When are advanced or flat fees 'earned' so a lawyer can keep them out of trust, and when must they be held in a trust account?

Plain-English summary

Issued six months after 92-F-128, this opinion restated EC 2-19 and DR 9-102 and then drew the earned/unearned line more explicitly. It stated that advanced fees or flat fees may be earned fees or unearned fees, depending on the circumstances. All unearned attorney fees of any kind, including retainer, unearned advanced, general, special, flat, and prepaid fees, belong in part to the client and must be deposited in a trust account, to be withdrawn only when due, with any portion the client disputes left in trust until the dispute is resolved. The same fiduciary duties apply to non-monetary property given as security for unearned fees.

By contrast, the opinion stated that all earned fees belong solely to the attorney and need not be placed in a trust account. It recognized that a lawyer may receive an advanced earned fee in the nature of a nonrefundable retainer in three limited instances: to compensate for being available to represent the client, for committing time that precludes accepting other employment, or for being precluded from taking an adverse interest because of conflicting interests or receipt of privileged information. It added that advanced or flat fees involving criminal, domestic or family, or juvenile law may be earned fees, and that fees for routine legal services completed and fully delivered within a reasonable time (such as wills, trusts, contracts, notes, deeds, tax returns, and opinion letters) may be earned fees. Such earned fees need not be held in trust but remain subject to the strict limits of DR 2-106(A) and (B) and, under DR 2-110(A)(3) and (B)(4) and other authorities, may be subject to accountability and refunding in certain instances.

The opinion closed with a requirement that has remained the practical takeaway: in all instances where advanced or flat fees are deemed to be earned fees, there must be a clear understanding with the client that the fees are earned and unrefundable.

Currency note

This opinion was issued in 1992, before Tennessee's adoption of the 2003 Rules of Professional Conduct, which replaced the former Code of Professional Responsibility (including DR 9-102, DR 2-106, and DR 2-110(A)(3)) on which it relied, and before the ABA's 2002 Ethics 2000 revisions. The modern analogs are RPC 1.5 (fees), RPC 1.15 (safekeeping property and trust accounts), and RPC 1.16(d) (refunding unearned fees on termination). This opinion refined 92-F-128 and was reaffirmed on reconsideration by 92-F-128(b). Treat this page as historical context, not current guidance, and verify against the current rules before relying on any specific requirement mentioned here.

Common questions

Q: When could a Tennessee lawyer keep an advanced or flat fee out of a trust account?

A: Per the opinion, only when the fee was earned. Unearned advanced and flat fees had to be held in trust until earned; earned fees belonged solely to the lawyer and need not be held in trust, but treating a fee as earned required a clear understanding with the client.

Q: Which matters could carry an earned advance or flat fee?

A: The opinion identified criminal, domestic or family, and juvenile matters, and routine legal services completed within a reasonable time (such as wills, trusts, contracts, notes, deeds, tax returns, and opinion letters), as ones where an advanced or flat fee may be earned.

Q: What did the opinion require to make an advanced or flat fee nonrefundable?

A: A clear understanding with the client that the fees are earned and unrefundable. Absent that understanding, the fee was treated as unearned and refundable.

Background and rules framework

The opinion interpreted EC 2-19 (clear fee agreements), DR 9-102 (trust accounts), DR 2-106 (reasonable fees), and DR 2-110(A)(3) (refunding unearned fees on withdrawal). The modern analogs are Model Rule 1.5 / Tennessee RPC 1.5 (fees), Model Rule 1.15 / Tennessee RPC 1.15 (safekeeping property), and Model Rule 1.16(d) / Tennessee RPC 1.16(d) (refunding unearned fees).

Citations and references

Rules of Professional Conduct (former Code):

• DR 9-102 (trust accounts; identity of client funds). Modern analog: Model Rule 1.15 / Tennessee RPC 1.15
• DR 2-106 (reasonable fees); EC 2-19 (clear fee agreements). Modern analog: Model Rule 1.5 / Tennessee RPC 1.5
• DR 2-110(A)(3) (refunding unearned fees on withdrawal). Modern analog: Model Rule 1.16(d) / Tennessee RPC 1.16(d)

Other opinions cited:

• Tennessee Formal Ethics Opinion 92-F-128 (refined by this opinion)

See also

• Tenn. Ethics Op. 92-F-128: Retainer, Advanced, and Nonrefundable Fees
• Tenn. Ethics Op. 92-F-128(b): Reconsideration, Nonrefundable Fees
• ABA Formal Op. 505: Fees Paid in Advance
• SC Bar Ethics Op. 93-12: Keeping a Non-Refundable Retainer

Source

• Landing page: https://www.tbpr.org/ethic_opinions/92-f-128a

Original opinion text

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

92-F-128(a) - Retainer fees, flat fees, advanced fees, advanced costs and expenses, pre-paid fees, nonrefundable retainer fees

BOARD OF PROFESSIONAL RESPONSIBILITY OF THE SUPREME COURT OF TENNESSEE

FORMAL ETHICS OPINION 92-F-128(a)

Inquiry is made concerning the ethical/fiduciary responsibilities relating to retainer fees, advanced fees, advanced costs and expenses, flat fees, pre-paid fees, and nonrefundable retainer fees.

