(Inquiry No. 731 )
Attorney’s fee to be uniformly charged every client for continued storage of their files after closing of clients’ matters.
An attorney may not charge a fee for the storage of material that the attorney is required by law or is otherwise obligated to retain in the attorney’s custody, for the period of time the attorney is required to maintain such custody. An attorney who has advised the client either at the commencement or at the conclusion of the representation that a clearly designated fee will be charged for retention of documents which the attorney is not required to retain after completion of the representation may charge a fee that is reasonable in amount and is agreed to by the client in the retainer agreement, or when agreement is made upon conclusion of the retention. An attorney also may charge a reasonable fee for, or recover the actual cost of retrieval, assemblage, delivery, and/or copying at the client’s request, of documents remaining in the attorney’s possession, if such fee or cost is not included in the legal fee paid by the client.
DR 2-106 (22 NYCRR, 1200.11)
DR 2-110 (22 NYCRR, 1200.15)
DR 9-102 (22 NYCRR, 1200.46)
After storing clients’ files without charge over the course of
many years, and after culling through these files and making arrangements for further storage, the inquiring two-attorney firm has concluded that such storage, if uncompensated, is an undue burden. To ameliorate the burden, inquiring firm proposes to charge every client a one-time fee upon the closing of a file, not exceeding $25, for
continued storage. The client would be allowed to retrieve information in the future without further charge.
May an attorney charge a blanket one-time fee to every client upon the
conclusion of the client’s matter for the continued storage of the contents of the client’s file?
A blanket one-time fee imposed on every client at the end of the representation for the continued storage of the contents of each client’s completed file is improper. At the conclusion of the representation an attorney must store those documents he/she is legally required to maintain without charge to the client. However, an attorney may deliver to the client all files he/she is not legally obligated to return or, if the client, upon proper disclosure, elects to have the attorney retain such files, the attorney can charge the client a reasonable fee or the actual cost of storage, provided such charge is agreed to in writing by the client either at the commencement of the retention or at the conclusion of the representation, prior to the client incurring storage fees, for only those documents which the attorney is not legally obligated to retain. If not already included in the fee for the representation, an attorney may charge a reasonable fee or be reimbursed for the actual costs of retrieving, assembling, copying and/or delivering stored files, if requested by a client, provided such charges are disclosed in advance to the client.
It is axiomatic that a client is required to pay for the services that the client retains the attorney to perform, and such services should include all that the attorney is legally obligated to perform and would ordinarily be expected to perform in the context of the representation. While overhead costs are always a concern – which is true whether an attorney practices in a large firm or in a solo or small firm setting – a line must always be drawn between law office costs that the attorney may pass on to the client and those that are included, or are ordinarily expected by the client to be included, in the fee. In fixing that line with respect to the cost of law office storage, it is necessary to examine the responsibilities of the attorney with respect to that ubiquitous staple of every law office – the completed file. Beyond the attorney’s fee, an attorney may not profit for services that are required or were reasonably expected to be performed with respect to continued maintenance of the client’s completed file.
In addition to completed files for specific representations, a client may entrust an attorney with the confidentiality of some of the client’s general affairs. Documents may have been specifically brought to the attorney for analysis, consultation and/or safekeeping. A client may prefer that the attorney keep wills, agreements, corporate outfits, general business documents and other non-public aspects of the client’s personal and business life uniformly confidential at the attorney’s office. These, together with documents and property that came into the attorney’s possession through past representation, continue to reside with the attorney as “completed” matters. Often they remain with an attorney for years, sometimes because of inertia on the part of both the attorney and client, and sometimes by design. An attorney might even prefer to be a custodian of client’s files and property to ensure a continued relationship with the client.
Once a file is created, or when a client’s papers and documents come into an attorney’s possession, the attorney has a continuing responsibility to maintain the file and to safeguard the client’s property. That responsibility may cease simply because of lapse of time, or the client may request possession. It may also cease on the attorney’s withdrawal from the client’s employment, the attorney’s retirement, a succession in the attorney’s practice, or upon the death of either the attorney or the client. These or other reasons might make it certain that continued possession and maintenance of a file is no longer required or feasible. For the sake of confidentiality, even after a long period of time, the file may have to be physically destroyed (see ethics opinions: Association of the Bar of NYC #s 1999-05 and 1984-04; NY County Lawyers Assn. #725 (1998); NY State Bar Assn. #623 (1986); Nassau County Bar Assn. #81-10 (1981)).
