ANATOMY OF AN
ENGAGEMENT CONTRACT
Amy C. Allen
Gray, Reed & McGraw, PC
1300 Post Oak Blvd, Suite 2000 Houston, Texas 77056
713.986.7000 (p) 713.986.7100 (f)
aallen@grayreed.com
© 2011 Gray Reed & McGraw, P.C.
The information contained herein is subject to change without notice
Goal
1.
Considerations in drafting an effective
engagement contract, particularly as it relates to
fee agreements, and
2.
Compliance with the disciplinary rules applicable
to the attorney client relationship.
© Gray Reed & McGraw, P.C.
TDRPC – Texas Disciplinary Rules of Professional Conduct
Purpose is to define conduct for professional
discipline; minimum standards.
The comments are designed as permissive standards
for professional discretion; are guidance for
interpretation.
Professionalism
vs.
Moral Judgment
© Gray Reed & McGraw, P.C.
Engagement Contract
Attorney – Client Relationship is simply defined by
contract.
The terms of the contract control.
Broad vs. Specific – the question.
© Gray Reed & McGraw, P.C.
Representation

Identify the client.

Distinguish individual from business entities.

How much language is necessary – adverse
interests, independent counsel, etc.
© Gray Reed & McGraw, P.C.
Scope of Representation
Governed by 1.02 of the TDRPC.
 General or Limited
 Considerations:

 History of working with the client
 State whether you are obligated to represent the client in matters not covered by the
contract.
 Provide what steps should be taken if the client requests you handle additional
matters requiring representation.
© Gray Reed & McGraw, P.C.
Obligations
1.
Firm to Client
2.
Lawyer to Lawyer/ Lawyer to Judge
3.
Client to Firm
*See Texas Lawyers Creed
© Gray Reed & McGraw, P.C.
Fee Agreements – Generally
General terms governed by Rule 1.04
 Strict compliance to avoid possible disciplinary
action or the inability to recover fees.

“A lawyer shall not enter into an arrangement for,
charge, or collect an illegal fee or unconscionable
fee.” TDRPC 1.04(a).
© Gray Reed & McGraw, P.C.
Fee Agreements – Unconscionable
“A fee is unconscionable if a competent lawyer
could not form a reasonable belief that the fee is
reasonable.” TDRPC 1.04(a).
WHAT DOES THAT MEAN:

The standard is based on that of a competent lawyer, not
the client.

Personal circumstances of the individuals involved
(unsophisticated v sophisticated)
© Gray Reed & McGraw, P.C.
REASONABLENESS OF THE FEE

Rule 1.04(b) sets forth factors to consider, but are
not exhaustive.
Includes the time required, experience,
ability, and reputation, the nature of the
employment, the responsibility involved and
the results obtained, generally. TDRPC 1.04(b).
© Gray Reed & McGraw, P.C.
FEES FOR SERVICES

Rule 1.04 of TDRPC

The client should have a clear understanding of
how they will be charged for services rendered in
their case.

Discuss with client and memorialize in contract.
© Gray Reed & McGraw, P.C.
TYPES OF FEES:
1.
Contingency Fees – divorce cases  NO
2.
Hourly Rates
3.
Flat Fee Arrangements
4.
Combination
© Gray Reed & McGraw, P.C.
RETAINERS – Managing Expectations
Impossible to determine in advance the amount
of time or legal fees that will be needed to complete
each matter.

Anticipated cost of providing services are
estimates and do not represent the maximum
amount that may be incurred for such
representation.

© Gray Reed & McGraw, P.C.
RETAINERS - GENERALLY

A true retainer “is not a payment for services.”
It is an advance fee to secure a lawyer’s services,
and compensate him for loss of the opportunity to
accept other employment.” Cluck case.

A retainer fee should be deemed earned at the
moment it is received only if the lawyer can
substantiate that other employment will probably be
lost by obligating himself to represent the client.

© Gray Reed & McGraw, P.C.
ETHICS OPINIONS:

Tex. Comm. On Professional Ethics, Op. 391,
V. 41 Tex. B.J. 322 (1978)

Tex. Comm. On Professional Ethics, Op. 431,
V. 49 Tex. B.J. 1084 (1986)

Tex. Comm. On Professional Ethics, Op. 611,
September 2011
© Gray Reed & McGraw, P.C.
ETHICS OPINION 391
Requirements for the handling of funds:
Client funds paid to the attorney/firm must be
placed into a "trust" account(s), separate and
apart from the attorney's personal accounts or
the law firm's operating accounts; and
2. Attorney must maintain complete records of
those funds and render appropriate accounts to
his
client
regarding
them;
accurate
bookkeeping.
1.
© Gray Reed & McGraw, P.C.
ETHICS OPINION 391- Cont.

