Attorney Rules of Engagement with a DAO

March 5, 2018

 

A decentralized autonomous organization, commonly referred to as a DAO, is a very interesting concept for an business. It lives on the blockchain, and is run through smart contracts. No individuals are associated with the organization whatsoever, and it hasn’t filed any incorporation documents with any state or even country. It is completely fluid and borderless.  

From a legal perspective, however, there is no existing business entity that this type of organization would fit into. In order to get the benefits of an LLC or Corporation, you have to sacrifice your privacy and register with your State. By default, a DAO would likely be considered as a General Partnership if it was sued, and general partnerships are the worst. They have no limitation on liability, and anyone who is affiliated with the entity, even if very remotely, can be considered a general partner. Should one partner get sued in the course of business, it means all partners are equally and severally liable. 

 

 

In my legal practice, I was recently presented the opportunity to represent one such decentralized autonomous organization. The individuals behind the blockchain were willing to pay their legal fees, but nobody was willing to sign a letter of engagement and publicly associate themselves with their DAO.  

 

I was happy to find out that the Florida Bar actually doesn’t require a written engagement letter. There is a preference that fees and costs be reduced to writing, and it is certainly good general practice, but it is not a requirement to do business. See R. Reg. Fla. Bar 4-1.5(e). My law firm typically likes to charge our clients a flat fee up front, and stipulate in the engagement letter that the fee is non-refundable. This seems to be what the clients prefer as well because it affords them the peace of mind of knowing their budget up front rather than having me scare them at the end of the month with a giant hourly bill they didn’t expect. I also like this fee structure so that they aren’t rushing off the phone with me thinking, “Oh no, another 6 minutes bill if I answer that question!” or “Damn Sasha, stop telling me about your cat, I know you charge by the minute!”

 

This fee structure streamlines my practice too because I don’t have to put anything into the almighty trust account- which is a highly regulated account with the Florida Bar, and seems to get a number of attorneys in trouble for comingling client funds. In terms of getting paid in Bitcoin, I don’t see how we could even do the old retainer fee structure. The Florida Bar hasn’t created any trust accounting rules or procedures for a Crypto IOTA account. The crazy price fluctuations would make hourly retainer agreements quite difficult as well. The Bar would likely require the Firm to sell out of crypto into fiat the moment the retainer is received. Additionally, holding someone else crypto in escrow until the work is completed adds another layer of security precaution against potential hackers. The up-front, non-refundable fee structure is absolutely the way to go.

 

The Florida Bar Rules for charging this type of fee is laid out in R. Reg. Fla. Bar 4-1.5(e), “A fee for legal services that is nonrefundable in any part shall be confirmed in writing.” Now this is the first time I am not requiring a client to sign and acknowledge the fee structure, but my interpretation of that rule is just that it needs to be sent to the client with a breakdown of the fee. There is nothing anywhere that says the client has to send it back signed. Certainly, that is normally a best practice, but I am sure glad I don’t have to decline this interesting project just because I can’t get a retainer signed. 

 

Disclaimer: This is my opinion, and not legal advice.

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