Can a New York lawyer charge a minimum fee for a defined legal service, and when does it become a prohibited nonrefundable fee?

Plain-English summary

The inquirer proposes an engagement letter for drafting a separation and severance agreement that fixes a "minimum fee," equal to a set number of hours at a stated hourly rate, that the client owes even if the lawyer spends fewer hours. The question is whether that obligation is a prohibited nonrefundable fee.

The opinion turns on Rule 1.5(d)(4), which bars a nonrefundable retainer fee but permits a "reasonable minimum fee" clause if the retainer defines in plain language the circumstances under which the fee may be incurred and how it is calculated. The opinion ties this to Rule 1.5(a), which forbids an excessive fee, and lists the eight reasonableness factors (time and labor, novelty and difficulty, customary local fees, amount involved and results, time limitations, the relationship, the lawyer's experience, and whether the fee is fixed or contingent).

The opinion distinguishes a general retainer (a sum paid to keep the lawyer available, earned on receipt) from this arrangement, in which a specific service is the heart of the engagement, so the minimum fee's reasonableness must be measured against the Rule 1.5(a) factors. It poses fact questions such as whether the lawyer was required to act quickly to the exclusion of other work, whether the hourly rate matched the local market, and what result was obtained. Because it lacked sufficient facts, the committee did not decide whether this particular minimum fee satisfies Rule 1.5(d)(4). The opinion adds that it does not address what happens on discharge or withdrawal before completion, but notes Rule 1.16(e) requires a prompt refund of any part of a fee paid in advance that has not been earned.

In practice

Under this opinion, a New York lawyer may use a minimum fee clause for a defined service if the engagement letter states in plain language how the fee is calculated and when it is incurred and the amount is reasonable under the Rule 1.5(a) factors. Per the opinion, the arrangement is judged as a fee for a specific service rather than a general availability retainer, and Rule 1.16(e) requires refunding any portion not earned if the representation ends before completion.

Common questions

Q: Is a minimum fee the same as a prohibited nonrefundable fee?

A: Per the opinion, no, when it meets Rule 1.5(d)(4): the retainer must define in plain language how the minimum fee is calculated and the circumstances under which it is incurred, and the fee must be reasonable.

Q: How is the reasonableness of a minimum fee judged?

A: Per the opinion, under the eight nonexclusive factors in Rule 1.5(a), including the time and skill required, the customary local fee, the result obtained, and whether the lawyer was precluded from other work.

Q: Must any of a minimum fee be refunded if the matter ends early?

A: Per the opinion, yes. Rule 1.16(e) requires the lawyer to promptly refund any part of an advance fee that has not been earned upon termination.

Background and rules framework

The opinion interprets New York Rule 1.5(d)(4) (nonrefundable retainer fees and permissible minimum fee clauses), Rule 1.5(a) (reasonableness and the eight factors), and Rule 1.16(e) (refund of unearned advance fees on termination). These correspond to ABA Model Rules 1.5 and 1.16.

Citations and references

Rules of Professional Conduct:

• New York Rules of Professional Conduct 1.5(a), 1.5(d)(4), 1.5 Cmt. [4], 1.16(e)
• ABA Model Rules 1.5, 1.16 (analogues)

Other opinions cited:

• N.Y. State 1202 (2020): a non-excessive minimum fee is permitted but a nonrefundable fee is not
• N.Y. State 599 (1989), 816; N.Y. City 2015-2 and 1991-3: minimum and flat fees and the duty to refund unearned fees

See also

• ABA Formal Op. 505: Fees Paid in Advance
• NY State Bar Op. 1248: Credit Card Chargeback Disputes
• ABA Formal Op. 02-425: Arbitration in Retainer Agreements

Source

• Landing page: https://nysba.org/ethics-opinion-1245/