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In re Stephens

Supreme Court of Montana

June 20, 2017

IN THE MATTER OF ROBERT L. STEPHENS, JR., an Attorney at Law, Respondent.


         On May 2, 2016, a formal disciplinary complaint was filed against Montana attorney Robert L. Stephens, Jr. The disciplinary complaint may be reviewed by any interested persons in the office of the Clerk of this Court.

         The Commission on Practice held a hearing on the complaint on April 20, 2017, at which hearing Stephens was present with counsel and testified on his own behalf. On May 2, 2017, the Commission submitted to this Court its Findings of Fact, Conclusions of Law, and Recommendation for discipline. Through his counsel, Stephens has filed objections to the Commission's findings, conclusions, and recommendations. The Office of Disciplinary Counsel (ODC) has filed a brief in opposition to Stephens' objections.

         The Commission has concluded, based on the allegations of the complaint and the evidence produced at the hearing, that Stephens violated several provisions of the Montana Rules of Professional Conduct (MRPC) by using a fee arrangement that he termed a "minimum fee advance earned on receipt." Under this fee arrangement, Stephens collected a $7, 500 payment when he began representing a client in a criminal case, and deposited that payment in his operating account instead of a client trust account. The fee agreement itself is titled "Minimum Fee (Advance Payment) Agreement for Criminal."

         Section 1 of the fee agreement states that the fee is "not a refundable payment and is not a retainer." However, the statement that the fee is "not . . . refundable" is then qualified by a footnote that reads as follows:

Under some circumstances, the Client will be entitled to a partial refund of the minimum fee. These circumstances include the Client's discharge of the Attorney prior to the Attorney's substantial performance of the services contracted for, the Attorney's failure to substantially perform the agreed upon services, or the inability of the attorney to provide the agreed upon services.

         Likewise, the accompanying explanation of the fee agreement provided that, under certain circumstances, the client "would be entitled to a refund of the unused portion of the unused minimum fee non-refundable special retainer."

         Sections 2 and 3 of the fee agreement provided that Stephens would keep track of his time, that he would bill against the initial payment at an hourly rate of $200 per hour for all out-of-court work, and $250 per hour for all in-court work, and that the client would be responsible for additional fees if Stephens' time expended exceeded the minimum fee.

         The Commission found that Stephens' actions did not involve any act of dishonesty, fraud, or deceit and that Stephens competently represented the client. However, the Commission concluded ODC had presented clear and convincing evidence that this fee arrangement violated Rules 1.15 and 1.18, MRPC, requiring that all client funds must be deposited into either an IOLTA trust account or a separate interest-bearing account for the client's matter, with the interest paid to the client. The Commission further found that ODC had presented clear and convincing evidence that Stephens violated Rule 1.8(f), MRPC, in that the fee agreement failed to adequately document the client's written informed consent for Stephens' acceptance of the $7, 500 fee from a third party. The Commission recommends that, as a result of his violations of the Montana Rules of Professional Conduct, Stephens should receive a written admonition from the Commission. The Commission further recommends that, in the future, Stephens be directed to cease using "earned on receipt" agreements and be required to place all retainers paid to him into either a client trust fund or an IOLTA account, to be distributed only when earned. Finally, the Commission recommends that Stephens be ordered to pay the costs of these proceedings.

         In objecting to the Commission's findings, conclusions, and recommendations, Stephens argues that "earned on receipt" fees are reasonable when analyzed in the reality of a criminal defense practice. He cites § 37-61-420(1), MCA-which provides that the compensation of an attorney for services is governed by agreement-as authority effectively authorizing "earned on receipt" fee agreements. Stephens argues that Rules 1.15 and 1.18 conflict with § 37-61-420(1), MCA.

         Although Stephens termed the initial $7, 500 fee a non-refundable fee, other terms of the fee agreement contradicted the non-refundable designation. As noted above, the fee agreement provided that the client, under certain circumstances, would be entitled to a refund of the "unused portion" of the fee. Although Stephens testified his fees were earned upon receipt, he kept hourly billing records in this matter which he billed against the retainer, with the client being potentially entitled to a refund of the "unused portion" of the retainer. This is appropriate since Rule 1.16(d), MRPC, provides that in the event the client terminated Stephens' representation, he was required to "refund[ ] any advance payment or expense that has not been earned or incurred."

         As the Commission observed, charging a flat fee is acceptable, provided it is reasonable and Rules 1.15 and 1.18, MRPC, are complied with. Pertinent to the issue at hand, the fee must be placed in an IOLTA account, or a client trust account, until earned. This in no way conflicts with § 37-61-420(1), MCA, which allows an attorney and client to agree on their fee arrangement. It merely restricts the account into which the agreed-upon fee must be placed until earned. As the Commission correctly noted, this does not preclude a fee agreement from setting reasonable markers for determining when a part of the fee is earned, at which time the earned portion of the fee may be withdrawn from the trust account.

         We agree with the Commission's finding that the Rules, as discussed above, required Stephens to deposit the retainer in a trust account until it was earned. That being noted, we also agree with the Commission's observation that Stephens acted in a good faith belief that he could appropriately use the vehicle of an advance payment agreement under which he was fully entitled to the funds, he fully explained to the client that the fee was his and earned upon execution of the fee agreement, and there was no suggestion of dishonesty, fraud or deceit on Stephens' part. Furthermore, as the Commission noted, the rules and cases surrounding retainer agreements are far from clear and create significant confusion on the part of the practicing bar. Considering Stephens' conduct within this context, we conclude that discipline is not warranted for Stephens' alleged violations of Rules 1.15 and 1.18, MRPC.

         As far as the alleged Rule 1.8(f), MRPC, violation, the pertinent part of the Rule states: "A lawyer shall not accept compensation for representing a client from one other than the client unless ... the client gives written informed consent." Stephens points out that the "Guarantor's Agreement" signed by the individual who paid the initial $7, 500 fee on behalf of his client was printed immediately below the client's signature on the fee agreement and his time records reflect that he verbally advised his client. Stephens argues that the guarantor's signature on the same page as the client's signature evinced the client's knowledge that a third party may pay his legal fees. However, Rule 1.8(f)'s requirement that "the client gives written informed consent" indicates that explicit written consent is necessary, particularly when viewed in the context of the remainder of the Rule, which guarantees that no matter who is paying the bill, there is no interference with the lawyer's independence of professional judgment, nor with the client-lawyer relationship, and that the attorney-client privilege is protected. Nevertheless, we agree it is reasonable to conclude from the client's signature immediately above the guarantor's agreement that the client was aware a third party may be paying his legal fees, and to infer consent from that awareness. Indeed, there is no suggestion that Stephens' client was unaware, or did not consent, to the ...

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