Ethical Consideration 2-19 of the Code of Professional Responsibility states:

EC 2-19

As soon as feasible after a lawyer has been employed, it is desirable that he reach a clear agreement with his client as to the basis of the fee charges to be made. Such a course will not only prevent later misunderstanding but will also work for good relations between the lawyer and the client. It is usually beneficial to reduce to writing the understanding of the parties regarding the fee, particularly when it is contingent. A lawyer should be mindful that many persons who desire to employ him may have had little or no experience with fee charges of lawyers, and for this reason he should explain fully to such persons the reasons for the particular fee arrangement he proposes.

Disciplinary Rule 9-102(A) of the Code states, in part:

DR 9-102 - Preserving Identity of Funds and Property Of A Client

(A) All funds of clients paid to a lawyer or law firm, including advances for costs and expenses, shall be deposited in one or more identifiable insured depository institutions maintained in the state in which the law office is situated.

...No funds belonging to the lawyer or law firm shall be deposited therein except as follows:

(1) Funds reasonably sufficient to pay services charges may be deposited therein:

(2) Funds belonging in part to a client and in part presently or potentially to the lawyer or law firm must be deposited therein, but the portion belonging to the lawyer or law firm may be withdrawn when due unless the right of the lawyer or law firm to receive it is disputed by the client, in which event the disputed portion shall not be withdrawn until the dispute is finally resolved.

(B) A lawyer shall:

(1) Promptly notify a client of the receipt of his funds, securities, or other properties.

(2) Identify and label securities and properties of a client promptly upon receipt and place them in a safety deposit box or other place of safekeeping as soon as practical.

(3) Maintain complete records of all funds, securities and other properties of a client coming into the possession of the lawyer and render appropriate accounts to his client regarding them.

(4) Promptly pay or deliver to the client as requested by a client the funds, securities or other properties in the possession of the lawyer which the client is entitled to receive.

Advanced fees or flat fees may be earned fees or unearned fees, depending upon the circumstances.

All unearned attorney fees of any kind or nature paid by or on behalf of a client to an attorney are funds which belong in part to the client. These unearned attorney fees include retainer fees, unearned advanced fees, general retainers, special retainers, flat fees, pre-paid fees, etc. These funds must be deposited in a trust account to be withdrawn only when due, unless the right of the attorney or other payee to receive funds is disputed by the client. In the event of a dispute, the disputed portion shall not be withdrawn until the dispute is resolved. The same fiduciary duties described above are applicable to non-monetary property delivered to an attorney as security for unearned fees. Such security deposits are required to be placed in trust and safekeeping.

All earned fees belong solely to the attorney and need not be placed in a trust account. An attorney may receive an advanced earned fee in the nature of an unrefundable retainer fee in the following limited instances: (1) to compensate the attorney for being available to represent a client, (2) to compensate the attorney for committing time for representation precluding acceptance of other employment, (3) to compensate the attorney for being precluded from taking an adversary interest or position because of conflicting interests or because of the receipt of privileged information. Advanced fees or flat fees involving criminal law, domestic or family law or juvenile law ay be earned fees. Fees for routine legal services completed and fully delivered to the client within a reasonable period of time may be earned fees. Routine legal services may include wills, trusts, contracts, notes, deeds, tax returns, opinion letters or other such matters. Earned fees of this kind and nature do not have to be placed in trust accounts and are subject to the strict limitations of Disciplinary Rules 2-106(A) and (B) of the Code; and, pursuant to DR 2-110(A)(3), 2-110(B)(4) and other applicable legal authorities may be subject to accountability and refunding in certain instances.

In all instances where advanced or flat fees are deemed to be earned fees there must be a clear understanding with the client that the fees are earned and unrefundable.

This 11th day of December , 1992.

ETHICS COMMITTEE:

W. J. Michael Cody

Walker T. Tipton

Thomas H. Rainey

APPROVED AND ADOPTED BY THE BOARD