Where must an Ohio lawyer deposit a flat fee paid in advance, and can it be nonrefundable?

Plain-English summary

The Board addressed whether a lawyer may require a client (the inquiry arose in the criminal-defense context, though the Board considered it more broadly) to pay a flat fee in advance, and how the Rules treat that fee. It first confirmed that flat or fixed fees are an expressly recognized fee type under Prof. Cond. R. 1.5(a)(8), that the fee may not be clearly excessive under the Rule 1.5(a) factors, and that because contingent fees are barred in criminal cases (Rule 1.5(d)(2)), a fixed fee is the required structure there.

On where the money goes, the Board explained that a flat fee is "not deemed earned until the work is performed" (Rule 1.5, Cmt. [6A]). Under Prof. Cond. R. 1.15(c), legal fees and expense advances paid in advance must be deposited in a client trust/IOLTA account and withdrawn only as earned or incurred. This reverses the former DR 9-102(A) approach, which had precluded placing client advances in the trust account. The exception is a fee designated "earned upon receipt," which is treated as the lawyer's own funds and therefore must not be placed in the IOLTA account (to avoid commingling).

On refunds, the Board concluded that even a fee labeled "earned upon receipt" or "nonrefundable" must, under Prof. Cond. R. 1.5 and 1.16(e), be refunded to the extent unearned if the representation is not completed for any reason. The Board also reiterated that a flat fee may not impair the lawyer's duties of competent and diligent representation (Rules 1.1 and 1.3) and cannot be used to shift litigation expenses the client must remain liable for (Rule 1.8(e)). It withdrew Opinion 96-4, which had analyzed the former DR 9-102(A).

In practice

The opinion holds that, under the Ohio rules as they stood at the time, a flat fee paid in advance must be deposited in a client trust/IOLTA account and drawn down as earned, unless it is designated "earned upon receipt" (or similar) with written notice to the client about a possible refund, in which case it is held outside the trust account. Per the opinion, no flat fee can be made truly nonrefundable: any unearned portion must be returned if the representation ends early, the fee must not be excessive, and it cannot dilute the duties of competence and diligence.

Common questions

Q: Does a flat fee paid up front go into the trust account or the operating account?

A: The opinion concluded that under Prof. Cond. R. 1.15(c) it goes into a client trust/IOLTA account and is withdrawn as earned, unless it is designated "earned upon receipt" with written notice to the client, in which case it stays out of the IOLTA account.

Q: Can a lawyer make a flat fee truly nonrefundable?

A: The opinion concluded no; even a fee labeled "earned upon receipt" or "nonrefundable" must be refunded to the extent unearned under Prof. Cond. R. 1.5 and 1.16(e) if the representation is not completed.

Q: Did this change earlier Ohio guidance on advance fees?

A: The opinion concluded yes; it withdrew Opinion 96-4 and noted that Prof. Cond. R. 1.15(c) reverses former DR 9-102(A), which had barred placing client advances in the trust account.

Q: Are flat fees allowed in criminal cases?

A: The opinion concluded that because contingent fees are prohibited in criminal cases under Rule 1.5(d)(2), a fixed (flat) fee is the required arrangement, subject to the reasonableness and refund rules.

Background and rules framework

The opinion interprets Ohio Prof. Cond. R. 1.5 (fees, including 1.5(a) reasonableness, 1.5(d)(2)-(3), and Comment [6A]), 1.15 (safekeeping property; IOLTA), and 1.16(e) (refund of unearned fees on withdrawal), along with Prof. Cond. R. 1.1, 1.3 (competence and diligence) and 1.8(e) (financial assistance to clients) (Model Rules 1.5, 1.15, 1.16, 1.1, 1.3, 1.8). It contrasts current Rule 1.15(c) with the former DR 9-102(A).

