Arizona Engagement Letter Compliance Review

ARIZONA ENGAGEMENT LETTER COMPLIANCE REVIEW

Reviewer and Matter Information

Part 1. Threshold — When Is a Writing Required Under ER 1.5(b) and (c)?

☐ This is a new client (or new matter for an existing client on different terms) — writing required under ER 1.5(b)
☐ This is a regularly represented client charged on the same basis or rate as before — writing technically excused, but best practice is to confirm scope and rate in writing each matter
☐ The engagement is a contingent fee matter — a signed writing is mandatory under ER 1.5(c)
☐ Any changes to the basis or rate of the fee or expenses will be communicated in writing before the higher rate is incurred (ER 1.5(b))

Conclusion: ☐ Written agreement required ☐ Writing excused (document basis)

Part 2. ER 1.5(a) — Reasonableness of the Fee

The fee was evaluated against the ER 1.5(a) factors:

☐ Time and labor required, novelty and difficulty of questions involved, and skill requisite
☐ Likelihood that acceptance of the employment will preclude other employment
☐ Fee customarily charged in the locality for similar legal services
☐ Amount involved and results obtained
☐ Time limitations imposed by the client or by the circumstances
☐ Nature and length of the professional relationship with the client
☐ Experience, reputation, and ability of the lawyer(s) performing the services
☐ Whether the fee is fixed or contingent
☐ The fee will be re-evaluated for reasonableness at conclusion of the matter (Swartz look-back)

Part 3. ER 1.5(b) — Writing Requirements for All Engagements

The writing communicates to the client:

☐ The scope of representation (matter, court/tribunal/forum, services included and excluded)
☐ The basis or rate of the fee (hourly rates, flat fee amount, contingent percentage, or other)
☐ The expenses for which the client will be responsible
☐ The writing was delivered before or within a reasonable time after commencing the representation
☐ Any provision for changes in the basis/rate will be communicated in writing before incurred

Standard Rates Disclosed:

Part 4. ER 1.5(c) — Contingent Fee Agreement Requirements

☐ The agreement is in writing signed by the client
☐ The agreement states the method by which the fee is to be determined, including the percentages that shall accrue to the lawyer in the event of:
☐ Settlement: [____]%
☐ Trial: [____]%
☐ Appeal: [____]%
☐ The agreement states the litigation and other expenses to be deducted from the recovery
☐ The agreement states whether such expenses are to be deducted before or after the contingent fee is calculated
☐ The agreement clearly notifies the client of any expenses for which the client will be liable whether or not the client is the prevailing party
☐ The lawyer's procedure provides that, upon conclusion of the matter, the lawyer will furnish the client with a written statement stating the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination (ER 1.5(c) closing statement)

Part 5. ER 1.5(d) — Prohibited Fee Arrangements

The fee arrangement is not prohibited under ER 1.5(d):

☐ No fee in a domestic relations matter the payment or amount of which is contingent upon the securing of a divorce, upon the amount of alimony or support, or upon the amount of property settlement (ER 1.5(d)(1))
☐ No contingent fee for representing a defendant in a criminal case (ER 1.5(d)(2))
☐ For any fee designated as "earned upon receipt," "nonrefundable," or in similar terms, the client is simultaneously advised in writing that the client may nevertheless discharge the lawyer at any time and in that event may be entitled to a refund of all or part of the fee based upon the value of the representation pursuant to ER 1.5(a) (ER 1.5(d)(3))

Part 6. ER 1.5(e) — Fee Division With Other Lawyers (and ABS Context)

For division of a fee between lawyers who are not in the same firm:

☐ The division is in proportion to services performed by each lawyer OR each lawyer assumes joint responsibility for the representation
☐ The client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing
☐ The total fee is reasonable

If the fee is shared with a nonlawyer (or with a firm including nonlawyer owners):

☐ The sharing arrangement is conducted through, or with, a licensed Alternative Business Structure under ACJA § 7-209 (otherwise prohibited)
☐ The ABS license is current; the Compliance Lawyer is identified; biennial re-licensure has been verified
☐ All client confidentiality and independence-of-judgment safeguards required by ACJA § 7-209(K) are documented

