Can a lawyer treat an advance fee as immediately earned and spend it right away, and is a fixed traffic-case fee that covers fines and costs an improper contingent fee?

Plain-English summary

A lawyer took $400 for a traffic matter, treating $350 as a nonrefundable "true retainer" and $50 as costs, with no signed agreement and no discussion of refundability. He deposited the check in his trust account, immediately withdrew and spent the $350, and left the $50. Two days later the client discharged him, having received only a 20-minute meeting, and demanded the full refund; the lawyer returned only the $50. The first question was whether immediately withdrawing the $350 violated the rules.

The opinion concluded it did. For a payment to be earned immediately, the lawyer must clearly inform the client that it is earned immediately and the client must agree. Here the fee was negotiated and paid as compensation for services to be rendered, with nothing said to indicate it was nonrefundable or earned on payment, so despite the lawyer's misperception it was a deposit securing a fee yet to be earned that had to go in the trust account under Rule 10.1(c)(2) and its comment. Any portion unearned at discharge had to be refunded by a check drawn on the trust account under Rule 2.8(a)(3).

The opinion also addressed a different lawyer's flat $500 traffic fee covering fees, fines, and costs, where the smaller the fine and costs, the more the lawyer keeps. It concluded this is not a contingent fee prohibited in criminal cases by Rule 2.6(c): a fee is contingent only when both the lawyer's fee and the client's payment turn on the outcome, and here the client always pays $500 regardless of the fine, giving the client certainty as to cost. As to trust handling, if the $500 is intended as fees to be earned plus costs, the whole sum goes in trust; if the parties agree it is costs plus a flat fee the lawyer is immediately entitled to, the cost portion goes in trust and (for a cash payment) the fee portion in the operating account, while a check must be deposited in trust until the cost portion is ascertained and the fee portion promptly moved out. Any portion of the fee that is clearly excessive may be refundable under Rule 2.6(a), and the opinion cited O'Brien v. Plumides. The final question, whether a nonrefundable-retainer label changes this, was answered by reference to RPC 50 and Opinion #3; the posited arrangement does not involve a nonrefundable retainer.

Currency note

This opinion was issued in 1994, before the North Carolina State Bar's adoption of the 2003 revisions to the Rules of Professional Conduct. 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 a lawyer immediately spend an advance fee from the trust account?

A: Not without a clear agreement. The opinion held that an advance is earned immediately only if the lawyer clearly tells the client so and the client agrees; otherwise it is a deposit that must stay in trust until earned.

Q: What happens to the advance if the client fires the lawyer early?

A: Any unearned portion must be refunded. The opinion held that the unearned amount should be paid back to the client by a check drawn on the trust account under Rule 2.8(a)(3).

Q: Is a flat traffic fee that covers fines and costs a contingent fee?

A: No. The opinion held it is not a prohibited contingent fee under Rule 2.6(c), because the client pays the same amount regardless of the fine, so the client's payment does not turn on the outcome.

Q: How must a flat fee plus costs be deposited?

A: It depends on the parties' intent. The opinion held that if it is fees-to-be-earned plus costs, all goes in trust; if it is costs plus an immediately earned flat fee, the cost portion goes in trust, and a check must be deposited in trust until the fee portion is separated out.

Background and rules framework

The opinion applied North Carolina Rule 10.1(c)(2), the trust-accounting provision corresponding to Model Rule 1.15; Rule 2.8(a)(3), the refund-of-unearned-fee provision corresponding to Model Rule 1.16(d); and Rule 2.6, the fee provision corresponding to Model Rule 1.5, including the criminal-case contingent-fee bar in Rule 2.6(c) and the reasonableness limit in Rule 2.6(a). It distinguished a true (nonrefundable) retainer from an advance deposit and cited the earlier opinion RPC 50 and O'Brien v. Plumides.

Citations and references

Rules of Professional Conduct:

• MR 1.15 (safekeeping property; trust accounts)
• MR 1.16 (refund of unearned fee on termination)
• MR 1.5 (fees; contingent-fee limits)
• North Carolina Rule 10.1(c)(2); Rule 2.8(a)(3); Rule 2.6(a), 2.6(c)

Cases:

• O'Brien v. Plumides, 79 N.C. App. 159, 339 S.E.2d 54, cert. dismissed, 318 N.C. 409, 348 S.E.2d 805 (1986), on refundability of fees

Other opinions cited:

• North Carolina RPC 50 (nonrefundable retainers)

See also

• NC Ethics Op. 2000 Formal Op. 5: nonrefundable advance fees
• NC Ethics Op. RPC 174: fees for the collection of med-pay
• NC Ethics Op. RPC 166: increases in a lawyer's hourly rate

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-158/

Original opinion text

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

Editor's Note: This opinion was originally published as RPC 158 (Third Revision).

