When can a lawyer charge a non-refundable retainer, and what must the lawyer tell the client?

Plain-English summary

The Committee was asked for guidelines on the appropriate use of non-refundable fee deposit or retainer agreements and the disclosures required of clients. The opinion addressed only non-refundable retainers charged in a specific matter, not general retainers that pay a lawyer to remain available over time, and concluded such retainers are acceptable only within the limits it set out.

The opinion traced the history of retainers from an engagement fee paid to secure a lawyer's availability to the modern view, reflected in ABA authority, that retainers are closely tied to fees for services actually performed. It noted that the Code of Professional Responsibility did not specifically address retainers but barred excessive fees and stressed full explanation of fee arrangements (Canon 2, EC 2-17 and 2-19, DR 2-106), and that ABA Informal Opinion 998 disapproved requiring a client to agree that the lawyer could keep a retainer regardless of services performed. It reviewed Alaska fee-arbitration decisions, including one finding a $5,000 non-refundable retainer in a divorce case unconscionable and excessive under DR 2-106, because the client did not understand the fee to be non-refundable and the size of the retainer could discourage reconciliation.

The opinion concluded that a non-refundable retainer may be charged if the non-refundable nature is fully and clearly explained to the client, orally and in the written fee agreement, and the fee is not excessive under the eight DR 2-106 factors. The lawyer must give examples of circumstances under which the fee would not be returned even though the matter was not completed, and must take special care in divorce and similar cases not to take advantage of the client's circumstances or create a disincentive to reconciliation or settlement. The opinion also concluded that the lawyer must refund the unearned portion of a non-refundable retainer if the lawyer withdraws, and must refund any portion that would be excessive at the cessation of the representation.

Currency note

This opinion was later modified by Alaska Ethics Opinion 2009-1; consult that opinion before relying on this one. This opinion was issued in 1987, before the Alaska Bar Association's adoption of the 2009 revisions to the Alaska Rules of Professional Conduct (and before Alaska adopted the Rules of Professional Conduct at all; it applies the former Code of Professional Responsibility and refers to the then-proposed Model Rules). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can an Alaska lawyer charge a non-refundable retainer at all?

A: The opinion concluded a lawyer may charge a non-refundable retainer in a specific matter, but only within the limits it set out on disclosure and reasonableness.

Q: What disclosure does the lawyer have to make?

A: The opinion concluded the lawyer must fully and clearly explain the non-refundable nature both orally and in the written fee agreement, and give examples of circumstances under which the fee would not be returned even if the matter was not completed.

Q: Can the lawyer keep the whole retainer if the matter ends early?

A: No. The opinion concluded the lawyer must refund the unearned portion if the lawyer withdraws, and any portion that would be excessive under the circumstances at the end of the representation.

Q: Are there special concerns in divorce cases?

A: Yes. The opinion concluded the lawyer must take special care not to take advantage of the client's circumstances or create a disincentive to reconciliation or settlement, citing a fee-arbitration decision that found a $5,000 non-refundable divorce retainer unconscionable.

Background and rules framework

The opinion interpreted DR 2-106 of the former Alaska Code of Professional Responsibility, the rule against excessive fees and the source of the eight reasonableness factors, the analog of today's Model Rule 1.5. It read those factors together with the refund obligation now reflected in Model Rule 1.16(d), and relied on ABA Informal Opinion 998 and Alaska fee-arbitration decisions.

Citations and references

Rules of Professional Conduct (former Code; cf. Model Rules):

• DR 2-106 (excessive fees; reasonableness factors) (cf. Model Rule 1.5)
• Canon 2; EC 2-17; EC 2-19 (explanation of fee arrangements)
• Refund of unearned fees on withdrawal (cf. Model Rule 1.16(d))

Cases:

• Blair v. Columbian Fireproofing Co., 77 N.E. 762 (Mass. 1906), historical factors for a reasonable retainer

Other opinions cited:

• ABA Informal Opinion 998 (1967); Alaska fee-arbitration decisions FA 86-31, FA 83-22, and FA 81-7

See also

• AK Bar Ethics Op. 2009-1: "Nonrefundable" Fees
• ABA Formal Op. 505: Fees Paid in Advance
• AK Bar Ethics Op. 2012-2: Flat Fees in Trust Account

Source

• Landing page: https://alaskabar.org/ethics-discipline/ethics-opinions/adopted-ethics-opinions-chronological/
• Original PDF: https://alaskabar.org/wp-content/uploads/87-1.pdf

