Can a lawyer call a fee or retainer "nonrefundable"?

Plain-English summary

The Committee revisited the treatment of "nonrefundable" fees and retainers, modifying its earlier Opinion 87-1. It concludes that, because every fee must be reasonable under Rule 1.5 and is subject to fee arbitration, it is misleading to describe a fee or retainer in any way as "nonrefundable."

The opinion recounts that Opinion 87-1 had cautioned against nonrefundable retainers but permitted them if the nonrefundable nature was fully and clearly explained and the fee was not excessive, while still requiring a refund of any unearned portion on withdrawal or where the retainer would be excessive. Despite 87-1, the opinion notes, nonrefundable retainers and "minimum fee" arrangements kept appearing in disciplinary and fee-arbitration matters, and it catalogs out-of-state disciplinary cases involving abuses (for example, a lawyer who collected a flat fee and did no work, or who immediately spent a large nonrefundable retainer and could not perform the services).

Applying Rule 1.5(a), the opinion explains that the reasonableness factors apply to a fee regardless of how it is labeled, whether "nonrefundable retainer," "fee earned upon receipt," "flat fee," or "minimum fee," and an unreasonable fee is improper. Under Rule 1.16(d), an unearned advance payment must be refunded on termination no matter how it was characterized. Because labeling a fee "nonrefundable" incorrectly suggests the client has no recourse against the lawyer, the opinion concludes the characterization is fundamentally misleading. A footnote notes the narrow historical justification for a true engagement retainer (paying solely to secure the lawyer's availability), which must still be clearly explained and not excessive, and the opinion expressly does not address when an advance fee is deemed earned.

In practice

Under this opinion, as the Alaska rules stood at the time, a lawyer should not describe any fee or retainer as "nonrefundable," because the label is treated as fundamentally misleading. The opinion's reasoning is that the Rule 1.5(a) reasonableness factors apply regardless of how a fee is labeled, and Rule 1.16(d) requires refunding any unearned advance payment on termination, so a client always retains recourse and fee-arbitration review. The opinion modifies Opinion 87-1 to that extent and does not resolve the separate question of when an advance fee is deemed earned.

Common questions

Q: Can a lawyer label a retainer "nonrefundable" in Alaska?

A: No. The opinion concludes it is misleading to describe a fee or retainer in any way as nonrefundable, modifying the earlier Opinion 87-1.

Q: Why is the "nonrefundable" label misleading?

A: The opinion explains every fee must be reasonable under Rule 1.5 and any unearned advance must be refunded under Rule 1.16(d), so the label wrongly implies the client has no recourse.

Q: Does relabeling it a "flat fee" or "minimum fee" avoid the problem?

A: No. The opinion says the reasonableness factors and the refund obligation apply regardless of how the fee is characterized.

Q: Does this opinion say when an advance fee is "earned"?

A: No. The opinion expressly states it does not address when an advance fee is deemed earned and available for the lawyer's immediate use.

Background and rules framework

The opinion interprets Alaska Rules of Professional Conduct 1.5 and 1.5(a) (reasonableness of fees, analog of Model Rule 1.5) and 1.16(d) (refunding unearned advance fees on termination, Model Rule 1.16). It modifies the Committee's prior Opinion 87-1 and surveys out-of-state disciplinary authority on nonrefundable-fee abuses.

Citations and references

Rules of Professional Conduct:

• Alaska RPC 1.5, 1.5(a) (reasonableness of fees)
• Alaska RPC 1.16(d) (refunding unearned advance fees)

Cases:

• In the Matter of Cooperman, 591 N.Y.S.2d 855 (App. Div. 1993)
• In the Matter of Sather, 3 P.3d 403 (Colo. 2000); In re DeRuiz, 99 P.3d 881 (Wash. 2004)

Other opinions cited:

• Alaska Ethics Opinion 87-1 (modified)

See also

• AL Bar Op. 1993-21: A Fee May Not Be Characterized as Non-Refundable
• ABA Formal Op. 505: Fees Paid in Advance
• AK Bar Ethics Op. 2012-2: Flat Fees in the Client Trust Account

Source

• Landing page: https://alaskabar.org/ethics-discipline/ethics-opinions/adopted-ethics-opinions-chronological/
• Original PDF: https://alaskabar.org/wp-content/uploads/2009-1.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

