Each year, I am requested to review dozens of retainer agreements drafted by other Maryland law firms. Many of these retainer agreements contain two unenforceable provisions.
Arbitration Clause: Many retainer agreements state that the client is required to arbitrate any dispute arising out of the retainer agreement, such as fee disputes and claims of legal malpractice. However, an arbitration clause is not enforceable, unless the client is represented by an independent attorney in negotiating the retainer agreement. See Rule 1.8(h) of the Maryland Lawyers’ Rules of Professional Conduct and Comment 14; Maryland State Bar Association’s Committee on Ethics in Opinion 90-12. The rationale is that a client is unable to evaluate the desirability of agreeing to arbitrate a claim before a dispute has arisen.
Award of Attorney’s Fees: Law firms usually state in their retainer agreements that they will be entitled to their reasonable attorney’s fees incurred in collecting the balance owed from a client. However, some law firms state that they are entitled to a fix percentage of the disputed amount as attorney’s fees. I just reviewed a retainer agreement that stated the client is obligated “to pay an additional 33.33% of any sum due and owing as reasonable attorney’s fees in the event arbitration and/or suits necessary to secure payment of any sum due under this agreement”. Such a provision is unenforceable, because the law firm is not entitled to define what constitutes a reasonable a fee. Monmouth Meadows Homeowners Association, Inc. v. Hamilton 416 Md. 325, fn.14 (2010) (“Our holding that where an attorney is entitled to reasonable fees under the terms of a contract, that attorney is not permitted to define that amount by use of a percentage of a judgment”). It is the function of the court to determine what constitutes an award of a reasonable fee when an attorney sues a former client for money owed. Myers v. Kayhoe 391 Md. 188, 207 (2006).
Moreover, a law firm that represents itself in a collections case against a former client is not entitled to any additional attorney’s fees, because it has not incurred any in representing itself. Greenbriar Condominium, Phase I, Council of Unit Owners, Inc. v. Brooks 159 Md.App. 275, 318 (holding “there is nothing in the contract language to suggest that parties representing themselves are entitled to recover attorney’s fees that they have not incurred”); Greenbriar v. Brooks 384 Md. 581 (2005) (affirmed in part and reversed in part on unrelated issues).