Can a New York lawyer charge a fee paid in advance and call it 'nonrefundable'?

Plain-English summary

The committee addressed whether a New York lawyer may enter a fee agreement providing for a fee paid before services are performed that is to be "nonrefundable." It separated three arrangements that are loosely lumped together under that label: a "minimum fee" (a stated minimum payment for undertaking a representation regardless of the work involved), a "flat fee" (a stated amount for the contemplated representation regardless of hours), and a "retainer" (an amount paid to reserve a lawyer's availability, often precluding other employment). The committee concluded that each of these can satisfy DR 2-106(B)'s reasonableness factors, since those factors expressly reach more than hours worked, including the likelihood that the representation will preclude other employment.

The committee then concluded that no advance fee can be absolutely nonrefundable. DR 2-106(A) forbids an illegal or excessive fee, and the point at which the representation ends is a time the fee is "charged" or "collected," so the reasonableness test always applies; where the lawyer withdraws, DR 2-110(A)(3) requires prompt refund of any part of an advance fee that has not been "earned," a concept the committee treated as distinct from, and potentially narrower than, mere reasonableness; and where the client discharges the lawyer, the committee noted the client's nearly absolute right to discharge counsel (citing Martin v. Camp) and that courts have generally declined to enforce nonrefundable terms, awarding instead on quantum meruit. The committee expressly declined to opine on the legal enforceability of such agreements.

Because no fee can be made literally nonrefundable, the committee concluded that using the word "nonrefundable" (or equivalent language) in a fee agreement is necessarily misleading: it may cause the client to reach mistaken conclusions about the client's rights, the term is ambiguous in professional usage, and if a refund question later arises the lawyer is placed in a conflict between advising the client that the fee may in fact be refundable and the lawyer's own interest in keeping it. The committee therefore concluded that a lawyer may not denominate or characterize a fee as "nonrefundable" or use words conveying that an advance fee will not be subject to refund or adjustment under any circumstance.

Currency note

This opinion was issued in 1991, before New York replaced the Code of Professional Responsibility (the Disciplinary Rules and Ethical Considerations cited here) with the New York Rules of Professional Conduct, effective April 1, 2009. The current rules address fees and the return of unearned fees through Rule 1.5 and Rule 1.16. 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: Are flat fees and minimum fees allowed in New York?

A: The committee concluded that minimum fees, flat fees, and traditional retainers can be ethically permissible and can satisfy the DR 2-106(B) reasonableness factors, which include the likelihood that the representation will preclude other employment.

Q: Can a lawyer keep the whole advance fee no matter what?

A: No. The committee concluded that DR 2-106(A)'s reasonableness limit always applies, DR 2-110(A)(3) requires prompt refund of any unearned advance fee on withdrawal, and a refund may be required after a discharge.

Q: Can a lawyer write "nonrefundable" into the fee agreement?

A: The committee concluded a lawyer may not characterize an advance fee as "nonrefundable" or use equivalent language, because no fee can be literally nonrefundable and such labels are misleading and create a conflict if a refund question later arises.

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

A: The committee noted that the client's right to discharge counsel is nearly absolute and that the reasonableness analysis of DR 2-106(B) is applied with hindsight to the work actually done, which could require a refund; it did not opine on the legal standard courts would use.

Background and rules framework

The opinion applied New York Code DR 2-106(A) and (B) (illegal or excessive fees and the reasonableness factors), DR 2-110(A)(3) (prompt refund of unearned advance fees on withdrawal), and noted conflict and candor concerns under DR 5-101(A), DR 7-101(A), and Ethical Considerations including EC 2-19, EC 7-8, and EC 7-9. The analysis corresponds to ABA Model Rule 1.5 (fees) and Model Rule 1.16 (declining or terminating representation, including return of unearned fees).

Citations and references

Rules of Professional Conduct:

• New York Code DR 2-106(A), DR 2-106(B), DR 2-110(A)(3), DR 5-101(A), DR 7-101(A); EC 2-19, EC 5-2, EC 7-8, EC 7-9, EC 9-1, EC 9-2 (applied in the opinion)
• MR 1.5 (fees); MR 1.16 (declining or terminating representation)

Cases:

• Martin v. Camp, 219 N.Y. 170, 114 N.E. 46 (1916), client's right to discharge counsel
• Jacobson v. Sassower, 122 Misc. 2d 863, 474 N.Y.S.2d 167 (1983), aff'd, 66 N.Y.2d 991 (1985), quantum meruit recovery after discharge
• Cooper v. Conklin, 197 A.D. 205, 189 N.Y.S. 552 (2d Dep't 1921), lawyer's burden to show a fee was fair

Other authorities cited:

• Bar Association of Nassau County Op. 85-5 (1985); Pennsylvania Bar Formal Op. 85-120 (1987): conflicting views on nonrefundable retainers
• Brickman and Cunningham, "Nonrefundable Retainers," 57 Fordham L. Rev. 149 (1988)

See also

• NYC Bar Formal Op. 1995-1: Credit Cards and Other Fee Financing
• NYC Bar Formal Op. 1993-1: Assigning a Retired Lawyer's Accounts Receivable

Source

• Landing page: https://www.nycbar.org/reports/formal-opinion-1991-3/