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Money and Ethics: "Non-refundable" Fees

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By Kevin P. Mcgoff and James J. Bell
 

Bell James Bell
McGoff Kevin McGoff

It’s the beginning of a case and your client has agreed in writing to a $10,000 non-refundable retainer. You get to work. The case is messy. There are motions to prepare, witnesses to interview and your client is constantly calling for “updates.”

But your client doesn’t really want updates. Instead, he wants to feel good. He needs reassurance. This case is important to him and he is understandably worried about what lies ahead. You take time from the case to do a little hand-holding. This is part of the job. You became a lawyer to help people through their biggest problems, and you’re getting paid to hear your client.

Days go by. You’ve done everything your client has asked and have told him about each, separate step by phone and via e-mail. The client calls again and you get comfortable for next conversation.

But this call is different. Your client says he appreciates your hard work, but he “wants to go in another direction.” As it turns out, his step-brother’s barber knows a lawyer who is second cousin to the judge’s nephew. He wants someone with more of an “inside track.” In other words, you’re being dumped. He tells you “it’s not you, it’s me”. He hopes you can “still be friends.” “That’s fine,” you say to yourself. Now, you can have your life back.

Oh. And there is one more thing: He wants his money back.

You blow a fuse. No way. While you may or may not have completed $10,000 worth of work, what does this guy think “non-refundable” means? You tell your ex-client to read the fee agreement and take a hike. There will be no refund. It is a “non-refundable fee.”

Have you violated the Rules of Professional Conduct? Yes. In fact, you may have violated the Rules twice. The first time was at the outset of the case, when your fee agreement called for a “non-refundable” fee. The second time was when you refused to refund any part of the money because you said the fee was non-refundable. This and other lessons are contained in the recent decision in Matter of O’Farrell, No. 29S00-0902-DI-76, 2011 Ind. LEXIS 72 (Ind. Feb. 11, 2011).

In O’Farrell, the Supreme Court concluded that “the assertion in a fee agreement that an advance fee is nonrefundable violates [Rule 1.5(a)’s] requirement that a lawyer’s fee be reasonable.” Id. at *10. The Court also noted that “an attorney cannot treat a fee as ‘earned’ simply by labeling the fee ‘earned on receipt.’” Id. at *12 (citations omitted).

How then do you protect yourself from the above situation? The Court suggests that “[a]s an alternative, a fee agreement could designate a reasonable part of the initial payment that would be deemed earned by the attorney for opening the case and beginning the representation.” Id. at *18. “Even without such contract provisions, ‘[i]t is well settled that, where the complete performance of an attorney’s services has been rendered impossible, or otherwise prevented, by the client, the attorney may, as a rule, recover quantum meruit for the services rendered.” Id. at *19 (citations omitted). In other words, you can retain the earned portion of the fee.

In fact, in O’Farrell, our Supreme Court was “not prepared to hold that some amount of a flat fee must be returned in all cases in which the attorney-client relationship ends before the work contracted for is completed.” Id. at *20. The Court also acknowledged circumstances in which the “entire flat fee could be deemed earned if the client deals unfairly with the attorney.” Id. Finally, the Court acknowledged circumstances where a client could pay a “general retainer” which is “payment for an attorney’s availability, which is earned in full when paid before any work is done.” Id. at *6-7. However, a “general retainer” cannot be charged for “routine legal services.” Id. at *11 (Citations omitted). It can only be justified in circumstances where, for example, the attorney is “preclu[ded from] other representations.” Id. (citations omitted).

So here is what we can take away from O’Farrell: 1) Avoid fee disputes, if possible; 2) Revisit and revise your engagement letter or fee contract; 3) Remove the term “non-refundable” from your fee agreement; and 4) Never treat a fee as non-refundable. If you charge a “general retainer,” make certain that the circumstances justify this arrangement and realize there is a risk that others may not agree that a general retainer is justified. Finally, if you are terminated from a case, work with the former client to find a reasonable amount, based on the amount of work performed, to retain as your fee.•

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  1. Can I get this form on line,if not where can I obtain one. I am eligible.

  2. What a fine example of the best of the Hoosier tradition! How sad that the AP has to include partisan snark in the obit for this great American patriot and adventurer.

  3. Why are all these lawyers yakking to the media about pending matters? Trial by media? What the devil happened to not making extrajudicial statements? The system is falling apart.

  4. It is a sad story indeed as this couple has been only in survival mode, NOT found guilty with Ponzi, shaken down for 5 years and pursued by prosecution that has been ignited by a civil suit with very deep pockets wrenched in their bitterness...It has been said that many of us are breaking an average of 300 federal laws a day without even knowing it. Structuring laws, & civilForfeiture laws are among the scariest that need to be restructured or repealed . These laws were initially created for drug Lords and laundering money and now reach over that line. Here you have a couple that took out their own money, not drug money, not laundering. Yes...Many upset that they lost money...but how much did they make before it all fell apart? No one ask that question? A civil suit against Williams was awarded because he has no more money to fight...they pushed for a break in order...they took all his belongings...even underwear, shoes and clothes? who does that? What allows that? Maybe if you had the picture of him purchasing a jacket at the Goodwill just to go to court the next day...his enemy may be satisfied? But not likely...bitterness is a master. For happy ending lovers, you will be happy to know they have a faith that has changed their world and a solid love that many of us can only dream about. They will spend their time in federal jail for taking their money from their account, but at the end of the day they have loyal friends, a true love and a hope of a new life in time...and none of that can be bought or taken That is the real story.

  5. Could be his email did something especially heinous, really over the top like questioning Ind S.Ct. officials or accusing JLAP of being the political correctness police.

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