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. Joe, you might want to do some reading on the fate of Hoosier whistleblowers before you get your expectations raised up.

  2. I had a hospital and dcs caseworker falsify reports that my child was born with drugs in her system. I filed a complaint with the Indiana department of health....and they found that the hospital falsified drug screens in their investigation. Then I filed a complaint with human health services in Washington DC...dcs drug Testing is unregulated and is indicating false positives...they are currently being investigated by human health services. Then I located an attorney and signed contracts one month ago to sue dcs and Anderson community hospital. Once the suit is filed I am taking out a loan against the suit and paying a law firm to file a writ of mandamus challenging the courts jurisdiction to invoke chins case against me. I also forwarded evidence to a u.s. senator who contacted hhs to push an investigation faster. Once the lawsuit is filed local news stations will be running coverage on the situation. Easy day....people will be losing their jobs soon...and judge pancol...who has attempted to cover up what has happened will also be in trouble. The drug testing is a kids for cash and federal funding situation.

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  5. He has refused his Assent to Laws, the most wholesome and necessary for the public good. He has forbidden his Governors to pass Laws of immediate and pressing importance, He has erected a multitude of New Offices, and sent hither swarms of Officers to harrass our people, and eat out their substance. He has combined with others to subject us to a jurisdiction foreign to our constitution, and unacknowledged by our laws; giving his Assent to their Acts of pretended Legislation: For imposing Taxes on us without our Consent: He is at this time transporting large Armies of foreign Mercenaries to compleat the works of death, desolation and tyranny, already begun with circumstances of Cruelty & perfidy scarcely paralleled in the most barbarous ages, and totally unworthy the Head of a civilized nation.. He has excited domestic insurrections amongst us, and has endeavoured to bring on the inhabitants of our frontiers, the merciless [ ] Savages, whose known rule of warfare, is an undistinguished destruction of all ages, sexes and conditions. GOD BLESS THE GOVERNORS RESISTING! Count on the gutless judiciary to tie our children down and facilitate the swords being drawn across their throats. Wake Up America ...