In Kentucky, can a lawyer charge a non-refundable retainer, and when must an advance fee be held in the lawyer's trust account?

Plain-English summary

The opinion answered four questions about non-refundable retainers. The Committee distinguished a true retainer, a payment to secure the lawyer's availability that is earned when paid and need not go in trust, from an advance fee payment, which the client expects the lawyer to draw against as services are rendered and to refund any unused balance under KRPC 1.15 and 1.16(d).

The Committee concluded that a lawyer may designate part of a written fee payment as a non-refundable retainer to make clear that a portion is earned at the outset, but that any fee, however labeled, must be reasonable under KRPC 1.5(a). It disagreed with authorities such as In re Cooperman (N.Y. 1994) that treated non-refundable retainers as a per se violation, holding instead that the reasonableness inquiry is not foreclosed by the "non-refundable" label and that a client may be entitled to a refund of part of the fee depending on the circumstances. The Committee set three criteria for a valid non-refundable retainer: the arrangement must be fully explained to the client orally and in a signed written fee agreement; the agreement must specify the dollar amount, the scope of the representation, and/or the time frame; and the total fee must be reasonable. A reasonable fee made non-refundable may be deposited in the lawyer's general account; an advance fee that does not meet these criteria must be held in trust.

Currency note

This opinion was issued in 1995 and predates the Kentucky Supreme Court's substantial 2009 revisions to the Rules of Professional Conduct (SCR 3.130), as the opinion's own prefatory note states. The bar notes that amended Rule 1.5(f) and Comment 11 now specifically address non-refundable retainers. Treat this page as historical context, not current guidance. Verify against the current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Could a Kentucky lawyer charge a non-refundable retainer?

A: Yes. The Committee concluded a fee may be designated non-refundable, so long as the total fee is reasonable under KRPC 1.5(a).

Q: Did calling a fee "non-refundable" settle whether it was reasonable?

A: No. The Committee concluded the label was not conclusive; reasonableness remains open to review under KRPC 1.5(a), and a client may be entitled to a partial refund depending on the circumstances.

Q: What made a non-refundable retainer valid?

A: Per the opinion, the arrangement had to be fully explained to the client orally and in a signed written agreement, specify the amount and the scope and/or time frame, and the total fee had to be reasonable.

Q: When did an advance fee have to go in the trust account?

A: The Committee concluded that an advance fee payment that was not a valid non-refundable retainer had to be held in the lawyer's trust account under KRPC 1.15 and 1.16(d).

Background and rules framework

The opinion interprets KRPC 1.5 (fees, including the reasonableness factors in 1.5(a); Model Rule 1.5), KRPC 1.15 (safekeeping property; Model Rule 1.15), and KRPC 1.16 (declining or terminating representation, including refund of unearned fees; Model Rule 1.16). The analysis turns on the distinction between a retainer that secures availability and an advance fee drawn against as work is performed.

Citations and references

Rules of Professional Conduct:

• MR 1.5 / KRPC 1.5 (fees; reasonableness factors in 1.5(a))
• MR 1.15 / KRPC 1.15 (safekeeping client property)
• MR 1.16 / KRPC 1.16 (refund of unearned fees on termination)

Cases:

• In re Cooperman, 633 N.E.2d 1069 (N.Y. 1994), treating non-refundable retainers as a per se violation (the Committee disagreed)
• McKenzie Const., Inc. v. Maynard, 758 F.2d 97 (3d Cir. 1985), reasonableness judged in light of later events

Other opinions cited:

• Alaska Op. 87-1; Pennsylvania Op. 85-120; Utah Op. 136 (1993); Wisconsin Op. E-93-4

See also

• KBA Ethics Op. E-379: Reporting Nonpaying Clients to a Credit Reporting Agency
• KBA Ethics Op. E-402: Fee Limits in Workers' Compensation Matters

