Can a North Carolina lawyer charge a fee labeled 'nonrefundable,' and where must advance fees and flat fees be deposited?

Plain-English summary

The opinion addressed four questions about fees collected at the start of a representation: whether a fee may be labeled "nonrefundable," whether a set fee for specified services is permissible, where such a fee is deposited, and how to treat a payment that mixes an earned fee with an advance.

On the label, the opinion concluded the better approach is not to characterize any fee as "nonrefundable," because a lawyer may not charge or collect a clearly excessive fee under Revised Rule 1.5(a), and reasonableness depends on the circumstances of the particular case (Revised Rule 1.5(b)). Whether the fee is called nonrefundable or nothing is said about refundability, any portion of a collected fee that is clearly excessive under the circumstances must be refunded. The opinion noted the client may terminate the representation at any time with or without cause, subject, if the matter is in litigation, to any tribunal rule requiring permission to withdraw (Rule 1.16(c)).

On the type of fee, the opinion concluded a lawyer may charge a set "flat fee" to perform specified services regardless of the time required, provided the fee is not clearly excessive. A flat fee is customarily collected at the outset, treated as money the lawyer is immediately entitled to, and deposited in the operating account or paid to the lawyer (RPC 158; Revised Rule 1.5(c)). The opinion identified two fee types "presently owed" at the outset and so depositable directly in the operating account under Revised Rule 1.15-1(d): a "true" general retainer (payment to reserve the lawyer's exclusive services, not to pay for legal services), and a flat fee for specified services to be completed within a reasonable time. Where a client's check covers both fees and costs, the lawyer must deposit it in the trust account and withdraw the earned-fee portion (RPC 158).

On mixed payments, the opinion concluded there should be a clear agreement identifying which portion is a true general retainer or flat fee and which is an advance. Absent that agreement, the entire payment must be deposited in trust and treated as client funds until earned. With a clear agreement, the whole check is deposited in trust and the retainer or flat-fee portion is then withdrawn to the operating account; advances are withdrawn only as earned, and any unearned advance must be refunded if the client terminates (Revised Rule 1.15-1(d), (e)(2)).

Currency note

This opinion was issued in 1998, before North Carolina's adoption of the 2003 revisions to the Rules of Professional Conduct, and it cites the rules under the numbering then in effect (Revised Rule 1.5(a)-(c), Rule 1.15-1(d)-(e), Rule 1.16(c)). 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 requirement mentioned here.

Common questions

Q: Can a North Carolina lawyer call a fee "nonrefundable"?

A: The opinion concluded the better approach is not to use that label. Whatever the label, any portion of a collected fee that is clearly excessive under the circumstances must be refunded (Revised Rule 1.5(a)).

Q: Is a flat fee for specified legal services permitted?

A: Yes. The opinion concluded a set fee to perform specified services, regardless of time required, is permissible provided it is not clearly excessive (Revised Rule 1.5(c); RPC 158).

Q: Where does a flat fee or true general retainer go when collected up front?

A: The opinion concluded both are "presently owed" and may be deposited directly into the lawyer's general operating account or paid to the lawyer under Revised Rule 1.15-1(d).

Q: What if the up-front payment mixes an earned fee with an advance against future work?

A: The opinion concluded there must be a clear agreement allocating the payment; absent one, the whole sum goes into trust as client funds until earned. With an agreement, the check is deposited in trust and the earned portion withdrawn, with any unearned advance refundable on termination (Revised Rule 1.15-1(d), (e)(2)).

Background and rules framework

The opinion applied North Carolina Revised Rule 1.5 (fees; clearly excessive fees), Rule 1.15-1 (trust accounting; funds presently owed versus advances), and Rule 1.16(c) (withdrawal subject to tribunal permission), the analogues to Model Rules 1.5, 1.15, and 1.16, to fees collected at the start of a representation. It relied on prior opinion RPC 158 for the deposit treatment of flat fees and mixed fee-and-cost payments.

Citations and references

Rules of Professional Conduct:

• MR 1.5 (fees) / NC Revised Rule 1.5(a)-(c)
• MR 1.15 (safekeeping property) / NC Rule 1.15-1(d)-(e)
• MR 1.16 (declining or terminating representation) / NC Rule 1.16(c)

Cases:

• Covington v. Rhodes, 38 N.C. App. 61, 247 S.E.2d 305 (1978), cert. denied, 296 N.C. 410, 251 S.E.2d 468 (1979), client's right to terminate the representation

Other opinions cited:

• RPC 158: deposit of flat fees and of checks covering both fees and costs

See also

• NC State Bar Op. 2000 FEO 5: Nonrefundable Advance Fees
• NC State Bar Op. 2002 FEO 4: Collecting Contingent Fee and Court-Awarded Attorney Fee

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/97-formal-ethics-opinion-4/

Original opinion text

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

Inquiry #1:

May a lawyer enter into a fee agreement with a client that characterizes a fee collected at the beginning of the representation as "nonrefundable" regardless of circumstances of the termination of the representation?

