Nonrefundable Fees
Adopted: April 17, 1998
Opinion provides that flat fees may be collected at the beginning of a representation, treated as presently owed to the lawyer, and deposited into the lawyer's general operating account or paid to the lawyer but that if a collected fee is clearly excessive under the circumstances of the representation, a refund to the client of some or all of the fee is required.
Inquiry #1:
May a lawyer enter into a fee agreement with a client that characterizes a fee collected at the beginning of the representation as "nonrefundable" regardless of circumstances of the termination of the representation?
Opinion #1:
The better approach to the setting of fees is not to characterize any fee as "nonrefundable." This is because a lawyer may not enter into an agreement for, charge or collect a fee that is clearly excessive. Revised Rule 1.5(a) of the Revised Rules of Professional Conduct. Reasonable fees can be charged but what is reasonable depends upon the circumstances of a particular case. See Revised Rule 1.5(b) for the factors considered in determining whether a fee is clearly excessive. Whether a fee is described to a client as "nonrefundable" or no mention is made as to whether the fee is refundable, if a particular collected fee is clearly excessive under the circumstances, the portion of the fee that is excessive must be refunded.
The client has a right to terminate the representation at any time with or without cause. Covington v. Rhodes, 38 N.C. App. 61, 65, 247 S.E. 2d 305, 308 (1978), cert. denied, 296 N.C. 410, 251 S.E.2d 468 (1979). However, if a matter is in litigation, this right is subject to any rule of the tribunal requiring permission for withdrawal from representation. See Rule 1.16(c).
Inquiry #2:
May a lawyer charge and collect a set fee to perform specified legal services regardless of the time that will be required to complete the services?
Opinion #2:
Yes, such a fee is permissible provided the fee is not clearly excessive under the circumstances of the representation. Traditionally called a "flat fee," this type of fee provides economic value to the client and the lawyer alike because it enables the client to know, in advance, the expense of the representation and it rewards the lawyer for efficiently handling the matter.
A flat fee is usually collected at the beginning of the representation, treated by the lawyer as money to which the lawyer is immediately entitled, and deposited into the lawyer's general operating account or paid to the lawyer. See RPC 158 and Revised Rule 1.5(c).
Inquiry #3:
May a lawyer collect a fee at the beginning of a client's representation and deposit the fee in the lawyer's general operating account?
Opinion #3:
There are two types of fees that are charged and collected at the beginning of a representation which are considered "presently owed" to the lawyer and, therefore, may be deposited directly into the lawyer's general operating account (see Revised Rule 1.15-1(d)):
1. A "true" general retainer. A true general retainer is a payment "for the reservation of the exclusive services of the lawyer which is not used to pay for the legal services provided by the lawyer." Revised Rule 1.15-1, Comment [4]. The lawyer commits himself to represent the client for a time certain or on specified matters. The true general retainer finds general application in those instances where corporate clients, merchants or businessmen have a specific need to consult the lawyer on a regular or recurring basis. The retainer reserves the lawyer's services. The true general retainer must not be clearly excessive. What is customarily charged in similar situations may determine whether a specific true general retainer is clearly excessive. See Revised Rule 1.5(b)(3).
2. A flat fee for specified legal services to be completed within a reasonable period of time. The client and the lawyer both contemplate what the client needs and what the lawyer expects to perform, and they agree that the client will pay a flat fee for those services. A flat fee arrangement is customarily identified with isolated transactions such as representations on traffic citations, domestic actions, criminal charges, and commercial transactions. A client must make a decision as to whether he or she can afford counsel and may prefer to know, at the beginning of the representation, how much he or she will have to pay for the representation.
If a client gives a lawyer a check that includes payment for the legal fee and for court or other costs associated with the representation, the lawyer must deposit the check into the trust account and withdraw from the trust account that portion of the deposit that represents earned legal fees. See RPC 158.
Inquiry #4:
At the beginning of the representation, a lawyer may ask a client to make a payment which is in part a true general retainer or a flat fee and in part an advance to secure the payment of fees yet to be earned. Into which of the lawyer's bank accounts should the payment be deposited?
Opinion #4:
There should be a clear agreement between the lawyer and the client as to which portion of the payment is a true general retainer, or a flat fee, and which portion of the payment is an advance. Absent such an agreement, the entire payment must be deposited into the trust account and will be considered client funds until earned. If there is a clear agreement that a portion of the fee paid by the client is either a true general retainer or a flat fee and the client gives the lawyer a check for the entire amount, the entire amount should be deposited into the trust account and that portion of the payment that is the general retainer or the flat fee should be withdrawn and deposited into the general operating account or paid to the lawyer. Revised Rule 1.15-1(e)(2).
The funds advanced by the client and deposited in the trust account may be withdrawn by the lawyer when earned by the performance of legal services on behalf of the client pursuant to the representation agreement with the client. Revised Rule 1.15-1(d). Should the client terminate the relationship, that portion of the advance fee deposited in the lawyer's trust account which is unearned must be refunded to the client.
Written fee agreements are not required by the Revised Rules of Professional Conduct. Nevertheless, a prudent lawyer will insist upon a written fee agreement prior to the representation of every client. The written agreement makes certain what too often rests in uncertainty when differences occur.