ALASKA BAR ASSOCIATION
ETHICS OPINION 2009-1
Misleading to Characterize a Fee or Retainer as “Nonrefundable.”
(Modification of Ethics Opinion 87-1)
Question Presented
Do the Alaska Rules of Professional Conduct preclude a lawyer from
characterizing a fee or retainer as “nonrefundable”?
Conclusion
Every fee must be reasonable and is subject to the standards of Rule 1.5 of the
Alaska Rules of Professional Conduct as well as to review by fee arbitration. For that
reason, it is misleading to describe a fee or retainer in any way as “non-refundable.”
Discussion
The issue of “nonrefundable fee deposit or retainer agreements” was previously
addressed in Ethics Opinion 87-1 which cautioned lawyers against using such agreements
due to the potential for misleading clients and the possibility of excessive fees. Despite
the adoption of 87-1, the use of “non-refundable retainers” and advance payment of
“minimum fees” continue to be reported in disciplinary and fee arbitration matters.
Because Alaska has also adopted the Rules of Professional Conduct which have recently
been revised pursuant to Supreme Court Order 1680, the Ethics Committee has been
asked to revisit the issue.
Ethics Opinion 87-1 addressed the issue, stating in part:
Historically, retainers were taken by attorneys as an engagement fee, separately
from the fee for actual services rendered. The purpose for this engagement fee was
to pay the attorney to take the case and make him or herself available to the client,
thereby causing the attorney to refuse other employment and to be precluded from
representing the opposing side.
....
In current practice, non-refundable retainers are generally deposits against which a
certain number of hours are charged. Hours in excess of the stated amount are
generally charged against the client at a stated rate. Occasionally, non-refundable
retainers are flat fees which are kept whether or not the matter is taken to
completion by the attorney.

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....
This Committee finds that a non-refundable retainer may be charged to a client if
the nature of the retainer as non-refundable is fully and clearly explained to the
client, orally and in the written fee agreement, and if the fee is not excessive,
considering the factors of DR 2-106.
....
The attorney must refund the non-earned portion of a non-refundable retainer if
the attorney withdraws from representation of the client. The attorney must also
refund a portion of the non-refundable retainer if, at the cessation of
representation, the retainer would be excessive under the circumstances of the
particular matter.
Since the adoption of 87-1, numerous opinions have been published in other
jurisdictions illustrating the potential for abuse resulting from fees characterized as
“nonrefundable retainers” or “advance payment of minimum fees.” Examples include a
contingency fee lawyer requiring a flat fee for purposes of “investigation”, In the Matter
of Stephens, 851 N.E. 2d 1256 (Ind. 2006)(public reprimand); a criminal lawyer taking a
flat fee and performing no work, In re Disciplinary Proceeding Against DeRuiz, 99 P.3d
881 (Wa. 2004)(6 month suspension); a civil lawyer immediately spending a $20,000
nonrefundable retainer/minimum fee and then being unable to perform the contracted
legal services, In the Matter of Sather, 3 P. 3d 403 (Colo. 2000); a lawyer’s continuing
practice of requiring a $15,000 “minimum fee” even if his work product was limited to
the entry of a written court appearance, In the Matter of Cooperman, 591 N.Y.S. 2d 855
(A. D. 1993)(2 year suspension); and, lawyers collecting flat fees and failing to
administer such payments through a trust account, In the Matter of Kendall, 804 N.E. 2d
1152 (Ind. 2004)(public reprimand). 1 Because of these abuses, the Washington Supreme
Court has amended its Rules of Professional Conduct 1.5(f) and 1.15A to address the
issue.
Rule 1.5(a) of the Alaska Rules of Professional Conduct requires that fees be
reasonable according to the following factors:
(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 that the acceptance of the particular employment will preclude
other employment by the lawyer;

1

This opinion does not address any issue as to when an advance fee is deemed earned
and, therefore, available for the attorney’s immediate use.
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(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.
Regardless of how a fee is characterized, e.g., “a nonrefundable retainer2,” “a fee earned
upon receipt,” a “flat fee,” a “minimum fee,” etc., these factors continue to apply to the
lawyer’s fee. If unreasonable, the fee is improper. It is for that reason that a lawyer’s
characterization of amounts paid to the lawyer as being “nonrefundable” is fundamentally
misleading.
Upon termination of representation, Rule 1.16(d) requires “refunding any advance
payment of fee that has not been earned.” Again, regardless of how a fee is characterized, this
requirement applies to the lawyer’s fee. Even if characterized as nonrefundable, an unearned
fee must be refunded. Because characterizing the fee as nonrefundable incorrectly suggests
that a client has no recourse against the lawyer, this practice is fundamentally misleading.
Approved by the Alaska Bar Association Ethics Committee on April 2, 2009.
Adopted by the Board of Governors on May 5, 2009.
G:\Ds\COMM\ETHICS\OPINIONS\2009-1.doc

2

As stated in Ethics Opinion 87-1, the sole justification for a “nonrefundable retainer,”
considered earned immediately upon receipt appears to be a payment intended exclusively to
ensure that the attorney is available to the client such that the attorney must refuse other
employment and cannot represent an opposing side. See In the Matter of Klos, 692 N.E. 2d
565, 567-68 (Ohio 1998). In other circumstances, this characterization of the contractual
relationship serves only to mislead a client into submitting to a potentially excessive fee. The
Committee cautions that any “retainer” fee solely for purposes of ensuring availability must be
clearly and fully explained to the client both orally and in the written fee agreement. Even
then, the fee must not be excessive under the standards of Professional Conduct Rule 1.5(a).

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