Apportionment of responsibility for the cost of continued file retention and/or its disposal requires an examination who owns the file and who is responsible for maintaining its existence, as well as a consideration of storage arrangements, if any, made with the client when the attorney either was retained or when the attorney otherwise came into possession of the client’s documents or property.
Ownership and Control of a Completed File or Matter
The close relationship that develops between an attorney and client often gives rise to mistaken notions as to what is a client’s individual property and who actually owns and/or controls file contents. The file was, after all, generated in the attorney’s office. An assumption of proprietorship on the attorney’s part may exist because of the attorney’s efforts, evidenced by the file, which completed the representation. Likewise, the client may feel that since the attorney was employed by the client and was paid a fee, the contents of the file belong solely to the client.
The New York Court of Appeals has now made it clear that the ultimate dominion and control of the client’s file rests solely with the client, thus eliminating the often-made distinction between documents representing the “end product” of an attorney’s services, which were said to belong to the client, and the attorney’s “work product”, leading to the creation of the end product documents, which were said to remain the property of the attorney (see Matter of Sage Realty Corp. v. Proskauer, Rose, Goetz & Mendelsohn, 91 N.Y.2d 30 (1997).
Sage is explicit that the client has “an expansive general right” to the contents of the attorney’s file upon termination of the representation, save only for very limited exceptions. This “general right” is further defined in the opinion as a “presumptive access to the attorney’s entire file” (at p.37, emphasis supplied). Indeed, the Court in a number of instances dispels the notion that an attorney has a superior right, over that of the client, to file contents including the attorney’s work product.
Referring to the right of a client in a pending matter to obtain possession of the entire file when changing attorneys (absent any question of legal fees), the Court declared that the rule should be no different when the representation ends (at p.36). Referring also to the fact that the attorney has been paid for the services that created the file, the Court criticized a practice that would enable an attorney “to cull from the client’s file documents generated through fully compensated representation, which the attorney unilaterally decides the client has no right to see” (at p.37).
As to exceptions to a client’s access or possession of file contents, Sage goes on to say that the attorney would not be required to disclose file documents which might violate a duty of nondisclosure owed to a third party or otherwise be imposed by law, and would not be required to disclose documents intended only for law office review and use (e.g. documents containing an attorney’s assessment of the client, or tentative or preliminary impressions of the legal or factual issues in the representation, recorded merely to facilitate performance of the legal services required).
Responsibilities for Completed Files and Clients’
Documents and Property; Practical Difficulties Involved
As a client’s property, completed files are subject to being turned over to the client at the client’s request, subject, of course, to any retaining lien in favor of the attorney for unpaid fees, or subject to other impediments imposed by law. Also, the attorney may elect to turnover the file (except for those documents the attorney is required to retain under DR 9-102 described below) so as to avoid the costs of storage. However, turnover of the file to the client, either at the client’s request or the attorney’s election, may lead to practical difficulties for both the attorney and the client.
Ordinary prudence on the attorney’s part may require the preservation of the client’s file in some form as evidence of the attorney’s activities on the client’s behalf. Otherwise the attorney would be especially vulnerable were the client to later assert a claim of malpractice or of other wrongdoing. Depending on the size of the file, reproduction of its contents might prove to be formidable. Nevertheless, there is no authority for an attorney to impose a charge for copying a file for the attorney’s use when and if the client requests possession of the entire file.
It should be noted, however, that while an attorney may ethically retain copies of documents in a client’s file at the attorney’s expense, it also is ethically acceptable for the attorney to demand a general release from the client as a condition to surrendering the entire
file to the client upon the client’s insistence that no copies be made (see NY State Bar Assn. #780 (2004).
Even so, in Sage the court made it equally clear that “[e]ven without a request” an attorney is obligated to deliver to the client, not later than promptly after representation ends, ‘such originals and copies of other documents possessed by the lawyer relating to the representation as the * * * [former] client reasonably needs’” (at p. 35, insertion in original, emphasis ours). This is at the attorney’s own cost, because it is the attorney’s responsibility. On the other hand, the Sage Court also held that the client can be charged for reproduction of portions of files kept in the attorney’s possession that are requested for the client’s use (at p. 38). Since, as will be shown, an attorney may be legally obligated to retain possession of a file at the end of the representation, and the client is only able to obtain copies, this could result in substantial costs for the client.
