WHEN IS A NON-REFUNDABLE RETAINER REALLY NON-REFUNDABLE?
Although creative fee arrangements including flat fee and value billing are becoming more common, driven by the client’s demand for reduced legal fees, many firms still bill by the hour for legal services provided to the client. This includes not only billable attorney time but paralegal time and sometimes law clerk time. All these billable hours calculate into a monthly statement to the client.
When quoting a retainer fee some firms require that a client post a “non-refundable” retainer. The ethical question that is highly debated is when is a non-refundable retainer really non-refundable?
Some court decisions have held that a non-refundable retainer is truly an advance fee. It is not intended that the client not receive a refund of unused retainer monies in the event that at the conclusion of the case all the funds have not been applied to outstanding invoices. In those instances, Courts have held that, “A fee is not earned simply because it is designated as non-refundable. . . . The court explained a true retainer "is not a payment for services, it is an advance fee to secure a lawyer's services, and remunerate him for loss of the opportunity to accept other employment."” (Tex. Comm. on Prof’l Ethics, Op. 611, 2011 WL 5831792).
The issue of refundable versus non-refundable retainers is a slippery slope and most jurisdictions will err on the side of caution and protect the client. The written retainer agreement is intended to protect the client and the law firm. Make sure that all the terms concerning retainers, billable hourly rates, fee retainers and cost deposits are clearly explained in your written retainer agreement in terms that a lay person can understand. Keep in mind that ambiguity in a contract is always interpreted in favor of the party who did not draft the agreement. This will be particularly true in a retainer agreement where the drafter is you, the lawyer. Be sure to include the following language in the retainer agreement:
1. Clearly identify the amount of the retainer to be paid and specify whether the retainer is refundable or non-refundable. Keep in mind that a retainer is not payment for services, it is payment in advance of services being rendered.
2. If you are requesting a non-refundable retainer, be sure to specify that it is a non-refundable retainer and include language that states the retainer fees are deemed earned upon receipt.
3. If the retainer being paid is for a flat fee case, be specific with language that clearly states that the fee quoted and to be paid is a flat fee and not an hourly fee. Also include the language that as a flat fee the retainer is deemed earned upon receipt. With a flat fee retainer, however, be sure to still track your time in your billing program and provide your client with an accounting of your time, marking each entry “no charge”. This will protect you in the event that you can secure payment of attorneys’ fees from the opposing and/or non-prevailing party.
4. Outline the hourly fee of each timekeeper who will be working on the client file: partner, associate, paralegal and law clerk. Each fee needs to be set forth as a line item that is clear to read and easy for a lay person to understand.
5. Be sure to include in your retainer agreement that retainer funds (regardless of whether they are specified as refundable or non-refundable) will be billed against at each billing cycle and that the client agrees that the firm is to be paid monthly from those funds without any further approval from the client.
6. To protect the firm, request a cost retainer for anticipated costs. State the amount to be paid as a cost retainer and indicate that client costs incurred will be paid to vendors or others on the client’s behalf and that those costs expended will be accounted for on the billing statement.
Deposit all client funds whether they are refundable or non-refundable retainers or cost monies into your trust account. Do not deposit any fee retainer or cost retainer monies into your operating account.
If an attorney/client relationship goes bad you need to protect yourself in writing and be as thorough as possible. Consider all scenarios that could happen which are case specific to that client matter. Draft your retainer agreement to contained clear language which identifies retainer monies as up front compensation for your availability and lost opportunities.
Keep in mind that it is your responsibility to protect your client’s best interests even in the retainer agreement with your firm. Consider whether the representation you are being engaged for truly warrants a non-refundable retainer.
The retainer agreement is as much for your protection as it is for your client. Do not inadvertently commit professional misconduct. The attorney/client relationship will be a better one if you make sure that everyone understands what is expected.