The American Bar Association Standing Committee on Ethics and Professional Responsibility released a formal opinion on May 3 to address concerns that some lawyers are mislabeling advance fees as nonrefundable retainers instead of refunding unused amounts for prepaid work.
Formal Opinion 505 examines a lawyer’s ethical obligations under the ABA Model Rules of Professional Conduct that relate to fees and safekeeping clients’ prepaid payments for nonrecurring legal work, including matters such as divorce, defense of criminal charges or civil matters not handled on a contingent fee basis.
The opinion notes that an advance on fees is often incorrectly labeled as a nonrefundable retainer. It says in a footnote that a retainer 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.”
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. But it added that 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.”
Three hypothetical situations are included in the opinion of a lawyer telling a client that a prepaid fee was nonrefundable. In most cases, the opinion suggests the lawyer would be acting contrary to the model rules. Above all, it added, the lawyer should explain the client fee and lawyer’s obligations “clearly and in detail.”
“Use plain language,” the opinion 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 standing committee periodically issues ethics opinions to guide lawyers, courts and the public in interpreting and applying ABA model ethics rules.