Source

• Landing page: https://kybar.org/For-Members/Rules-Ethics-Information/Ethics-Opinions
• Original PDF: https://kybar.org/Portals/0/Admin/Ethics%20Opinions/KBA_E-380.pdf

Original opinion text

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

Kentucky Bar Association
Ethics Opinion KBA E-380
Issued: June 1995

Since the adoption of the Rules of Professional Conduct in 1990, the Kentucky Supreme
Court has adopted various amendments, and made substantial revisions in 2009. For
example, amended Rule 1.5(f) and Comment 11 specifically address non-refundable
retainers. Lawyers should consult the current version of the rules and comments, SCR
3.130, (available at http://www.kybar.org), before relying on this opinion.

Question 1:

May a retainer fee be designated as “non-refundable?”

Answer:

Yes.

Question 2:

Is the lawyer’s designation of a payment as “non-refundable” conclusive as to
“reasonableness” of the fee?

Answer:

No.

Question 3:

What are the crucial elements of a valid “non-refundable” retainer agreement?

Answer:

See Opinion

Question 4:

If the lawyer obtains an advance fee payment, and the arrangement is not a valid
“non-refundable” retainer agreement, must the funds be held in the lawyer’s trust
account?

Answer:

Yes.

References:

Rules 1.5, 1.15 and 1.16; Charles Wolfram, Modern Legal Ethics (St. Paul: West,
1986), pp. 178-179, 505-506; In Re: Cooperman, 633 N.E.2d 1069 (N.Y. 1994);
McKenzie Const., Inc. v. Maynard, 758 F.2d 97 (3rd Cir. 1985). Alaska Op. 871; Pennsylvania Op. 85-120; Utah Op. 136; Wisconsin Op. E-93-4.
OPINION

In response to numerous requests for advice regarding “non-refundable” retainer fee
arrangements, the Committee provides the following guidance.
Traditionally, a true RETAINER is a payment made by the Client to secure the lawyer’s
or law firm’s availability “to handle the client’s legal problems during the period of time ... but
[the client] has no expectation that the fee already paid will cover specific items ... It is quite
common for the initial payment to be supplemented by an hourly charge [that may or may not be

less than the lawyer’s normal hourly charge].” Wolfram at p. 506. A retainer, like any other
payment, must be reasonable, judged in light of the factors enumerated in Rule 1.5(a). The
lawyer who receives a RETAINER has earned the fee by promising to be available for future
work, and the funds so received need not be put in a trust account. See Baranowski v. State Bar,
154 Cal. Reptr. 752, 593 P.2d 613 (cal. 1979).
A RETAINER, as described above, is to be distinguished from an ADVANCE FEE
PAYMENT, which some lawyers call “retainers.” The client’s expectation is that the lawyer
will perform the particular services requested and draw on the prepaid fees as services are
rendered and then considered earned according to some previously established basis, usually the
lawyer’s hourly rate. If any of the prepayment were left at the close of the representation, it
would be refunded to the client pursuant to Rule 1.15 and 1.16(d).
Lawyers may designate some amount of a client’s written fee payment for a particular
case or matter as a “NON-REFUNDABLE RETAINER” with the intention to make it clear to
the client that a portion of the fee is earned at the time of payment and commencement of the
representation, and that if the client discharges the lawyer, this advanced fee payment will not be
returned. For example, a lawyer may agree to represent a client in a divorce case and require the
payment of a “non-refundable retainer” as there is initial work and responsibility assumed in the
process of accepting the matter and defining client rights. Moreover, the client, when
establishing the lawyer - client relationship intentionally creates a conflict of interest that would
preclude representation of the other spouse. Some clients are irresolute - indeed, some would flit
from lawyer to lawyer. The non-refundable retainer secures an appropriate degree of
commitment from the client and ensures that the lawyer will be compensated for time and
responsibility invested and for the risk assumed in the early stages of a matter.
The Committee acknowledges that the practice of accepting “non-refundable retainers”
has been rejected by some courts, disciplinary counsel, and commentators, on the grounds that
(1) all fees must be “reasonable” under Rule 1.5(a), and a non-refundable retainer deprives a
client of the right to receive a refund on the unearned portion of a previously collected fee, and
(2) that such arrangements “chill” the client’s “absolute right” to discharge counsel. See, e.g., In
re: Cooperman, 633 N.E.2d 1069 (N.Y. 1994) aff’g, 591 N.Y.S.2d 855 (N.Y. App. div. 1993);
Brickman & Cunningham, Non-refundable Retainers Revisited, 72 N.C.L. Rev. 1 (1993). The
Cooperman court took the position that the taking of a “non-refundable retainer” is a per se
violation of the Rules of Professional Conduct and rejected the argument that such arrangements
are a violation only if they are pegged to an “unreasonable fee.” We disagree with this analysis.
Rule 1.5(a) requires that lawyers’ fees be “reasonable” and an examination of what is
“reasonable” is not insulated from review simply because it has been labeled “non-refundable” in
the written fee agreement. Wolfram, in his text, Modern Legal Ethics, gives the following
example: “A client who has just paid a lawyer $50,000 to perform all occupational health and
safety work for a factory that burns down the next day, obviating the need for any legal work,
can probably recover the retainer even if it was solemnly called “non-refundable” in the
agreement.”