The files in Sage covered a series of completed commercial transactions, and were quite voluminous. The attorneys’ fees were approximately $1 million. The closing report alone consisted of 14 volumes containing more than 550 documents, and an index of the files was itself 58 pages long (at p. 33). The client could have insisted on possession of the actual files, themselves, but did not. Had possession been requested, the sole responsibility for pick-up, transport and the resulting storage would have been the client’s – undoubtedly a considerable cost, but one for which the attorneys would have had no responsibility. On the other hand, had the client taken possession of the files, the attorneys would have been faced with the copying any documents that the attorneys felt they needed to retain for their own protection. This was avoided by the client’s choice to obtain copies of only specified file portions instead of the files themselves, albeit at the client’s cost. Thus, Sage makes it clear that, as a general proposition, the direct cost of performing services required by the client, either to obtain possession of a completed file, or of obtaining copies, is borne by the client.
DR 9-102, entitled in part “Preserving Identity of Funds and Property of Others”, is concerned mostly with client escrow funds and securities and an attorney’s required bookkeeping and other internal records. DR 9-102(D) requires an attorney to:
“maintain for seven years after the events which they record:
1. The records of all deposits in and withdrawals from the accounts specified in DR 9-102(B) and of any other bank account which concerns or affects the attorney’s practice of law. These records shall specifically identify the date, source and description of each item deposited, as well as the date, payee and purpose of each withdrawal or disbursement.
2. A record for special accounts, showing the source of all funds deposited in such accounts, the names of all persons for whom the funds are or were held, the amount of such funds, the description and amounts, and the names of all person to whom such funds were disbursed.
3. Copies of all retainer and compensation agreements with clients.
4. Copies of all statements to client or other persons showing the disbursement of funds to them or on their behalf.
5. Copies of all bills rendered to clients.
6. Copies of all records showing payments to lawyers, investigators or other persons, not in the lawyer’s regular employ, for services rendered or performed.
7. Copies of all retainer and closing statements filed with the Office of Court Administration.
8. All checkbooks and check stubs, bank statements, prenumbered canceled checks and duplication deposit slips.
9. Lawyers shall make accurate entries of all financial transactions in their records of receipts and disbursements, in their special accounts, in their ledger books or similar records, and in any other books of account kept by them in the regular course of their practice, which entries shall be made at or near the time of the act, condition or event recorded.
10. For purposes of DR 9-102(D), a lawyer may satisfy the requirements of maintaining ‘copies’ by maintaining any of the following items: original records, photocopies, microfilm, optical imaging, and any other medium that preserves an image of the document that cannot be altered without detection.”
DR 9-102(C)(3) and (4) clearly obligate an attorney to identify, safeguard and keep track of a client’s property. Conceivably, this may include specific contents of a client’s file, as long as that specific property remains in the attorney’s possession. Whether the entire file must itself remain in the attorney’s possession for a specific length of time or for any time after the representation, is a question that is not addressed by DR 9-102.
Beyond the Code, Section 603.7(f) of the Rules of the Appellate Division, First Department, and Section 691.20(f) of the Rules of the Appellate Division, Second Department, both entitled “Preservation of Records of Claims and Actions”, require, in claims or actions for personal injuries, property damage, wrongful death, loss of services from personal injuries, and condemnation and change of grade proceedings, that both plaintiffs’ and defendants’ attorneys maintain comprehensive records for seven years after the conclusion of the claim or action. These include “the pleadings and other papers pertaining to such claim or cause of action”, and, as further enumerated in the Rules, virtually everything else that would ordinarily be associated with the attorney’s representation. Further, both Departments have rules authorizing random review and audits of the bookkeeping records required under DR 9-102, and these too are referred to in Appellate Division Rules 603(f) and 691.20(f). Clearly, in the specified types of claims or actions, an attorney practicing in these judicial departments is required to maintain a client’s files virtually intact for seven years after the matter is concluded.
It goes almost without saying, that record preservation is often required as well in other fields of practice. Failure to do so may result in penalties. For example, 26 U.S.C. § 7206(5)(B) (Internal Revenue Code) provides that withholding, falsifying or destroying a taxpayer’s records may be a felony and may result in substantial fines and imprisonment.
