Can a lawyer charge a forfeitable initiation retainer and advertise a fee discount without stating the standard fee?

Plain-English summary

A lawyer proposed a prepaid legal-services program for an industry: participants would pay a $1,000 "initiation/retainer" fee plus $500 per month for limited services (capped telephone consultations, two short office consultations, and review of up to three contracts monthly). The initiation fee would be forfeited if the client terminated more than five days after paying it, and monthly fees were largely nonrefundable as well. Two questions were posed: whether such a forfeitable initiation fee was permissible, and whether the lawyer could advertise a discount from "standard" fees without disclosing those fees.

On fees, the Committee concluded the forfeiture provisions violated the rule against nonrefundable retainers from Matter of Cooperman, 83 N.Y.2d 465 (1994), which voids agreements that compromise a client's absolute right to terminate the attorney-client relationship, citing DR 2-110(A)(3), DR 2-110(B)(4), and DR 2-106(A). The agreement therefore had to provide for a refund of all unearned fees on termination, and the Committee rejected the idea that the forfeiture could be justified as recovering file-opening or setup costs, which are overhead (citing ABA 93-379). It also reminded the inquirer that the plan's limits on the scope of work and call-return times did not relieve the lawyer of the DR 6-101 duty to prepare adequately and not neglect matters.

On advertising, the Committee was troubled by a "25% discount from standard hourly rates or flat fees" offer when the standard fees were unstated. Under DR 2-101(C)(4) and (E), advertising a fixed fee requires a written statement, available to the public and delivered to the client at retainer, describing the scope of each advertised service. The Committee concluded that advertising a discount from an unstated standard fee was only half the equation and could be misleading, or untruthful if no standard fee schedule actually existed. Both questions were answered in the negative.

Currency note

This opinion was issued in 1996, 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. 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 Treat this page as historical context, not current guidance.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 keep a retainer in full if the client fires the lawyer?

A: No. The opinion concluded that, under Matter of Cooperman, an initiation/retainer fee that is forfeited in its entirety on termination is impermissible, and the agreement must refund all unearned fees.

Q: Can the forfeiture be justified as covering file-setup costs?

A: No. The Committee concluded that file-opening and computer-setup costs are overhead, not directly billable to the client, and cannot justify the forfeiture (citing ABA 93-379).

Q: Can a lawyer advertise a discount off "standard" fees?

A: Not without disclosing the standard fee. The opinion concluded that advertising a discount from an unstated standard hourly or fixed fee may be misleading, and untruthful if no standard fee schedule exists, given DR 2-101's disclosure requirements.

Background and rules framework

The opinion was decided under New York's then-governing Code of Professional Responsibility: DR 2-106(A) (fees), DR 2-110(A)(3) and (B)(4) (refund of unearned fees and mandatory withdrawal on discharge), DR 2-101 (advertising of fees), DR 6-101 (competence), and EC 2-33. The Model Rules analogues are Rule 1.5 (fees), Rule 1.16 (refund on termination), Rule 7.1 (communications about services), and Rule 1.1 (competence).

Citations and references

Rules of Professional Conduct:

• New York Code DR 2-101, DR 2-106(A), DR 2-110(A)(3), DR 2-110(B)(4), DR 6-101; EC 2-33 (Model Rules 1.5, 1.16, 7.1, 1.1 analogues)

Cases:

• Matter of Cooperman, 83 N.Y.2d 465 (1994), nonrefundable retainers void as against public policy

Other opinions cited:

• ABA Formal Opinion 93-379

See also

• NYC Bar Ethics Op. 2015-2: Nonrefundable Monthly Fee in a Retainer Agreement
• NYC Bar Ethics Op. 2000-2: Charging Interest on Unpaid Legal Fees

Source

• Landing page: https://www.nycbar.org/reports/formal-opinion-1996-5-fees-nonrefundable-retainers-advertising-of-fees-competence/