No Free Ride

There is only one type of truly nonrefundable fee: a nonrefundable retainer for the sole purpose of securing a lawyer’s availability to represent a client.  A nonrefundable retainer does not pay for any legal services.  One that purports to do so is not a nonrefundable retainer. Professional Ethics Committee Opinion 611 (2011) states that “A legal fee relating to future services is a non-refundable retainer at the time received only if the fee in its entirety is a reasonable fee to secure the availability of a lawyer’s future services and compensate the lawyer for the preclusion of other employment that results from the acceptance of employment for the client.”  

Further, a lawyer must justify a nonrefundable retainer, like any other legal fee, by its reasonableness under the circumstances—including, whether the lawyer will be declining new representations or deferring other current client matters to remain available to the nonrefundable retainer-paying client.  In general, true nonrefundable retainers are rare because most lawyers cannot easily demonstrate that they will be declining or deferring other matters to remain available to serve the retaining client.

Similarly, flat fees are refundable even if the lawyer calls them “nonrefundable.”  A flat fee is a fixed fee for legal services, but if the legal services are not substantially completed or earned, then some portion of the flat fee may be refundable. Accordingly, flat fees belong in a lawyer’s trust account until earned, and they are not “earned” upon receipt.  

Like any other legal fee, a flat fee must be “reasonable” under the circumstances and in view of the eight, non-exclusive, factors listed in Rule 1.04 (b) of the Texas Disciplinary Rules for Professional Conduct:

(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; and
(8) whether the fee is fixed or contingent on results obtained or uncertainty of collection before the legal services have been rendered.

Professional Ethics Committee Opinion 611 (2011) states that “[i]t is not permissible under the Texas Disciplinary Rules of Professional Conduct for a lawyer to include in an employment contract an agreement that the amount paid by a client with respect to a matter is a ‘non-refundable retainer’ if that amount includes payment for the lawyer’s services on the matter up to the time of trial.” 

Therefore: 

Lawyer X’s fee agreement is unethical because her fee agreement provided for a “nonrefundable retainer” to pay for legal services leading up to a trial—which a nonrefundable retainer cannot do under PEC Opinion 611.  Furthermore, Lawyer X is charging another “nonrefundable” trial fee.  

Lawyer Y’s fee agreement is unethical because flat fees are refundable if the representation is not completed or not substantially completed. (Fees may be substantially completed when the client prevents completion or terminates on the verge of completion.)  Calling the flat fee “nonrefundable” in the fee agreement makes no difference; a lawyer cannot contract to make an impermissible fee contractually obligated.  

Lawyer Z’s fee agreement may be ethical as long as the initial $2,500 nonrefundable retainer: (1) is not for any legal services, (2) the amount is reasonable under the circumstances, and (3) the lawyer can substantiate that she is giving up or will likely give up representing some other clients to represent Client C.  Having three separate fees is not impermissible—although stacking fees can be problematic depending on their nature and reasonableness.  The nonrefundable retainer portion can be deposited directly into the lawyer’s operating account because it is earned upon receipt. However, even “nonrefundable” retainers may be refundable if, for example, the lawyer is discharged for “cause” or can no longer remain available to serve the client.