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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. YES I WENT THROUGH THIS BEFORE IN A DIFFERENT SITUATION WITH MY YOUNGEST SON PEOPLE NEED TO LEAVE US ALONE WITH DCS IF WE ARE NOT HURTING OR NEGLECT OUR CHILDREN WHY ARE THEY EVEN CALLED OUT AND THE PEOPLE MAKING FALSE REPORTS NEED TO GO TO JAIL AND HAVE A CLASS D FELONY ON THERE RECORD TO SEE HOW IT FEELS. I WENT THREW ALOT WHEN HE WAS TAKEN WHAT ELSE DOES THESE SCHOOL WANT ME TO SERVE 25 YEARS TO LIFE ON LIES THERE TELLING OR EVEN LE SAME THING LIED TO THE COUNTY PROSECUTOR JUST SO I WOULD GET ARRESTED AND GET TIME HE THOUGHT AND IT TURNED OUT I DID WHAT I HAD TO DO NOT PROUD OF WHAT HAPPEN AND SHOULD KNOW ABOUT SEEKING MEDICAL ATTENTION FOR MY CHILD I AM DISABLED AND SICK OF GETTING TREATED BADLY HOW WOULD THEY LIKE IT IF I CALLED APS ON THEM FOR A CHANGE THEN THEY CAN COME AND ARREST THEM RIGHT OUT OF THE SCHOOL. NOW WE ARE HOMELESS AND THE CHILDREN ARE STAYING WITH A RELATIVE AND GUARDIAN AND THE SCHOOL WON'T LET THEM GO TO SCHOOL THERE BUT WANT THEM TO GO TO SCHOOL WHERE BULLYING IS ALLOWED REAL SMART THINKING ON A SCHOOL STAFF.

  2. Family court judges never fail to surprise me with their irrational thinking. First of all any man who abuses his wife is not fit to be a parent. A man who can't control his anger should not be allowed around his child unsupervised period. Just because he's never been convicted of abusing his child doesn't mean he won't and maybe he hasn't but a man that has such poor judgement and control is not fit to parent without oversight - only a moron would think otherwise. Secondly, why should the mother have to pay? He's the one who made the poor decisions to abuse and he should be the one to pay the price - monetarily and otherwise. Yes it's sad that the little girl may be deprived of her father, but really what kind of father is he - the one that abuses her mother the one that can't even step up and do what's necessary on his own instead the abused mother is to pay for him???? What is this Judge thinking? Another example of how this world rewards bad behavior and punishes those who do right. Way to go Judge - NOT.

  3. Right on. Legalize it. We can take billions away from the drug cartels and help reduce violence in central America and more unwanted illegal immigration all in one fell swoop. cut taxes on the savings from needless incarcerations. On and stop eroding our fourth amendment freedom or whatever's left of it.

  4. "...a switch from crop production to hog production "does not constitute a significant change."??? REALLY?!?! Any judge that cannot see a significant difference between a plant and an animal needs to find another line of work.

  5. Why do so many lawyers get away with lying in court, Jamie Yoak?

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