Part 7. ER 1.15 and Rule 43 — Trust Accounts and Advance Fees

☐ Advance fees for services not yet performed are deposited into the client trust account (IOLTA) maintained at an approved financial institution and withdrawn only as earned
☐ Costs advanced by the client are deposited into trust and withdrawn only as actually incurred
☐ The trust account is established at an AZFLSE-approved financial institution and the State Bar of Arizona has been notified of the account through the lawyer's member portal
☐ The lawyer is performing a three-way reconciliation at least monthly (individual ledgers, general ledger, bank statement) per Rule 43(b)(2)(C)
☐ The trust account has no overdraft protection (prohibited under Rule 43)
☐ The lawyer's funds are not deposited into the trust account except as expressly permitted (e.g., to cover bank service charges)
☐ The agreement explains how unearned fees and unused costs will be refunded upon termination (ER 1.16(d))
☐ If any fee will be deposited into the operating account (e.g., a true "earned-on-receipt" fee), the ER 1.5(d)(3) discharge/refund advisory has been provided in writing
☐ The bank is identified to the State Bar as an IOLTA-approved institution subject to Rule 44 insufficient-funds notification
☐ Replenishment thresholds (if any) are clearly stated: replenish when balance falls below $[________________]
☐ Credit card and electronic payment processing for advance fees is configured so that chargebacks/fees do not invade other clients' funds (Rule 43(d) credit card provisions verified)

Part 8. ER 1.2 — Scope of Representation (and Limited Scope)

☐ The scope of representation is described with reasonable specificity (matter, court/forum, services included)
☐ Services expressly excluded are listed (e.g., appeals, post-decree matters, collection of judgment, related regulatory or tax issues)
☐ If the representation is limited in scope under ER 1.2(c):
☐ The limitation is reasonable under the circumstances
☐ The client has given informed consent (ER 1.0(e) definition met — material risks and reasonably available alternatives communicated)
☐ The limitation is documented in writing
☐ For court appearances, any required notice of limited-scope representation (e.g., Ariz. R. Fam. Law P. 9; Ariz. R. Civ. P. 5.1) will be filed

Part 9. ER 1.4 — Communication

☐ The agreement identifies the primary responsible attorney (and back-up contact)
☐ The agreement describes how the firm will keep the client reasonably informed about the status of the matter
☐ The agreement explains how material changes to the fee or scope will be communicated (e.g., advance written notice of rate increases, signed amendment for scope changes)
☐ The agreement identifies preferred channels (mail, email, secure portal) and expected response times
☐ The agreement describes how the lawyer will promptly comply with reasonable requests for information (ER 1.4(a)(4))

Part 10. Other Required and Recommended Disclosures

☐ Conflicts of interest — agreement notes that a conflict check has been completed and addresses procedures if a conflict later arises (ER 1.7, 1.10)
☐ Confidentiality — agreement acknowledges the duty under ER 1.6 (and ER 1.18 for prospective clients)
☐ File retention and destruction — period stated (best practice: 5+ years post-closing for civil files; longer for criminal, probate, and minor-client files; consult State Bar Practice 2.0)
☐ Withdrawal and termination — agreement summarizes lawyer's right to withdraw under ER 1.16 and obligation to take reasonable steps to protect the client's interests, including return of the file
☐ Client file ownership — agreement explains how the client file will be released upon request (consistent with ER 1.16(d) and State Bar of Arizona Ethics Op. 08-02 on client file ownership)
☐ Costs and expenses — categories of costs the client will bear are itemized, and the cost-advance policy is stated
☐ Settlement authority — agreement states that decisions regarding settlement and other objectives rest with the client (ER 1.2(a))
☐ Use of generative AI — any intended use of generative AI in the representation is disclosed; supervision per ER 5.3 is described (consistent with State Bar of Arizona ethics guidance and ABA Formal Op. 512 (2024))
☐ Cybersecurity / electronic communication — agreement explains use of email, cloud storage, e-signature, and any associated risks (ER 1.1, 1.6)
☐ No guarantee of outcome — agreement contains an express statement that no outcome is guaranteed

