Ethics Question of the Month - June 2021
Pay Me Now, Pay Me Later
Attorney Samuel does collection work . While he can and does represent multiple clients, he has one large institutional client for whom he handles dozens of cases each month. He requires the client to provide a non-refundable retainer of $5,000 before he undertakes work on a file. His fee agreement with his client specifies that the retainer is non-refundable because that is the minimum amount required for him to work on a file. Some cases would cost more on an hourly basis and some less, but the costs roughly even out.
In one case, a defendant files a large counterclaim against his client in response to a collection action he filed. It is clear to Samuel that defending the counterclaim will require considerable time on his part, far more than the $5,000 flat fee. So he asks the client to renegotiate the fee on this particular case so that he has the resources to do the work necessary to properly litigate the claim. The client eventually agrees to an hourly arrangement for the additional work.
Which of Samuel’s actions are potentially unethical?
- Charging a non-refundable retainer on each case.
- Attempting to change the terms of fee agreement after the case becomes more complicated than originally thought.
- Both A and B.
- Neither A or B.
While attorneys often label their retainers as “non-refundable,” the only proper non-refundable retainers are those charged for the sole purpose of securing a lawyer’s availability to represent a client. Any other retainer is refundable, regardless of what the lawyer calls it:
A true [non-refundable] retainer, however, 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. . . . If the lawyer can substantiate that other employment will probably be lost by obligating himself to represent the client, then the retainer fee should be deemed earned at the moment it is received. If, however, the client discharges the attorney for cause before any opportunities have been lost, or if the attorney withdraws voluntarily, then the attorney should refund an equitable portion of the retainer.
Ethics Opinion 611 (2011) (quoting Ethics Opinion 431).
Meanwhile, Ethics Opinion 679 (2018) holds that renegotiating a fee after the matter has commenced is permitted when the modification is fair to the client under the circumstances:
A lawyer may renegotiate his fixed, flat fee for representing a client in a litigation matter after the litigation is underway if modification of the fee agreement is fair under the circumstances. The burden of proving fairness is the lawyer’s and will depend upon factors such as the length of the lawyer-client relationship, whether the reason for the renegotiation could have been anticipated at the outset of the representation, and the client’s level of sophistication. Before seeking to renegotiate a fixed fee, the lawyer should be mindful of the risks that the lawyer voluntarily assumed when proposing or agreeing to that fee—including the possibility that the fixed fee might not be adequate to compensate the lawyer when compared to other fee arrangements.
The Opinion specifically discusses and approves the situation presented here where the attorney and client have a longstanding relationship and “neither the lawyer nor the client could reasonably anticipate that the scope of work to be included in the flat-fee agreement would be so grossly underestimated.” The correct answer is A.