Inquiry #1:

Attorney A undertakes to handle a traffic matter for Client B. Client B gives Attorney A a check for $400. They agree that $350 of that sum represents A's fee and the rest is to be used for costs. Attorney A and Client B have no signed fee agreement and there is no specific negotiation between A and B regarding whether the fee would be refundable under any circumstances. Nevertheless, Attorney A considers the fee as a nonrefundable "true retainer."

Attorney A deposits Client B's $400 check into his attorney trust account and immediately withdraws $350 which he spends at once. Attorney A leaves the $50 in costs in the trust account. Two days after Client B has paid Attorney A, Client B discharges Attorney A and demands a refund of the $400. Attorney A has done no work on the matter, except for a 20 minute initial meeting with Client B. Attorney A gives Client B $50 only and refuses any additional refund on the grounds that the $350 was a nonrefundable retainer.

Has Attorney A violated the Rules of Professional Conduct by immediately withdrawing the entire $350 fee from his trust account or should he have left the fee in the account until he did more work on B's case?

Opinion #1:

In order for a payment made to an attorney to be earned immediately, the attorney must clearly inform the client that it is earned immediately, and the client must agree to this arrangement. In the instant case, it is plain that the fee was negotiated and paid as compensation for services which were to be rendered. Nothing was said by the attorney to indicate that the payment was nonrefundable or earned immediately upon payment. Therefore, despite Attorney A's misperception, the fee was a deposit securing the payment of a fee which was yet to be earned. As such, it was incumbent upon Attorney A to deposit the money in her trust account. See Rule 10.1(c)(2) and official comment. To the extent that any portion of the fee paid in this case was unearned at the time Attorney A was discharged, that amount should be paid back to Client B by check drawn on the trust account. Rule 2.8(a)(3).

Inquiry #2:

Attorney Z undertakes to handle a traffic case for Client X. Attorney Z tells X that he will handle the entire matter for $500 and that the $500 will cover his fees as well as any fines or costs in the case. Although Z knows generally how much the fines and costs are in traffic cases, the amounts do vary somewhat, depending upon the judge and the facts of the particular case. Consequently, the smaller the fine and costs, the more of the $500 which Attorney Z gets to keep as a fee.

Does this fee arrangement violate any provision of the Rules of Professional Conduct?

Opinion #2:

No. Although the amount of the fee earned by Attorney Z may be partially indefinite at the time the fee is paid by Client X, the fee earned by Attorney Z is not a contingent fee which would otherwise be prohibited in a criminal case by Rule 2.6(c) of the Rules of Professional Conduct. In order for a fee to be contingent, the fee received by the lawyer and the amount paid by the client must both be contingent upon the outcome of the case. In the present case, the amount paid by Client X remains the same whatever the amount of the fine and whatever the costs. This type of flat charge for representation on a traffic offense gives a client certainty as to the ultimate cost of the representation.

Inquiry #3:

How much, if any, of the $500 must be held in Attorney Z's trust account until the traffic matter is resolved?

Opinion #3:

If Attorney Z and Client X intend that the $500 represents a payment of fees to be earned and costs, then Attorney Z must deposit the entire $500 in the trust account. If Attorney Z and Client X agree that the payment represents costs and a flat fee to which Attorney Z is immediately entitled, and the payment is in cash, any portion of the payment which is intended to cover costs must be deposited in Attorney Z's trust account and any portion of the payment which is Attorney Z's fee must be deposited in her operating account. See Rule 10.1(c)(2). If Attorney Z and Client X agree that the payment represents costs and a flat fee to which Attorney Z is immediately entitled and the payment of the entire $500 is by check, the check must be deposited in Attorney Z's trust account and, upon ascertaining the amount of the costs or an amount sufficient to cover the costs, Attorney Z should promptly withdraw that portion that is fee and deposit it in her operating account. Rule 10.1(c)(2). Whether the fee portion is deposited in the trust account or paid over to the operating account, any portion of the fee which is clearly excessive may be refundable to the client either at the conclusion of the representation or earlier if Attorney Z's services are terminated before the end of the engagement. Rule 2.6 (a). See also O'Brien v. Plumides, 79 N.C. App. 159, 339 S.E.2d 54, cert. dismissed, 318 N.C. 409, 348 S.E.2d 805 (1986).

Inquiry #4:

Will the answer to Inquiry #3 be any different depending upon whether Attorney Z and Client X agree that Z's fee is a nonrefundable retainer?

Opinion #4:

The situation posited in Inquiry #2 does not involve a nonrefundable retainer. SeeRPC 50. See also Opinion #3 above.