By Dennis L. Kennedy and Joshua P. Gilmore
A couple of things have happened to your ability to collect attorney’s fees since the last time we spoke. They are important, so read on.
Fees paid in advance for contemplated services
Remember “flat fees,” “fixed fees,” “non-refundable fees,” and “earned-on-receipt fees”? That is about all they are now—(probably fond) memories. Nowadays, “a fee paid to a lawyer in advance for services to be rendered in the future must be placed in the client trust account and may be withdrawn only as earned by the performance of the contemplated services.” This is the current state of the law as summarized in American Bar Association Formal Opinion No. 505 (5/3/23).
It does not matter what a lawyer calls it; with quite rare exceptions, a fee paid for work to be performed in the future must be placed in the trust account and disbursed to the lawyer only when the work is performed. This may require the lawyer to divide the full scope of the work into segments or stages, or for single function engagements, to collect the fee upon completion of the work.
Opinion 505 contains several instructive hypotheticals. Here they are:
- Family law nonrefundable retainer
The client pays the lawyer a $6,000 retainer to file a divorce complaint, prepare a motion to enjoin the transfer of assets, seek a protective order, attend hearings, etc. Approximately 20 hours of work is contemplated. The retainer agreement provides that no portion of the fee shall be refunded or returned to the client for any reason. Shortly thereafter, the parties reconcile. The lawyer is entitled to her hourly rate of $300 for time spent on the matter. The balance must be returned to the client. - Commercial litigation general retainer
The client pays the lawyer a $6,000 non-refundable general retainer (deemed in the retainer agreement to be “earned upon receipt”) for purposes of retaining the lawyer and assuring her availability for a civil case, with payment at the lawyer’s $300 hourly rate if the lawyer expends “more than 20 hours” working on the case. The lawyer files a complaint, and the case quickly settles. The lawyer is entitled to her hourly fee for the time spent and must refund the balance of the $6,000. - Criminal matter flat fee
The client pays the lawyer a $15,000 “flat fee” for defending a criminal matter, deemed non-refundable for any reason, and agrees that the fee is earned “regardless of the time expended on the matter or how it is resolved.” The lawyer makes the initial appearance, but shortly thereafter is discharged by the client. The client demands an accounting and refund of the unused retainer. The lawyer may charge for time spent on the matter and must refund the balance.
Be aware that these requirements—(i) deposit of the retainer in the trust account; (ii) disbursement of funds as earned; and (iii) refund of the balance when the entire amount is not earned—are being enforced by the Office of Bar Counsel and endorsed by the Supreme Court of Nevada. See, e.g., In re Bachman, 519 P.3d 1266 (Nev. 2022); In re Joseph W. Houston, II, Southern Nevada Disciplinary Board, Case No. SBN22-00250; In re K. Alexandra Monaco, Southern Nevada Disciplinary Board, Case No. SBN22-00219; In re Ryan Cann, Southern Nevada Disciplinary Board, Case Nos. OBC21-0289 and OBC21-0353.
Punitive termination fees
Another thing that is fading fast is the high-priced termination fee contained in many retainer agreements—primarily for personal injury cases—that disincentivizes clients from terminating their lawyers. These provisions commonly provide that if the client terminates the law firm before the case is over, the firm is entitled to a quantum meruit fee calculated at $1,000 per hour for all work done on the matter by lawyers and non-lawyer personnel alike.
These types of provisions are unenforceable, and their attempted enforcement may violate the Nevada Rules of Professional Conduct. See Steve Dimopoulos, LLC v. Harris Law Firm, LLP, Case No. A-21-28630-C, Eighth Jud. Dist. Ct., Clark County, Nevada. These provisions are punitive because they: (i) interfere with the client’s absolute right to discharge the lawyer at any time with or without cause, see In re Kaufman, 93 Nev. 452, 567 P.2d 957 (1977); and (ii) seek to collect a fee from the client without regard for the Brunzell factors, see Logan v. Abe, 131 Nev. 260, 350 P.3d 1139 (2015). As such, they should be removed from your retainer agreements.
About the authors
Dennis L. Kennedy and Joshua P. Gilmore are partners at Bailey Kennedy, LLP. Alongside defending attorneys subject to possible disciplinary action before the Nevada State Bar, they advise attorneys on legal ethics and compliance-related issues that arise in the course of their practices, including permissive advertising and marketing, conflicts, lawyer departures, and charging liens. They were counsel (along with Rebecca L. Crooker) for the Dimopoulos Law Firm in the case referenced above.
About the article
© 2024 Clark County Bar Association (CCBA). All rights reserved. No reproduction of any portion of this issue is allowed without written permission from the publisher. Editorial policy available upon request.
This article was originally published in the Communiqué (May. 2024), the official publication of the Clark County Bar Association. See https://clarkcountybar.org/about/member-benefits/communique-2024/communique-may-2024.
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