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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. Frankly, it is tragic that you are even considering going to an expensive, unaccredited "law school." It is extremely difficult to get a job with a degree from a real school. If you are going to make the investment of time, money, and tears into law school, it should not be to a place that won't actually enable you to practice law when you graduate.

  2. As a lawyer who grew up in Fort Wayne (but went to a real law school), it is not that hard to find a mentor in the legal community without your school's assistance. One does not need to pay tens of thousands of dollars to go to an unaccredited legal diploma mill to get a mentor. Having a mentor means precisely nothing if you cannot get a job upon graduation, and considering that the legal job market is utterly terrible, these students from Indiana Tech are going to be adrift after graduation.

  3. 700,000 to 800,000 Americans are arrested for marijuana possession each year in the US. Do we need a new justice center if we decriminalize marijuana by having the City Council enact a $100 fine for marijuana possession and have the money go towards road repair?

  4. I am sorry to hear this.

  5. I tried a case in Judge Barker's court many years ago and I recall it vividly as a highlight of my career. I don't get in federal court very often but found myself back there again last Summer. We had both aged a bit but I must say she was just as I had remembered her. Authoritative, organized and yes, human ...with a good sense of humor. I also appreciated that even though we were dealing with difficult criminal cases, she treated my clients with dignity and understanding. My clients certainly respected her. Thanks for this nice article. Congratulations to Judge Barker for reaching another milestone in a remarkable career.

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