In determining the “reasonableness” of a lawyer’s fee, the factors mentioned in Rule
1.5(a) apply, and the lawyer has the responsibility to prove the “reasonableness” of the fee
applying principles of equity and fairness. Although “reasonableness” at the time of contracting
is relevant, consideration is also to be given to whether events occurred after the fee agreement
was made which rendered the fee agreement fair at the time it was entered into, but unfair at the
time of enforcement. See McKenzie Const., Inc. v. Maynard, 758 F.2d 97 (3rd Cir. 1985).
Hence, the client may be entitled to a return of some portion of the “non-refundable” fee retainer
upon the termination of the representation, depending upon all the circumstances; that is, the
“reasonableness” of the fee.
Accepting representation often precludes a lawyer from taking on other matters, at
present and in the future, and the employment of a lawyer may confer immediate benefits on the
client. We also note that the client does not have an absolute right to discharge counsel, rather,
the client has the absolute power to do so. The lawyer-client arrangement is a contractual
arrangement, and while the lawyer has obligations, the lawyer also has rights. The client who
discharges a lawyer has an obligation to the lawyer for the payment of “reasonable”
compensation. The question in every case is whether the compensation claimed is “reasonable”
under the terms of the agreement and under the circumstances.
We agree with those authorities who hold that a “reasonable” fee may be made “nonrefundable” and deposited into the lawyer’s general office account as any other earned fee.
Accordingly, we find that in order for a non-refundable fee retainer to be valid the arrangement
must meet the following criteria:
1.
The arrangement must be fully explained to the client, orally, and in a written fee
agreement that is signed by the client;
2.
The arrangement must specify the dollar amount of the retainer, and its
application of the scope of the representation, and/or the time frame in which the agreement will
exist; and
3.

The total fee to be charged must be “reasonable.”

See Alaska Op. 87-1; Pennsylvania Op. 85-120; Utah Op. 136 (1993); Wisconsin Op. E93-4.
The Committee finds that a “non-refundable retainer” is not prohibited by Rule 1.5, is not
necessarily unearned in all cases, and is not “unreasonable” as a matter of law. A declaration
that all non-refundable fee retainer agreements are unethical and are in violation of the Rules of
Professional Conduct is an over-simplistic approach and is not derived from any fair reading of
the text of Rule 1.5.

Note to Reader
This ethics opinion has been formally adopted by the Board of Governors of the Kentucky
Bar Association under the provisions of Kentucky Supreme Court Rule 3.530 (or its predecessor
rule). The Rule provides that formal opinions are advisory only.