A non-refundable retainer belongs entirely to the
attorney at the time it is received.

The fee is earned at the time the fee is received
and therefore may be placed into the attorney's
general operating account.
© Gray Reed & McGraw, P.C.
ETHICS OPINION 391- Cont.

However, ANY portion that represents payment
for services not yet rendered is refundable and:
 belongs to the client at the time the funds come into the
possession of the attorney and,
 therefore, must be deposited into a separate, "trust"
account – (Interest on Lawyer Trust Accounts (IOLTA))
If one check represents both a non-refundable retainer and
a refundable advance payment, the entire check should be
deposited into a trust account and only the non-refundable
amount may then be transferred to the operating account.
© Gray Reed & McGraw, P.C.
ETHICS OPINION 391- Flat Fees

For flat fees, because there is no guarantee that
the attorney will be entitled to the full amount, the
attorney must place those funds into the client
trust account.
 The attorney may withdraw portions of those
funds when that portion of the fee is due (earned)
and not before.
NOTE: Look to the contract and how it was memorialized.
© Gray Reed & McGraw, P.C.
ETHICS OPINION 431 - Background

Belief is that Ethics Opinion 431 based on the
Bar’s growing concern that attorneys were
contracting for non-refundable retainers and then
neglecting the client’s matter.
 failing to communicate with the client,
 getting fired, and
 then using the “non-refundable” language as an excuse
to refuse a demand for a refund or for an accounting.
© Gray Reed & McGraw, P.C.
ETHICS OPINION 431

The analysis indicates that Texas Ethics Opinion
391 is still viable, BUT is overruled to the extent
that:
Every retainer designated as nonrefundable is not necessarily earned
at the time it is received.

A fee is not earned simply because it is
designated as non-refundable.
© Gray Reed & McGraw, P.C.
ETHICS OPINION 431 – True Retainer

As long as a retainer (true - nonrefundable) is not
excessive, it will be deemed earned at the time it
is received, and may be deposited in the
attorney's account.
 However, if the attorney is discharged for cause,
or voluntarily withdraws before opportunities have
been lost, a duty it imposed upon the attorney to
promptly refund an equitable portion of the
retainer.
 The contract - funds constitute a retainer or an
“advance fee” deposit.
© Gray Reed & McGraw, P.C.
ETHICS OPINION 431 – Summary
A true retainer is not a payment for services – it is
an advance fee to secure a lawyer's services, and
compensate him for loss of the opportunity to
accept other employment.

Burden - Substantiate that other employment will
probably be lost as a result of the representation.
 However, if discharged 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.
© Gray Reed & McGraw, P.C.
ETHICS OPINION 431 – Potential Problems
Non-refundable retainers are not inherently
unethical, but must be utilized with caution.
Potential problems:
1.
Interference with the client's right to discharge the attorney if the
client fears the retainer will be forfeited.
2.
If the attorney's action causes the value of the retainer to be
reduced and he is discharged for cause or voluntarily withdraws, an
equitable portion of the retainer should be refunded to the client.
3.
The fee may be excessive if not determined by relevant factors
such as the degree of likelihood that other employment will actually
be precluded, and the experience, reputation and ability of the
lawyer.
© Gray Reed & McGraw, P.C.
ETHICS OPINION 611
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.
© Gray Reed & McGraw, P.C.
ETHICS OPINION 611

Distinguishes between “true retainers” and a payment for
services.

Pronounces that, even a true “non-refundable retainer”
might have to be refunded in the event of discharge for
cause and before the attorney actually loses any further
employment opportunities.

Clearly prohibits an attorney from entering into an
agreement for a client to pay a “non-refundable retainer”
when the Client is actually providing an advance payment
for services to be rendered, e.g., up to the time of trial.
© Gray Reed & McGraw, P.C.
ETHICS OPINION 611 - Analysis
Two-part analysis (in conformance with Cluck)
mandated in determining the ethics of a “nonrefundable retainer.”
1.
Does the representation contemplate that the attorney
is to provide future services under the agreement?
2.
Does the fee agreement clearly communicate that the
fee will be fully earned and payable to the attorney (i.e.,
become truly “non-refundable”) at some specific
benchmark of the project?
© Gray Reed & McGraw, P.C.
CONCLUSIONS FOR
NONREUNDABLE FEES
6.
Set up a trust account
Have a written fee agreement
Stay away from the term “non-refundable”
Deposit entire fee into the trust account
Keep records
Manage client‘s expectations
7.
The disgruntled client
1.
2.
3.
4.
5.
© Gray Reed & McGraw, P.C.
Discharge – Generally
List other individuals (such as paralegals and
associates) involved in the case who are likely to
expend time on the case, and specifically list the
standard hourly rates of the billable individuals.

