At every year-end CLE, Louisiana Disciplinary Counsel Chuck Plattsmier would warn everyone in the audience that: There is no such thing as a “non-refundable” retainer.
At one of our annual LABD Hearing Committee Conferences, I got him to confirm (I think) that a contract or agreement for the payment of a non-refundable retainer was not “unethical” in and of itself; it was simply subject, (as essentially all fee arrangements are), to a subsequent claim by the client for a full or partial reduction or refund on the basis that such fee was unreasonable, or excessive, or otherwise unearned, under the circumstances.
A few years later, here in Louisiana, we amended our Rule 1.5(f), a unique provision on the Payment of Fees in Advance of Services that does not appear in the ABA Model Rules, to make it clear that:
(1) When the client pays the lawyer a fee to retain the lawyer’s general availability to the client and the fee is not related to a particular representation, the funds become the property of the lawyer when paid and may be placed in the lawyer’s operating account.
(2) When the client pays the lawyer all or part of a fixed fee or of a minimum fee for particular representation with services to be rendered in the future, the funds become the property of the lawyer when paid, subject to the provisions of Rule 1.5(f)(5). Such funds need not be placed in the lawyer’s trust account, but may be placed in the lawyer’s operating account.
(3) When the client pays the lawyer an advance deposit against fees which are to accrue in the future on an hourly or other agreed basis, the funds remain the property of the client and must be placed in the lawyer’s trust account. The lawyer may transfer these funds as fees are earned from the trust account to the operating account, without further authorization from the client for each transfer, but must render a periodic accounting for these funds as is reasonable under the circumstances.
(4) When the client pays the lawyer an advance deposit to be used for costs and expenses, the funds remain the property of the client and must be placed in the lawyer’s trust account. The lawyer may expend these funds as costs and expenses accrue, without further authorization from the client for each expenditure, but must render a periodic accounting for these funds as is reasonable under the circumstances.
(5) When the client pays the lawyer a fixed fee, a minimum fee or a fee drawn from an advanced deposit, and a fee dispute arises between the lawyer and the client, either during the course of the representation or at the termination of the representation, the lawyer shall immediately refund to the client the unearned portion of such fee, if any. If the lawyer and the client disagree on the unearned portion of such fee, the lawyer shall immediately refund to the client the amount, if any, that they agree has not been earned, and the lawyer shall deposit into a trust account an amount representing the portion reasonably in dispute. The lawyer shall hold such disputed funds in trust until the dispute is resolved, but the lawyer shall not do so to coerce the client into accepting the lawyer’s contentions. As to any fee dispute, the lawyer should suggest a means for prompt resolution such as mediation or arbitration, including arbitration with the Louisiana State Bar Association Fee Dispute Program.
See Louisiana Rule of Professional Conduct 1.5(f).
Under the ABA Model Rules, the Standing Committee on Ethics and Professional Responsibility, (echoing Mr. Plattsmier), recently advised that:
“A fee paid to a lawyer in advance for services to be rendered in the future must be placed in a client trust account and may be withdrawn only as earned by the performance of the contemplated services. This protects client funds and promotes client access to legal services in the event the representation terminates before all contemplated services have been rendered. All fees must be reasonable, and unearned fees must be returned to the client. Therefore, it is not accurate to label a fee ‘nonrefundable’ before it actually has been earned, and labels do not dictate whether a fee has been earned.”
ABA Formal Opinion No. 505 (May 3, 2023) (emphasis supplied).
While I generally tend to objectively summarize and/or quote from these opinions and decisions without editorializing, I do disagree with this view, for whatever it’s worth. When a lawyer agrees to take a case, he or she assumes a lot of responsibility and risk, even without spending one minute on the representation. First, the lawyer is disqualifying himself or herself from representing any other potentially adverse party in the same or related matter. Secondly, the lawyer is disqualifying himself or herself from an unknown universe of potential future representation of clients whose interests may be adverse. Third, the lawyer is accepting malpractice risk. And, finally, the lawyer is accepting a professional responsibility and risk of disciplinary action or sanction. The client, moreover, may use the fact of representation to his or her immediate advantage in capitalizing on the credibility and/or reputation of the attorney. It is not “unethical” in my opinion for a client to agree to pay, and for the attorney to accept, immediately-earned and non-refundable compensation for all of that, even before and irrespective of the actual hours expended, or tasks performed, or litigation costs advanced.