the end, regardless of what time we have to spend
which is a benefit to you. If you discharge us, you will
however owe us for all of our time spent thus far,
less the initial retainer. You will also owe us for
bringing the new Lawyer up to speed.”

55. Disciplinary Counsel v. Summers
• No mention of what happens to the fee if the client
discharges the client by withdrawing from
representation.
• On January 6, 2009, Respondent withdrew from the
case.

56. Disciplinary Counsel v. Summers
• Clients’ parents requested an account for the money
received and was informed that the entire amount
paid was exhausted. Without any further discussion
with the Respondent, they filed a grievance.

57. Disciplinary Counsel v. Summers
• “The fee agreement denotes the $15,000 as a flat fee
and as a nonrefundable fee without the client also
being told that if the legal work is not completed the
client may be entitled to a refund. RPC 1.5(d)(3)
mandates this language in all flat fee contracts. As
noted the panel is not impressed with Respondent’s
protestations that his failure to include the language
was an honest mistake.”

58. Disciplinary Counsel v. Summers
• GENERAL RULE: Nonrefundable fees are unethical.
– RPC 1.5(d)(3): A lawyer shall not enter into an arrangement
for, charge, or other collect … a fee denominated as
“earned upon receipt,” “nonrefundable,” or in any similar
terms, unless the client is simultaneously advised in
writing that if the lawyer does not complete the
representation for any reason, the client may be entitled
to a refund of all or part of the fee based upon the value of
the representation pursuant to division (a) of the rule.

59. Disciplinary Counsel v. Summers
• Board Report – “Respondent abandoned his client
and kept all his money without justifiable cause at
what was, procedurally, an early stage in the criminal
proceedings.”

60. Disciplinary Counsel v. Summers
• Losing Argument – If a lawyer can show that the
hours spend on a case multiplied by his hourly rate
equals or exceeds the flat fee paid, that lawyer can
keep the fee even though he has not completed the
work he was paid to complete.

61. Disciplinary Counsel v. Summers
• Respondent was wrong – RPC 1.5(a) lists multiple factors that must be
considered in determining the reasonableness of a fee include the
following:
– The time and labor required, the novelty and difficulty of the questions involved, and
the skill requisite to perform the legal service properly;
– The likelihood, if apparent to the client, that the acceptance of the particular
employment will preclude other employment by the lawyer;
– The fee customarily charged in the locality for similar legal services;
– The amount involved and the results obtained;
– The time limitations imposed by the client or by the circumstances;
– The nature and length of the professional relationship with the client;
– The experience, reputation, and ability of the lawyer or lawyers performing the services;
– Whether the fee is fixed or contingent.

62. Disciplinary Counsel v. Summers
• Supreme Court – “When a lawyer agrees to represent a client
through the conclusion of the case for a flat fee, and that lawyer
withdraws from representation without cause before the work is
completed, he cannot retain the entire flat fee by resorting to a
mathematical calculation of his billable hours. To hold otherwise
would leave clients at the mercy of lawyers who charge significant
flat fees to provide complete representation only to withdraw when
the demands of the case become too onerous. While we recognize
that Summers is entitled to be compensated for the services he has
provided, the Bells are also entitled to receive a benefit for their
flat-fee bargain.

63. Disciplinary Counsel v. Summers
• Respondent violated – RPC 1.5(a): A lawyer shall not
make an agreement for, charge, or collect an illegal
or clearly excessive fee…
• Also violated 1.16(e) – a lawyer who withdraws from
employment shall refund promptly any part of a fee
paid in advance that has not been earned.
• And the catch all: 8.4(h) – engaging in conduct that
adversely reflects on the lawyer’s fitness to practice
law.

64. Disciplinary Counsel v. Summers
• Sanction – 6 months suspension plus full refund of
$15,000.
• Lessons
– Look at your flat fee agreements.
– Don’t dump on your client!
– Whenever possible – work something out and refund at
least a portion of the fee!

65. Thank You!
Rasheeda Khan, Director
rkhan@keglerbrown.com
(614) 462-5481