It may be practical to explain in the engagement
contract that the hourly rates will vary depending
upon the level of experience of attorneys and staff
members.

© Gray Reed & McGraw, P.C.
Discharge – Generally
Provide an explanation that while you will be
designated to primarily handle the matter, other
attorneys and non-lawyer staff members may be
assigned in order to handle the matter efficiently and
control costs.

Advise the client whether or not the standard
hourly rates are periodically adjusted, and if so, are
they adjusted with or without notice to the client.

© Gray Reed & McGraw, P.C.
Discharge – Generally
Unless otherwise specified, time will be recorded in
quarterly hour increments, multiplied by the
attorney’s or the paralegal’s standard hourly rate.

© Gray Reed & McGraw, P.C.
Payment of Costs/Expenses
The client agrees to pay you for photocopying and
printing at the rate of $.20 per page.

Charges for computerized research such as “Lexis” or
“Westlaw” may be incurred for access to such services.

In the event automobile travel is necessary, mileage
may be billed at the rate of _____.

© Gray Reed & McGraw, P.C.
Payment to Third Parties
Invoices will be sent to the client for payment directly
to the vendor or provider.

You will pay third party vendors or providers directly
as an advance or loan to the client and will be billed
for all costs, expenses and other disbursement items.

© Gray Reed & McGraw, P.C.
Dispute Resolution
The most recent pronouncements on the subject
provide that as long as a law firm apprises a client
of the advantages and disadvantages of
arbitration and other alternative dispute
resolution opportunities for the resolution of
disputes, as opposed to litigation, a firm and a client
may agree to resolve fee disputes and malpractice
claims through an alternative dispute resolution
process.
© Gray Reed & McGraw, P.C.
General Disclaimer
It is impossible to determine in advance the amount of
time or legal fees that will be incurred, and any
statement made by any attorney of the firm relating to
an estimated or anticipated result of any negotiation,
transaction, or litigation shall constitute an opinion
only.
© Gray Reed & McGraw, P.C.
General Disclaimer
The client is financially responsible for all judgments,
damages, taxes, deficiencies, interest, penalties, etc.,
which have been, or later may be, determined to be
payable by the client and the firm is not liable for a
client’s obligations.
© Gray Reed & McGraw, P.C.
Tax Advice
The client acknowledges that any tax advice
contained in any communication with your firm is
not intended or written to be used, and cannot be
used, by the client or any taxpayer for the purpose of
(1) avoiding tax-related penalties under the U.S.
Internal Revenue Code or (2) promoting, marketing
or recommending to another party any tax-related
matters addressed in such communication.
© Gray Reed & McGraw, P.C.
Hold Harmless
The client agrees to indemnify the Firm and to hold
the Firm harmless against all losses, claims, damages,
liabilities, costs and expenses (including for the firm’s
time at the standard hourly rates charges by the firm
and all expenses) incurred by or asserted against the
firm in connection with, arising out of, or in any way
otherwise related to the engagement contract or the
firm’s representation of the client.
© Gray Reed & McGraw, P.C.
Hold Harmless
The Client’s obligations do not apply to any loss,
liability, claim, damages or action to the extent there
is a final determination by a court of final jurisdiction
and/or an arbitrator that any such loss, liability,
claim, damages or action resulted from the
professional negligence of the Firm.
© Gray Reed & McGraw, P.C.
Grievance Process

All Texas attorneys are required to give notice to
the client of the existence of the grievance process.
The State Bar of Texas investigates and prosecutes
professional misconduct committed by Texas
attorneys. Although not every complaint against, or
dispute with a lawyer involves professional
misconduct, the State Bar’s Office of General Counsel
will provide Client with information about how to file
a complaint. Please call 1-800-932-1900 or visit
www.texasbar.com for more information.

© Gray Reed & McGraw, P.C.
Disclaimer of Reliance
The client acknowledges this agreement is being made by
the client of its own free choice, without any inducement
offered in any way other than the express agreements
contained in this Agreement. Client warrants and
represents that no promise, agreement, representation,
inducement or condition not set forth in this Agreement
has been made or relied upon by Client in executing this
Agreement. Client is relying solely upon its own judgment
in executing this Agreement and Client acknowledges Firm
is relying upon all of Client’s representations, including this
Disclaimer of Reliance, in agreeing to undertake Client’s
representation.
© Gray Reed & McGraw, P.C.
Other Considerations

Destruction of files

Conflict of Interest

Informed Consent

Client Acknowledgment
© Gray Reed & McGraw, P.C.
Thank You & Be Careful Out There!
Amy C. Allen
Gray, Reed & McGraw, PC
1300 Post Oak Blvd, Suite 2000 Houston, Texas 77056
713.986.7000 (p) 713.986.7100 (f)
© Gray Reed & McGraw, P.C.