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May 03, 2023

ABA issues ethics opinion to guide lawyers’ handling of prepaid fees for individual clients

CHICAGO, May 3, 2023 — The American Bar Association Standing Committee on Ethics and Professional Responsibility released a formal opinion today that examines a lawyer’s ethical obligations for fees paid for legal work to be performed by the lawyer in the future.

Formal Opinion 505 points to the ABA Model Rules of Professional Conduct — and particularly applications of model rules related to fees and safekeeping of others property — to explain how lawyers should handle advance fees paid by individual clients, usually for a single legal matter that will not recur on a regular basis. These matters could include divorce, defense of criminal charges or civil matters not handled on a contingent fee basis.

The opinion notes that a retainer is often conflated with an advance fee, and it says in a footnote the former should not be construed as a “payment for the performance of services, but rather is compensation for the lawyer’s promise of availability … (and) is not an advance deposit against future legal services.”

“Given the rarity and unusual nature of a general retainer, and the fact that very few clients would actually need or benefit from one, the nature of the fee and lawyer’s obligations and client’s benefits under such an agreement must be explained clearly and in detail,” the opinion said.

Formal Opinion 505 was blunt in defining the problem. “These terms are most often used in an attempt to make an advance fee nonrefundable,” it said, before adding the model rules “do not allow a lawyer to sidestep the ethical obligation to safeguard client funds with an act of legerdemain: characterizing an advance as ‘nonrefundable’ and/or ‘earned upon receipt.’ This approach does not withstand even superficial scrutiny. A lawyer may not charge an unreasonable fee.”

The formal opinion also provides three hypothetical situations, including scenarios involving a divorce case, to examine situations when a lawyer might tell a client that the prepaid fee was nonrefundable. In most cases, the opinion suggests, the lawyer would be acting contrary to the model rules.

“We offer the following suggestions in relation to the matters addressed in this opinion. Use plain language,” it said. “Thus, instead of ‘retainer’ say ‘advance’ and explain that it is a ‘deposit for fees.’ Explain that the sum deposited will be applied to the balance owed for work on the matter, and how and when this will happen.”

The ABA Standing Committee on Ethics and Professional Responsibility periodically issues ethics opinions to guide lawyers, courts and the public in interpreting and applying ABA model ethics rules to specific issues of legal practice, client-lawyer relationships and judicial behavior. Other recent ABA ethics opinions are available here.

The ABA is the largest voluntary association of lawyers in the world. As the national voice of the legal profession, the ABA works to improve the administration of justice, promotes programs that assist lawyers and judges in their work, accredits law schools, provides continuing legal education and works to build public understanding around the world of the importance of the rule of law.