Original opinion text

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

Ethics Opinion No. 87-1
Appropriate Use of Non-Refundable Fee Deposits for Retainers and
Necessary Disclosure to Client.
The committee has been asked to provide guidelines to attorneys on the
appropriate use of non-refundable fee deposit or retainer agreements and what
necessary disclosures must be made to clients. This opinion only addresses
non-refundable fee retainers charged by an attorney in a specific matter, rather
than general retainers charged by an attorney to make him or herself available
over a period of time to consult with a client on general legal matters. The
committee determines that non-refundable fee deposit or fee agreements are
only acceptable under the limitations outlined in this opinion.
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. The
reasonableness of this retainer was based on a number of factors: 1) the ability
and reputation of the attorney, 2) the extent of the demand for his or her
services, 3) the probability of the retainer's interfering with his professional
relations with others who might become his or her clients, and 4) the
magnitude of the business for which the attorney was retained. Blair v.
Columbian Fireproofing Company, 77 N.E. 762 (Mass. 1906). Over time, the
American Bar Association has come to view retainers as closely related to fees
for services actually performed. Canon 44 of the Canons for Professional
Ethics, adopted by the American Bar Association in 1908, stated that "upon
withdrawing from a case after a retainer has been paid, the attorney should
refund such part of the retainer as has not been clearly earned." The Code of
Professional Responsibility currently in effect does not specifically address the
issue of legal retainers, but does prohibit the charging of excessive fees. The
Code stresses the necessity of fully explaining to prospective clients the
structure and rationale of any fee arrangements that are contemplated. See
Canon 2, Ethical Consideration 2-17, 2-19, and DR 2-106(A) (1974). In 1967,
the American Bar Association Committee on Ethics and Professional
Responsibility issued Informal Opinion 998 in response to an inquiry about a
proposed procedure for a law firm to request non-refundable retainers which
might or might not be applied against the hourly fee. The committee expressed
strong disapproval of the proposed procedure. It observed that a retainer is "an
advance payment in connection with fees and not a payment unrelated to fees"
and stated that it would be improper for a lawyer to require a client to agree
that a lawyer should keep the retainer "under all circumstance and regardless
of services performed."
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The commentary to Rule 1.5 of the proposed Model Rules of Professional
Conduct indicates "a lawyer may require advance payment of a fee, but is
obliged to return any unearned portion. See Rule 1.16(d)." The commentary
does not make clear whether it is disapproving non-refundable retainers, or
only disapproving the retention of a retainer when the attorney withdraws from
representation of the client.
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.
Alaska fee arbitration decisions have addressed the question of nonrefundable retainers. In FA 86-31 and FA 83-22, the arbitration committees
held that non-refundable retainers could not be assessed when the lawyer had
failed to make clear to the client his or her intent to keep the retainer
notwithstanding any events that would terminate the attorney-client
relationship prior to providing a certain number of hours of service. In FA 81-7,
the fee committee found that a non-refundable $5,000 retainer in a domestic
case was unconscionable. In that case, the form contract provided that a client
would pay a non-refundable retainer of $5,000 to secure a divorce. The
contract also stated that the client would be required to pay $850 for every day
of trial, plus trial costs and expenses. The contract provided that in the event
the client terminated the attorneys' services, the fee paid to the attorneys
would be deemed earned, and no part would be returned. The contract stated
that if the attorney terminated the contract, the attorney would return the
portion of the fee that exceeded the services rendered by the attorney valued on
the basis of $125 per hour. The committee found that because of the stress of
the domestic dispute, as well as other crises in the client's life, that she did not
understand the fee to be non-refundable. Very little work was performed by the
attorney firm before the client requested it to dismiss the pending litigation
because she had reconciled with her husband. The committee found that use
of a $5,000 non-refundable retainer and employment contract of an attorney in
a divorce case is unconscionable. The committee found that it would be unfair
and excessive as that term is used in DR 2-106. The committee noted that
clients in divorce cases are notorious for changing their minds on whether they
want to go through with the divorce. Thus, a non-refundable retainer takes
advantage of a weakness that clients have in divorce cases.
Although a small non-refundable retainer perhaps could be justified, the non-refundable
amount of $5,000 was simply too much to "retain a firm." This provision creates the
likelihood that substantial amounts of the client's money could be forfeited to the attorney
without regard for the amount or value of attorney services performed. The committee is
also concerned that the amount of the retainer might unduly influence the client's decision
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regarding whether to attempt reconciliation since the forfeiture of the retainer would
result.
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:
(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.
(8) Whether the fee is fixed or contingent.
As noted by the fee committee in FA 81-7, the amount of the retainer should
not be so great to unduly influence a client to pursue litigation contrary to
public policy or the best interests of the client.
In making a disclosure to the client of the nature of the retainer, the
attorney must take into consideration the state of mind of the client and the
ability of the client to understand the fee arrangement. The attorney must give
examples of the kinds of circumstances under which the fee would not be
returned, although the legal matter had not been pursued to completion.
Special care needs to be taken in a divorce case or the like to make sure that
the attorney is not taking advantage of the circumstances of the client in those
kinds of matters, nor creating a negative incentive to reconciliation or amicable
settlement.
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.
Adopted by the Board of Governors on September 3, 1987.
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