Opinion ID: 1816925
Heading Depth: 1
Heading Rank: 4

Heading: Failure to Return Unearned Portion of Fee: Excessive Fee.

Text: DR 9-102(B)(4) requires a lawyer to [p]romptly pay or deliver to the client as requested by the client the funds . . . in the possession of the lawyer which the client is entitled to receive. Failure to return an unearned fee violates this rule. Glenn, 390 N.W.2d at 132-33. The commission found no violation of this rule because it concluded the $5000 payment was a flat fee. As such, the commission apparently believed that the fee belonged to Apland when he received it. This finding raises the question whether nonrefundable fee advances are ethical. A. Nonrefundable fee advance. A nonrefundable fee advance allow[s] an attorney to keep an advance payment irrespective of whether the services contemplated are rendered. In re Cooperman, 187 A.D.2d 56, 591 N.Y.S.2d 855, 856 (1993). According to the Lawyers' Manual, [a] retainer can serve one of two purposes, or some combination of the two. Either it is a fee paid in advance to ensure the lawyer's availability and to compensate the lawyer for foregoing the opportunity to be hired by the client's adversaryin effect, an optionor it is an advance deposit for fees not yet earned. It may also be a hybrid, and thus harder to evaluate. Many courts and ethics committees have held that payments made to ensure availability are indeed earned when paid, and therefore belong to the lawyer and are not subject to trust account requirements. Lawyers' Manual 45:109-10 (collecting authorities). A retainer fee paid to ensure an attorney's availability is a general retainer fee which we earlier referred to in division III in connection with our discussion of DR 9-102(A). At least two courts have held fees are refundable notwithstanding any agreement to the contrary. See Cooperman, 591 N.Y.S.2d at 856 (holding that nonrefundable fee agreements are against public policy and therefore void; such agreements (1) interfere with client's right to discharge an attorney, (2) attempt to limit attorney's duty to refund promptly, upon discharge, all those fees not yet earned in violation of DR 2-110(A)(3), and (3) result in an excessive fee to the extent the fee is not earned in violation of DR 2-106(A)); In re Conduct of Gastineau, 317 Or. 545, 857 P.2d 136, 140 (1993) (holding attorney violated DR 2-106(A) by failing to promptly remit unearned portion of fee). Neither Cooperman nor Gastineau gives clear guidance as to the distinction between a general retainer and a special retainer. That is because neither case was dealing with a general retainer. Both were dealing with advance fee payments resulting from a special retainer. As mentioned, attorneys are allowed to keep a general retainer fee regardless of whether the attorney performs services for the client. We do, however, think Cooperman and Gastineau stand on solid ground with respect to advance fee payments resulting from a special retainer. As to those, we hold fees are refundable notwithstanding any agreement to the contrary because [a] lawyer cannot charge a fee for doing nothing. Brickman & Cunningham, Nonrefundable Retainers Revisited, 72 N.C. L.Rev. at 17. There are good reasons why advance fee payments resulting from a special retainer should be refundable. Lawyers are fiduciaries of their clients and for that reason their clients may discharge them at any time for any reason. There should be no penalty imposed upon the clients if they exercise this right. Because a nonrefundable advance fee arrangement does just that, it is inconsistent with the trust-based quality of the unfettered discharge right. Lester Brickman & Lawrence Cunningham, Nonrefundable Retainers: Impermissible Under Fiduciary, Statutory and Contract Law, 57 Fordham L.Rev. 149, 189-90 (1988). Before moving on to the next issue, we feel we need to address the hybrid casesthose cases where the general/special retainer distinction is less clear-cut. We agree with one commentator that we should carefully scrutinize those agreements because they may be structured in such a manner as to enable an attorney to keep the advance fee if the attorney is discharged. Brickman & Cunningham, Nonrefundable Retainers Revisited, 72 N.C. L.Rev. at 25. As to hybrid cases, we will presume that no part of the retainer was given for availability as that term is used in the general retainer context. In short, we will presume the arrangement is a special retainer. The attorney will have the burden to rebut the presumption by a convincing preponderance of the evidence. See id. at 27. Here, as mentioned, the $5000 payment was not a general retainer. Rather, as we said, it was an advance fee payment because it was for specific services to be performed in the future. We hold that a nonrefundable fee in these circumstances is void and unethical. Such a fee violates DR 2-106(A). As Gastineau points out, [a] close examination of the text and context of the excessive-fee rule demonstrates that a lawyer may violate DR 2-106(A) by failing to refund an unearned fee under certain circumstances even though the initial advance payment was not unreasonable for the task a lawyer was to perform in the future. DR 2-106(A) provides that [a] lawyer shall not enter into an agreement for, charge or collect an illegal or clearly excessive fee. The disjunctive use of the word collect means that the excessiveness of the fee may be determined after the services have been rendered, as well as at the time the employment began. Also telling in the interpretation of the scope of the rule is the fact that one factor for determining the appropriateness of the amount of a fee, stated in DR 2-106(B)(4), requires consideration of the results obtained. That wording, at least, suggests that the work for which the fee was agreed has been completed . . . . It would appear that any fee that is collected for services that [are] not earned is clearly excessive regardless of the amount . . . . We conclude that a lawyer violates DR 2-106(A) when he or she collects a nonrefundable fee, does not perform or complete the professional representation for which the fee was paid, but fails promptly to remit the unearned portion of the fee. Gastineau, 857 P.2d at 139 (citation omitted). We think this discussion is relevant to advance fee payments. It has, however, no application to a general retainer which as we have discussed belongs to the lawyer whether or not the lawyer has performed services. Unlike advance fee payments, a general retainer is `earned when paid' because the payment was given in consideration for availability. Brickman & Cunningham, Nonrefundable Retainers Revisited, 72 N.C. L.Rev. at 25. B. What portion, if any, of the fee was refundable? Whether Apland had a duty to refund any part of the fee depended on whether the $5000 fee was reasonable for all of the services he performed. As mentioned, DR 2-106(A) prohibits a lawyer from charging a clearly excessive fee. A fee is clearly excessive when, after a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee. Factors to be considered as guides in determining the reasonableness of a fee include the following: (1) The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly. (2) The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer. (3) The fee customarily charged in the locality for similar legal services. (4) The amount involved and the results obtained. (5) The time limitations imposed by the client or by the circumstances. (6) The nature and length of the professional relationship with the client. (7) The experience, reputation, and ability of the lawyer or lawyers performing the services. (8) Whether the fee is fixed or contingent. DR 2-106(B). Considering the amount of services performed, the time spent, and results obtained, we agree with the commission that the board failed to prove the fee was clearly excessive. Although Apland had no time records, we think the 35-40 hour estimate was, if not conservative, reasonable. In addition, we think the $150 per hour charge is in line with what other lawyers are charging for like services in the locality. Moreover, part of the fee covered out-of-pocket expenses such as deposition costs. Because we find the fee was not clearly excessive, Apland had no legal or ethical obligation to refund any part of the fee. Nevertheless, Apland did refund $2000, a sum we find he agreed to refund. Like other attorneys who find themselves in similar fee disputes with clients, Apland apparently believed the prudent thing to do was to compromise. We refuse to consider such a compromise an admission that Apland owed anything. To do so would discourage attorneys from reaching similar compromises in fee disputes with clients. We want to encourage such settlements because court suits involving fee disputes tend to discredit the profession in the eyes of the public. We conclude the board failed to prove Apland charged a clearly excessive fee in violation of DR 2-106(A). We also conclude the board failed to prove Apland failed to return an unearned portion of the fee in violation of DR 9-102(B)(4).