Part 11. Mandatory Arbitration / Fee Dispute Procedures

☐ If the agreement contains a pre-dispute mandatory arbitration clause for fee disputes or malpractice claims:
☐ The clause is conspicuous and the client has given informed consent after disclosure of the arbitration rules, costs, and waiver of jury trial
☐ The clause does not prospectively limit the lawyer's malpractice liability in violation of ER 1.8(h)
☐ The clause does not improperly waive the client's right to seek discipline or to consult State Bar resources
☐ The agreement informs the client of the State Bar of Arizona Fee Arbitration Program as a voluntary option for fee disputes
☐ The agreement informs the client of the State Bar's Consumer Protection / Lawyer Regulation intake channel for ethics concerns

Part 12. Alternative Business Structure (ABS) Specific Disclosures — ACJA § 7-209

Complete this Part only if the engaging firm is a licensed ABS under ACJA § 7-209.

☐ The firm's ABS license number is: [________________________________]
☐ The firm's Compliance Lawyer is: [________________________________], AZ Bar No. [____________]
☐ The firm's Designated Principal is: [________________________________]
☐ All Authorized Persons (10%+ economic interest or decision-making authority) are currently approved by the ABS Committee
☐ The ABS license is current (verify against the Arizona Judicial Branch ABS registry); renewal is up to date
☐ The engagement letter discloses to the client that:
☐ The firm is licensed as an Alternative Business Structure under Arizona Supreme Court Rule 33.1 and ACJA § 7-209
☐ The firm includes nonlawyer owners or decision-makers, who are identified or available on request
☐ Despite nonlawyer ownership, the lawyers representing the client are bound by the Arizona Rules of Professional Conduct, owe undivided loyalty to the client, and exercise independent professional judgment free from interference by nonlawyer owners
☐ Client confidentiality under ER 1.6 extends to the entire firm, including its nonlawyer personnel and owners
☐ Any fee sharing within the firm complies with ACJA § 7-209 and does not impair the lawyer's independent professional judgment
☐ If the client is a sophisticated business client and an Authorized Person has any potential conflict (e.g., investor in opposing party, cross-industry relationship), that conflict has been disclosed and informed consent obtained under ER 1.7
☐ The engagement letter notes that, for clients outside Arizona, the multijurisdictional treatment of ABS firms may vary (e.g., California AB 931 and certain other states restrict fee sharing with Arizona ABS firms); local counsel may be associated as needed

Part 13. Signature and Delivery Verification

☐ Engagement letter signed by the responsible attorney (and Compliance Lawyer if ABS)
☐ Engagement letter signed by the client (or authorized representative) — required for contingency under ER 1.5(c); strongly recommended for all engagements
☐ A duplicate signed copy was delivered to the client
☐ Method of delivery documented: ☐ In person ☐ Mail ☐ Email ☐ Secure portal ☐ E-signature platform: [________________]
☐ Signed copy retained in the matter file (paper or electronic) with date-stamped record of delivery

Part 14. Reviewer Certification

I have reviewed the above engagement letter for compliance with Ariz. R. Sup. Ct. 42 (Rules of Professional Conduct), Ariz. R. Sup. Ct. 43 and 44 (Trust Accounts and IOLTA), ACJA § 7-209 (Alternative Business Structures, where applicable), and current State Bar of Arizona guidance, and certify the following:

☐ All applicable items are checked, OR
☐ Deficiencies have been identified and a remediation plan is documented below

Deficiencies / Remediation Notes:

[____________________________________________________________]

[____________________________________________________________]

[____________________________________________________________]

Reviewer Signature: ________________________________ Date: [__/__/____]

Reviewer Printed Name and AZ Bar No.: [________________________________]

Sources and References

• Ariz. R. Sup. Ct. 42, ER 1.5 (Fees)
• State Bar of Arizona — ER 1.5 Best Practices
• Ariz. R. Sup. Ct. 43 (Trust Accounts)
• State Bar of Arizona — Rules Governing Lawyer Trust Accounts
• Arizona Foundation for Legal Services and Education — IOLTA for Lawyers
• Client Trust Accounting for Arizona Attorneys (State Bar Manual)
• ACJA § 7-209 — Alternative Business Structures (current)
• State Bar of Arizona — FAQs Regarding 1/1/2021 Rule Changes Impacting Law Practice (ER 5.4, ABS)
• Arizona Judicial Branch — Recent Amendments to Rules of the Supreme Court
• State Bar of Arizona — Practice 2.0 Resources