Citations and references

Rules of Professional Conduct:

• Ohio Prof. Cond. R. 1.5 (fees), including 1.5(a) and Comment [6A] (Model Rule 1.5)
• Ohio Prof. Cond. R. 1.15 (safekeeping funds and property; IOLTA) (Model Rule 1.15)
• Ohio Prof. Cond. R. 1.16(e) (refund of unearned fees) (Model Rule 1.16)
• Ohio Prof. Cond. R. 1.1, 1.3 (competence and diligence) (Model Rules 1.1, 1.3)
• Ohio Prof. Cond. R. 1.8(e) (financial assistance to a client) (Model Rule 1.8)

Cases:

• Columbus Bar Assn. v. Farmer, 111 Ohio St.3d 137, 2006-Ohio-5342, duty to account for and return unearned fees

Other opinions cited:

• Ohio BPC Op. 96-4 (withdrawn by this opinion): advance fees under former DR 9-102(A)
• Ohio BPC Op. 95-2 (1995): fixed flat fee agreements

See also

• Ohio BPC Op. 1995-002: Fixed Flat Fee for Insurer Subrogation Work
• Ohio BPC Op. 2008-003: Unclaimed Client Trust Funds, Unknown Client

Source

• Landing page: https://ohioadvop.org/advisory-opinion-index/
• Original PDF: https://www.ohioadvop.org/wp-content/uploads/2017/04/Op_16-001.pdf

Original opinion text

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

BOARD OF PROFESSIONAL CONDUCT
65 SOUTH FRONT STREET, 5TH FLOOR, COLUMBUS, OH 43215-3431
Telephone: 614.387.9370 Fax: 614.387.9379
www.supremecourt.ohio.gov

PAUL M. DE MARCO                                                                     RICHARD A. DOVE
      CHAIR                                                                               DIRECTOR
WILLIAM J. NOVAK                                                                     D. ALLAN ASBURY
    VICE- CHAIR                                                                        SENIOR COUNSEL

                                                                                    HEIDI WAGNER DORN
                                                                                          COUNSEL



                                      OPINION 2016-1
                                  Issued February 12, 2016
                               Withdraws Advisory Opinion 96-4

                  Flat Fee Agreements Paid In Advance Of Representation

SYLLABUS: It is proper for a lawyer to enter a flat fee agreement requiring a client 1 to
pay a fixed amount in advance of representation. The flat fee agreement must comport
with the Ohio Rules of Professional Conduct. Under Prof.Cond.R. 1.15(c), a lawyer is
required to deposit flat fees and expenses paid in advance for representation into an
IOLTA account, unless designated as “earned upon receipt” or similarly, and only may
withdraw the fees as they are earned or the expenses as they are incurred. This is a
change from former DR 9-102(A). Even if a flat fee paid in advance of representation is
deemed “earned upon receipt,” “nonrefundable,” or similarly, Prof.Cond.R. 1.5 requires
a lawyer to return any unearned portion of the fee if the lawyer does not complete the
representation for any reason. Additionally, the Rules also require that a flat fee must
not be excessive under Prof.Cond.R. 1.5(a); that a lawyer shall not provide financial
assistance to a client, aside from advances of court costs and expenses of litigation under
Prof.Cond.R. 1.8(e); and a lawyer is required to provide competent and diligent
representation to each client under Prof.Cond.R. 1.1 and 1.3.

OPINION: This opinion addresses a flat fee agreement requiring a client to pay a fixed
amount in advance of representation. It does not address payment of a retainer to an

1The Board acknowledges that the Adv. Op. 96-4 addressed this issue in the context of criminal matters;
however, the Board has elected to consider the issue in other contexts.
Opinion 2016-1 2

attorney to secure availability of the lawyer’s services over a period of time without
regard to a specific matter.

QUESTION:

    Is it proper for a lawyer to enter a flat fee2 agreement requiring a criminal
    defendant to pay a fixed amount in advance of representation in a criminal
    matter?