Opinion #1:

The better approach to the setting of fees is not to characterize any fee as "nonrefundable." This is because a lawyer may not enter into an agreement for, charge or collect a fee that is clearly excessive. Revised Rule 1.5(a) of the Revised Rules of Professional Conduct. Reasonable fees can be charged but what is reasonable depends upon the circumstances of a particular case. See Revised Rule 1.5(b) for the factors considered in determining whether a fee is clearly excessive. Whether a fee is described to a client as "nonrefundable" or no mention is made as to whether the fee is refundable, if a particular collected fee is clearly excessive under the circumstances, the portion of the fee that is excessive must be refunded.

The client has a right to terminate the representation at any time with or without cause. Covington v. Rhodes, 38 N.C. App. 61, 65, 247 S.E. 2d 305, 308 (1978), cert. denied, 296 N.C. 410, 251 S.E.2d 468 (1979). However, if a matter is in litigation, this right is subject to any rule of the tribunal requiring permission for withdrawal from representation. See Rule 1.16(c).

Inquiry #2:

May a lawyer charge and collect a set fee to perform specified legal services regardless of the time that will be required to complete the services?

Opinion #2:

Yes, such a fee is permissible provided the fee is not clearly excessive under the circumstances of the representation. Traditionally called a "flat fee," this type of fee provides economic value to the client and the lawyer alike because it enables the client to know, in advance, the expense of the representation and it rewards the lawyer for efficiently handling the matter.

A flat fee is usually collected at the beginning of the representation, treated by the lawyer as money to which the lawyer is immediately entitled, and deposited into the lawyer's general operating account or paid to the lawyer. See RPC 158 and Revised Rule 1.5(c).

Inquiry #3:

May a lawyer collect a fee at the beginning of a client's representation and deposit the fee in the lawyer's general operating account?

Opinion #3:

There are two types of fees that are charged and collected at the beginning of a representation which are considered "presently owed" to the lawyer and, therefore, may be deposited directly into the lawyer's general operating account (see Revised Rule 1.15-1(d)):

1. A "true" general retainer. A true general retainer is a payment "for the reservation of the exclusive services of the lawyer which is not used to pay for the legal services provided by the lawyer." Revised Rule 1.15-1, Comment [4]. The lawyer commits himself to represent the client for a time certain or on specified matters. The true general retainer finds general application in those instances where corporate clients, merchants or businessmen have a specific need to consult the lawyer on a regular or recurring basis. The retainer reserves the lawyer's services. The true general retainer must not be clearly excessive. What is customarily charged in similar situations may determine whether a specific true general retainer is clearly excessive. See Revised Rule 1.5(b)(3).

2. A flat fee for specified legal services to be completed within a reasonable period of time. The client and the lawyer both contemplate what the client needs and what the lawyer expects to perform, and they agree that the client will pay a flat fee for those services. A flat fee arrangement is customarily identified with isolated transactions such as representations on traffic citations, domestic actions, criminal charges, and commercial transactions. A client must make a decision as to whether he or she can afford counsel and may prefer to know, at the beginning of the representation, how much he or she will have to pay for the representation.

If a client gives a lawyer a check that includes payment for the legal fee and for court or other costs associated with the representation, the lawyer must deposit the check into the trust account and withdraw from the trust account that portion of the deposit that represents earned legal fees. See RPC 158.

Inquiry #4:

At the beginning of the representation, a lawyer may ask a client to make a payment which is in part a true general retainer or a flat fee and in part an advance to secure the payment of fees yet to be earned. Into which of the lawyer's bank accounts should the payment be deposited?

Opinion #4:

There should be a clear agreement between the lawyer and the client as to which portion of the payment is a true general retainer, or a flat fee, and which portion of the payment is an advance. Absent such an agreement, the entire payment must be deposited into the trust account and will be considered client funds until earned. If there is a clear agreement that a portion of the fee paid by the client is either a true general retainer or a flat fee and the client gives the lawyer a check for the entire amount, the entire amount should be deposited into the trust account and that portion of the payment that is the general retainer or the flat fee should be withdrawn and deposited into the general operating account or paid to the lawyer. Revised Rule 1.15-1(e)(2).

The funds advanced by the client and deposited in the trust account may be withdrawn by the lawyer when earned by the performance of legal services on behalf of the client pursuant to the representation agreement with the client. Revised Rule 1.15-1(d). Should the client terminate the relationship, that portion of the advance fee deposited in the lawyer's trust account which is unearned must be refunded to the client.

Written fee agreements are not required by the Revised Rules of Professional Conduct. Nevertheless, a prudent lawyer will insist upon a written fee agreement prior to the representation of every client. The written agreement makes certain what too often rests in uncertainty when differences occur.