There is no general requirement in the Code that an attorney retain a file for a specific period after the client’s matter is concluded. Nevertheless, there is strong support for a recommended period of seven years for the general preservation of files, without regard to whether the attorney is specifically required to do so by statute or rule (see: Nassau County Bar Assn #s 81-10 (1981); 89-23 (1989); 93-23 (1992); NY State Bar Assn. #623 (1986)) The New York State Bar opinion sets out six steps to be followed before the contents of a file may then be destroyed. These include a search for “Documents In Need of Salvaging” (referred to as “DINS”), and the recommended consultation with the client about their preservation. Even then, if such DINS are discovered, and the client does not respond, it is recommended that the DINS should continue to be preserved by the attorney according to the foreseeable needs of the client. The balance of the file should then be destroyed in a confidentially safe manner (e.g. burning or shredding). This informal seven-year storage rule has long been part of the practice of law in New York.
Therefore, despite the fact that a file is the client’s sole property and must always be accessible to the client, an attorney is sometimes legally and almost always practically required to preserve its content in his or her possession for substantial periods of time after the conclusion of the client’s matter; and at the attorney’s expense, if no other fee arrangement was made at the start of the representation, or prior to charging the client for post-representation storage. We summarized the ethical implications of these obligations in Nassau County Bar Assn. #89-43 (1989).
There, the inquiring attorneys had possession of client files that a deceased partner of their firm had taken custody of prior to becoming a partner, from an attorney who had died. Neither the inquiring attorneys, their partnership, nor the deceased partner had ever represented the clients whose files were now in the possession of the remaining partners. They questioned their responsibility to these clients for the continued custody of their files. In determining that the responsibility continued, we said:
“It is no answer to the discharge of the custodial counsels’ obligations under the Code of Professional Responsibility to complain that the benefits of their passive custody of the documents are not commensurate with the present burdens. Such burdens do not flow solely from an attorney-client relationship, and are not dependent on the payment of fees; rather the burdens of custody as prescribed by the Code are inherent in the lawyer’s enjoyment of his professional status, and his concomitant obligations to the public generally. Once the burden is assumed, by actively (or passively) taking custody of funds or property belonging to any “client,” those burdens must be fully discharged even if the benefits of the custody are minimal or non existent.”
It is against this background that the present inquiry must be viewed. DR 2-106(A) prohibits an attorney from making an agreement for, charging, or collecting excessive fees. DR 2-106(B) declares “A fee is excessive when, after a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee.” Against this standard, it is beyond cavil that charging a fee for a “service” which consists of what an attorney is already legally obligated to do is excessive.
We turn now to the other files and property for which there is no prescribed retention rule. As the present inquiry reflects, the usual practice of attorneys in New York has been to store completed files without additional charge to the client, thus rendering a customary service that must be deemed, without more, to have been included in the fee paid by the client.
Under these circumstances it is the Committee’s opinion that if a file is not delivered to the client at the end of a representation, it is improper for an attorney to then first charge a fee for storage that the attorney customarily has undertaken as part of his or her practice, although not legally required so to do, unless the attorney, prior to charging a storage fee, either in the retainer agreement or a subsequent written agreement, affords the client the option of reviewing his/her files, at the client’s expense, or paying a post-representation storage fee. Any charge for continued storage of a completed file that the attorney is not legally required to preserve is not a reasonable fee unless, first, it is reasonable in amount, and, second, has been clearly designated either at the outset of the representation or in a separate agreement prior to the fee being incurred, as a separate fee to be charged if the client does not remove the file. The arrangement should be explicitly understood and agreed to by the client in writing, preferably as part of a formal retainer agreement or in an engagement letter acknowledged by the client, or in a termination letter at the end of the representation.
This is consistent with Sage where the Court said (at p.38) that its general holding as to a client ownership and responsibility for costs with respect to disposition of a file or portions of its contents “is not to be construed as altering any existing standard of professional responsibility or generally accepted practice concerning a lawyer’s duty to retain and safeguard all or portions of a client’s file once a matter is concluded.”
However, an attorney may charge a reasonable fee for, or recapture the actual cost of, retrieval, assemblage, delivery and/or copying, at the client’s request, of completed files and/or other documents remaining in the attorney’s possession, if such fee or cost is not already included in the fee arrangement with the client for the representation.
(Approved by the Full Committee on June 28, 2006)