CHICAGO — The American Bar Association Standing Committee on Ethics and Professional Responsibility has released a formal opinion that examines a lawyer’s ethical obligations for fees paid for legal work to be performed by the lawyer in the future, a press release states.
Formal Opinion 505 points to the ABA Model Rules of Professional Conduct — and particularly applications of model rules related to fees and safekeeping of others property — to explain how lawyers should handle advance fees paid by individual clients, usually for a single legal matter that will not recur on a regular basis. These matters could include divorce, defense of criminal charges or civil matters not handled on a contingent fee basis.
The opinion notes that a retainer is often conflated with an advance fee, and it says in a footnote the former 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.”
“Given the rarity and unusual nature of a general retainer, and the fact that very few clients would actually need or benefit from one, the nature of the fee and lawyer’s obligations and client’s benefits under such an agreement must be explained clearly and in detail,” the opinion said.
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, before adding 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.”
The formal opinion also provides three hypothetical situations, including scenarios involving a divorce case, to examine situations when a lawyer might tell a client that the prepaid fee was nonrefundable. In most cases, the opinion suggests, the lawyer would be acting contrary to the model rules.
“We offer the following suggestions in relation to the matters addressed in this opinion. Use plain language,” it 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.”