Prepaid legal fees and refundability of those fees was the subject of American Bar Association Formal Opinion 505. The recently released opinion states that under the Model Rules of Professional Conduct, a fee paid to a lawyer in advance for services to be rendered in the future must be placed in a client trust account and may be withdrawn only as earned by the performance of the contemplated services. This includes flat and fixed fees.

This opinion should not surprise Oklahoma lawyers as it tracks the opinion of the Oklahoma Supreme Court released in Oklahoma Bar Association v Weigel, 2014 OK 4 (2014) which provided clear guidance to Oklahoma lawyers. While sometimes bar ethics advisory opinions use conditional or cautious language, the tone of this opinion was quite blunt.

“The Model Rules of Professional Conduct 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. (Citations omitted.) Therefore, under the Model Rules, an advance fee paid by a client to a lawyer for legal services to be provided in the future cannot be nonrefundable. Any unearned portion must be returned to the client. Labeling a fee paid in advance for work to be done in the future as ‘earned upon receipt’ or ‘nonrefundable’ does not make it so.”

The opinion indicated that even the term “retainer” might be confusing to consumers and advance or deposit might be preferable.

ABA press release on Formal Opinion 505