Fee agreements must comply with Rule 1.5 of the Ohio Rules of Professional Conduct.
Prof.Cond.R. 1.5(a) is the cardinal rule governing fee agreements and provides that a
lawyer shall not “make an agreement for, charge, or collect an illegal or clearly excessive
fee.” Several factors should be considered in order to determine if a fee is reasonable:

            (1) the time and labor required, the novelty and difficulty of
                the questions involved, and the skill requisite to perform
                the legal service properly;
            (2) the likelihood, if apparent to the client, that the acceptance
                of the particular employment will preclude other
                employment by the lawyer;
            (3) the fee customarily charged in the locality for similar legal
                services;
            (4) the amount involved and the results obtained;
            (5) the time limitation imposed by the client or by the
                circumstances;
            (6) the nature and length of the professional relationship with
                the client;
            (7) the experience, reputation, and ability of the lawyer or
                lawyers performing the services;
            (8) whether the fee is fixed or contingent.

Prof.Cond.R. 1.5(a)(1)-(8). These factors are not exclusive. Prof.Cond.R. 1.5, Cmt. [1].
Additionally, fixed fees are expressly recognized as a type of legal fee in Prof.Cond.R.
1.5(a)(8).

2As used in this Opinion, the terms “fixed fee” and “flat fee” are afforded the same meaning and are
used interchangeably. The Board acknowledges that there are other types of fixed fees, such as a fixed
hourly rate. A fixed fee may not necessarily be a “flat fee.”
Opinion 2016-1 3

A lawyer is not permitted to enter into an arrangement for, charge, or collect a contingent
fee for representing a defendant in a criminal case. Prof.Cond.R. 1.5(d)(2). As a result,
fixed fee agreements are required in criminal representations.

A flat fee is a type of fixed fee. Fixed fees or flat fees are considered an alternative to
hourly billing in different types of matters because they provide the client a degree of
certainty about the cost of the legal services. Douglas R. Richmond, Understanding
Retainers & Flat Fees, 34 J. LEGAL PROF. 113 (2009). A flat fee is “a fee of a set amount
for performance of agreed work, which may or may not be paid in advance but is not
deemed earned until the work is performed.” Prof.Cond.R. 1.5, Cmt. [6A]. Flat fees are
based on factors independent of the actual number of hours involved in a representation.
A lawyer earns a flat fee by performing the services for which the fee was charged, and
that fee is the maximum amount that will be charged for the services to be performed.
Douglas R. Richmond, Understanding Retainers & Flat Fees, 34 J. LEGAL PROF. 113 (2009).

Criminal matters do present uncertainty with regard to the amount of time that may be
expended, since the matters may be resolved through dismissal, plea agreement, or trial.
Time is one factor to consider when determining the reasonableness of a fee under
Prof.Cond.R. 1.5(a). However, the ABA Guidelines for the Appointment and
Performance of Defense Counsel in Death Penalty Cases (2003) unequivocally disapprove
of flat fees in death penalty cases because the client’s interests are pitted against the
lawyer’s interest in doing no “more than what is minimally necessary to qualify for the
flat payment.” ABA Standards of Criminal Justice: Providing Defense Services,
Commentary to Standard 5-2.4 (3d ed. 1993).

This Board has addressed the use of flat fees in the context of a flat fee agreement between
a law firm and an insurer/third party administrator of group health benefit plans. In
Opinion 95-2 (1995), the Board advised that the propriety of a flat fee agreement is based
upon a variety of factors. A fixed flat fee is subject to the restriction in former DR 2-106(A)
[now Prof.Cond.R. 1.5(a)] that it not be excessive. A fixed flat fee cannot circumvent the
requirement of DR 5-103(B) [now Prof.Cond.R. 1.8(e)] that clients must remain liable for
expenses of litigation. Additionally, a fixed flat fee agreement must not limit an
attorney’s duties of competent and diligent representation to each client under
Prof.Cond.R. 1.1 and 1.3.

