92-F-128(b) - Request for reconsideration of FEO 128(a)




Reconsideration of 92-F-128(a) relating to refundable and nonrefundable fees has been requested.

A request for reconsideration of Formal Ethics Opinion 92-F-128(a) has been made stating that the opinion is not supported by the Code of Professional Responsibility; conflicts with the Code's prohibition against commingling; provides an opportunity to manipulate income; and, is unworkable and impractical. Adoption of the New York rule, that title and ownership of all fees paid to the lawyer belong to the lawyer, has been advocated.

A practice has arisen for lawyers to require clients to pay advanced fees, flat fees, retainer fees, prepaid fees, etc., before the lawyer commits to perform legal services. This is done not only to guarantee payment of some or all of the fees but to insure that the client believes in the cause and is willing to make a financial commitment to pursue the matter. This is a prevalent practice among all lawyers.

Disciplinary Rule 9-102 of the Code of Professional Responsibility, embodied in Tennessee Supreme Court Rule 8, provides that the identity of all funds and property of a client should be preserved. Emphasis of "all funds" is intended. DR 9-102 requires all funds belonging in part to a client and in part presently or potentially to the lawyer to be maintained in trust. The rule permits the portion belonging to the lawyer to be withdrawn "when due" unless the right of the lawyer to receive it is disputed by the client. The disputed portion shall not be withdrawn until the dispute is finally resolved. DR 9-102 also provides that no funds belonging to the lawyer shall be deposited in the lawyer's trust account "except" as permitted by the rule.

The dual requirements of the rule to preserve and maintain the identity of the funds of a client; and not to commingle the lawyer's funds are harmonious and not inconsistent. The rule expressly provides for the withdrawal of funds belonging to the lawyer. The ethics opinion likewise provides for the withdrawal of fees when they become earned. There is no inherent tension in the fiduciary duties required by DR 9-102.

The ethics opinion clearly provides that earned fees belong solely to the lawyer, and given a clear understanding with the client, non-refundable retainer fees are permitted and considered to be earned fees.

The ethics opinion follows the prevailing rule which has been the traditional standard in Tennessee and nationwide for many years. The New York rule, providing that title and ownership of all fees paid to the lawyer belongs to the lawyer, is under attack. The New York Supreme Court, Appellate Division, Second Department in the case of In re Cooperman, N.Y.Sup. Ct., App.Div. 2d Dept., No. 90-00429, 1/25/93, recently ruled that lawyers cannot charge nonrefundable fees, stating that such a practice violates the ethical duty to refund the unearned portion of a fee, impinges on the client's absolute right to terminate the client-attorney relationship, and leads to attempts to collect excessive fees when the lawyer is discharged. The court also ruled that non refundable fees are imbued with an absoluteness that conflicts with DR 2110(A)(3).

Ethics Opinion 92-F-128(a) permits advanced earned fees in the nature of a non-refundable retainer fee in certain instances; to compensate the lawyer for being available to represent the client; to compensate for committing time for representation precluding acceptance of other employment; and, to compensate for being conflicted out of accepting adverse employment. The ethics opinion permits earned advanced or flat fees in criminal, domestic or juvenile matters, and routine legal services. All instances involving prepaid fees are subject to a clear understanding with the client, preferably in writing, that the fees are earned and non-refundable.

There are presently no compelling reasons why the traditional rule embodied in Formal Ethics Opinion 92-F-128(a) should be abandoned in favor of the old New York rule, providing that all advanced fees belong to the lawyer, now under attack; or, the potentially revised New York rule prohibiting non-refundable retainers.

This 10th day of September, 1993.


Thomas-H. Rainey
Herman Morris, Jr.
Walker T. Tipton