Inquiry is made concerning the ethical/fiduciary responsibilities relating to retainer fees, advanced fees, advanced costs and expenses, flat fees, pre-paid fees, and nonrefundable retainer fees.
Ethical Consideration 2-19 of the Code of Professional Responsibility states:
As soon as feasible after a lawyer has been employed, it is
desirable that he reach a clear agreement with his client as to the
basis of the fee charges to be made. Such a course will not only
prevent later misunderstanding but will also work for good
relations between the lawyer and the client. It is usually beneficial
to reduce to writing the understanding of the parties regarding the
fee, particularly when it is contingent. A lawyer should be mindful
that many persons who desire to employ him may have had little or
no experience with fee charges of lawyers, and for this reason he
should explain fully to such persons the reasons for the particular
fee arrangement he proposes.
Disciplinary Rule 9-102(A) of the Code states, in part;
DR 9-102. Preserving Identity of Funds and Property of a
(A) All funds of clients paid to a lawyer or law firm, including
advances for costs and expenses, shall be deposited in one or more
identifiable insured depository institutions maintained in the state
in which the law office is situated.
...No funds belonging to the lawyer or law firm shall be deposited
therein except as follows:
(B) A lawyer shall:
(1) Promptly notify a client of the receipt of ...funds,
securities, or other properties.
(2) Identify and label securities and properties of a
client promptly upon receipt and place them in a
safe deposit box or other place of safekeeping as
soon as practicable.
(3) Maintain complete records of all funds, securities
and other properties of a client coming into the
possession of the lawyer and render appropriate
accounts to (the) client regarding them.
(4) Promptly pay or deliver to the client as requested by
a client the funds, securities or other properties in
the possession of the lawyer which the client is
entitled to receive.
All unearned attorney fees of any kind or nature paid by or on behalf of a client to an attorney, including retainer fees, advanced fees, general retainers, special retainers, flat fees, pre-paid fees, etc.; including advanced costs and expenses; are funds which belong in part to the client and must be deposited in a trust account to be withdrawn only when due, unless the right of the attorney or other payee to receive funds is disputed by the client, in which event the disputed portion shall not be withdrawn until the dispute is finally resolved.
The same fiduciary duties described above are applicable to non-monetary property delivered to an attorney as security for unearned fees. Such security deposits are required to be placed in trust and safekeeping.
In limited instances an attorney may receive an advanced earned fee in the nature of an unrefundable retainer fee designed to compensate the attorney for being available to represent a client, or to compensate the attorney for committing time for representation precluding acceptance of other employment, or to compensate the attorney for being precluded from taking an adversary interest or position because of conflicting interests or for having received privileged information. Earned fees of this kind and nature do not have to be placed in trust accounts and are subject to the strict limitations of Disciplinary Rules 2-106(A) and (B) of the Code; and, pursuant to DR 2-110(A)(3), 2-110(B)(4) and other applicable legal authorities may be subject to accountability and refunding in certain circumstances. 1
All pre-paid, advanced or retainer fees are ethically deemed to be refundable in the absence of a clear understanding by the client to the contrary, preferably in writing.
1 It is not clear, however, whether a nonrefundable retainer would be valid. A client who hasjust paid a lawyer $50,000 to perform all occupational health and safety work for a factory that burns down the next day, obviating the need for any legal work, can probably recover the retainereven if it was solemnly called "nonrefundable" in the agreement. Moreover, because the nonrefundable feature chills the client's right to discharge the lawyer ..., it has been held that such a clause is invalid and the lawyer is only entitled to the reasonable value of his or her services after discharge. See Modern Legal Ethics, Wolfram p. 506; Jacobson v. Sassower, 122 Misc.2d 863, 474 N.Y.S.2d 167 (1983), affirmed 107 A.D.2d 603; 483 N.Y.S.2d 711 (1985).
This 11th day of June, 1992.
Harris A. Gilbert
Donna Simpson Massa
Barbara J. Moss
APPROVED AND ADOPTED BY THE BOARD