When the payment of a flat fee is made in advance of representation, there are additional
ethical considerations, such as when a flat fee is required to be placed into the lawyer’s
client trust account, and what, if any, portion of the fee is refundable. See, Prof.Cond.R.
1.5(d)(3), Cmt. [6A].
Op. 2016-1 4

When a flat fee is earned affects whether or not it must be placed in the lawyer’s trust
account. Prof.Cond.R. 1.5, Cmt. [6A]. Prof.Cond.R. 1.15(a)3 requires a lawyer to keep the
property of clients separate from the lawyer’s own property. Client and third-person
funds paid to a lawyer or a law firm must be maintained in an insured, interest bearing
account, designated as “client trust account,” “IOLTA account,” or with another
identifiable fiduciary title, and in a financial institution in the state where the lawyer’s
office is located. Prof.Cond.R. 1.15(a). Additionally, under Prof.Cond.R. 1.15(c), lawyers
are required to place legal fees and advances on litigation expenses paid by the client into
a trust account, unlike DR 9-102(A), which precluded a lawyer from placing client
advances into a trust account.

An “earned upon receipt” fee is a flat fee paid in advance that is deemed earned upon
payment regardless of the amount of future work performed. Prof.Cond.R. 1.5, Cmt.
[6A]. When a fee is denoted as “earned upon receipt,” those fees are considered the
lawyer’s funds, and not the client’s funds. As a result, those fees should not be placed in
the lawyer’s IOLTA account, as it is impermissible to commingle a lawyer’s own funds
with those of a client.

A lawyer who receives a flat fee paid in advance for representation in a legal matter is
obligated to return any unearned portion of the fee.4 Prof.Cond.R. 1.5(d)(3), 1.16(e). Even
if a fee is designated as “earned upon receipt,” “nonrefundable,” or similarly,
Prof.Cond.R. 1.5 requires a lawyer to refund any unearned portion of a fee paid in
advance if the representation is not completed for any reason. Additionally, Prof.Cond.R.
1.16(e) states that “[a] lawyer who withdraws from employment shall refund promptly
any part of a fee paid in advance that has not been earned, except when withdrawal is
pursuant to Rule 1.17.”

The Board withdraws Opinion 96-4, which analyzed former DR 9-102(A), and concludes
that Prof.Cond.R. 1.15 requires flat fees paid in advance for representation must be placed
in a client trust account. A flat fee for representation in a matter may not be placed into
the attorney’s business or operating account, unless it is designated as “earned upon
receipt” or similarly and the client is advised in writing that if the lawyer does not
complete the representation for any reason, the client may be entitled to a refund.
Prof.Cond.R. 1.5(d)(3).

3Prof.Cond.R. 1.15 includes provisions that are not contained in former DR 9-102.
4
See also, Columbus Bar Assn. v. Farmer, 111 Ohio St.3d 137, 143-44, 2006-Ohio-5342, ¶ 31, 855 N.E.2d 462,
469 (citations omitted) (A lawyer has a duty to account for and return any unearned fees).
Op. 2016-1 5

CONCLUSION:

It is proper for a lawyer to enter a flat fee agreement requiring a client to pay a fixed
amount in advance of representation. The flat fee agreement must comport with the Ohio
Rules of Professional Conduct. Under Prof.Cond.R. 1.15(c), a lawyer is required to
deposit flat fees and expenses paid in advance for representation into an IOLTA account,
unless designated as “earned upon receipt” or similarly, and may withdraw the fee only
as it is earned or the expense as it is incurred. If a lawyer designates a fee “earned upon
receipt,” “nonrefundable,” or similarly, the client must be advised in writing that the
client may be entitled to a refund under Prof.Cond.R. 1.16(e) for any part of an unearned
flat fee paid in advance of representation. Under Prof.Cond.R. 1.5(a), the flat fee must
not be excessive. Under Prof.Cond.R. 1.8(e), the lawyer shall not provide financial
assistance to a client, aside from advances in court costs and litigation expenses. Under
Prof.Cond.R. 1.1 and 1.3, the flat fee agreement must not interfere with an attorney’s
duties to provide competent and diligent representation to each client.

Advisory Opinions of the Board of Professional Conduct are informal, nonbinding
opinions in response to prospective or hypothetical questions regarding the
application of the Supreme Court Rules for the Government of the Bar of Ohio, the
Supreme Court Rules for the Government of the Judiciary, the Rules of Professional
Conduct, the Code of Judicial Conduct, and the Attorney’s Oath of Office.