Did Tennessee reconsider its rule that earned fees belong to the lawyer and that nonrefundable retainers are permitted with a clear understanding?

Plain-English summary

A request to reconsider 92-F-128(a) argued that the opinion was not supported by the Code, conflicted with the Code's prohibition against commingling, provided an opportunity to manipulate income, and was unworkable and impractical, and it advocated adopting the New York rule that title to all fees paid to a lawyer belongs to the lawyer. The opinion first observed that lawyers commonly require advanced, flat, retainer, or prepaid fees before committing to perform legal services, both to guarantee payment and to ensure the client's commitment to the matter.

Turning to the commingling objection, the opinion explained that DR 9-102 requires preserving the identity of all client funds and maintaining funds belonging in part to the client and in part to the lawyer in trust, while permitting the lawyer's portion to be withdrawn "when due" (unless the client disputes it). It reasoned that the duty to preserve client funds and the duty not to commingle are harmonious rather than inconsistent, because the rule expressly provides for withdrawal of the lawyer's funds, and the ethics opinion likewise provides for withdrawal of fees when earned; there is no inherent tension in the fiduciary duties DR 9-102 imposes.

The opinion reaffirmed that earned fees belong solely to the lawyer and that, given a clear understanding with the client, nonrefundable retainer fees are permitted and considered earned fees, available in the instances 92-F-128(a) identified (availability, committing time, conflict preclusion, and criminal, domestic, juvenile, or routine matters), all subject to a clear understanding, preferably in writing, that the fees are earned and nonrefundable. It then addressed the New York developments: the old New York rule giving the lawyer title to all fees was under attack, and the New York Supreme Court, Appellate Division, in In re Cooperman had recently ruled that lawyers cannot charge nonrefundable fees because the practice violates the duty to refund unearned fees, impinges on the client's absolute right to discharge the lawyer, and leads to attempts to collect excessive fees, conflicting with DR 2-110(A)(3). The Board concluded there were no compelling reasons to abandon the traditional rule embodied in 92-F-128(a) in favor of either the old New York rule or the potentially revised New York rule barring nonrefundable retainers.

Currency note

This opinion was issued in 1993, 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 reaffirmed 92-F-128(a) (which refined 92-F-128). 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: Did Tennessee change course on nonrefundable retainers after the reconsideration request?

A: No. The opinion reaffirmed 92-F-128(a): earned fees belong solely to the lawyer, and nonrefundable retainers are permitted as earned fees given a clear understanding with the client.

Q: How did the Board answer the argument that holding earned fees outside trust is commingling?

A: It concluded the duties were harmonious, not inconsistent, because DR 9-102 expressly permits the lawyer to withdraw funds when due, and the opinion likewise allowed withdrawal of fees when earned, so there was no inherent tension.

Q: Did Tennessee follow New York's In re Cooperman ban on nonrefundable fees?

A: No. The opinion declined to adopt either the old New York rule (giving the lawyer title to all fees) or the In re Cooperman approach barring nonrefundable retainers, finding no compelling reason to abandon Tennessee's traditional rule.

Background and rules framework

The opinion interpreted DR 9-102 (preserving the identity of client funds; the trust-account and anti-commingling structure), DR 2-106 (reasonable fees), and DR 2-110(A)(3) (refunding unearned fees on withdrawal), and contrasted New York authority. 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; anti-commingling). Modern analog: Model Rule 1.15 / Tennessee RPC 1.15
• DR 2-106 (reasonable fees). 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)

Cases:

• In re Cooperman, N.Y. Sup. Ct., App. Div. 2d Dept., No. 90-00429 (Jan. 25, 1993), New York ruling barring nonrefundable fees (declined here)

Other opinions cited:

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

See also

• Tenn. Ethics Op. 92-F-128(a): Earned vs. Unearned Advanced and Flat Fees
• Tenn. Ethics Op. 92-F-128: Retainer, Advanced, and Nonrefundable Fees
• ABA Formal Op. 505: Fees Paid in Advance
• AZ Ethics Op. 99-02: Non-Refundable Fees

Source

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

Original opinion text

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

92-F-128(b) - Request for reconsideration of FEO 128(a)

BOARD OF PROFESSIONAL RESPONSIBILITY OF THE SUPREME COURT OF TENNESSEE

FORMAL ETHICS OPINION 92-F-128(b)

Reconsideration of 92-F-128(a) relating to refundable and nonrefundable fees has been requested.

A request for reconsideration of Formal Ethics Opinion 92-F-128(a) has been made stating that the opinion is not supported by the Code of Professional Responsibility; conflicts with the Code's prohibition against commingling; provides an opportunity to manipulate income; and, is unworkable and impractical. Adoption of the New York rule, that title and ownership of all fees paid to the lawyer belong to the lawyer, has been advocated.

A practice has arisen for lawyers to require clients to pay advanced fees, flat fees, retainer fees, prepaid fees, etc., before the lawyer commits to perform legal services. This is done not only to guarantee payment of some or all of the fees but to insure that the client believes in the cause and is willing to make a financial commitment to pursue the matter. This is a prevalent practice among all lawyers.

Disciplinary Rule 9-102 of the Code of Professional Responsibility, embodied in Tennessee Supreme Court Rule 8, provides that the identity of all funds and property of a client should be preserved. Emphasis of "all funds" is intended. DR 9-102 requires all funds belonging in part to a client and in part presently or potentially to the lawyer to be maintained in trust. The rule permits the portion belonging to the lawyer to be withdrawn "when due" unless the right of the lawyer to receive it is disputed by the client. The disputed portion shall not be withdrawn until the dispute is finally resolved. DR 9-102 also provides that no funds belonging to the lawyer shall be deposited in the lawyer's trust account "except" as permitted by the rule.

The dual requirements of the rule to preserve and maintain the identity of the funds of a client; and not to commingle the lawyer's funds are harmonious and not inconsistent. The rule expressly provides for the withdrawal of funds belonging to the lawyer. The ethics opinion likewise provides for the withdrawal of fees when they become earned. There is no inherent tension in the fiduciary duties required by DR 9-102.

The ethics opinion clearly provides that earned fees belong solely to the lawyer, and given a clear understanding with the client, non-refundable retainer fees are permitted and considered to be earned fees.

The ethics opinion follows the prevailing rule which has been the traditional standard in Tennessee and nationwide for many years. The New York rule, providing that title and ownership of all fees paid to the lawyer belongs to the lawyer, is under attack. The New York Supreme Court, Appellate Division, Second Department in the case of In re Cooperman, N.Y.Sup. Ct., App.Div. 2d Dept., No. 90-00429, 1/25/93, recently ruled that lawyers cannot charge nonrefundable fees, stating that such a practice violates the ethical duty to refund the unearned portion of a fee, impinges on the client's absolute right to terminate the client-attorney relationship, and leads to attempts to collect excessive fees when the lawyer is discharged. The court also ruled that non refundable fees are imbued with an absoluteness that conflicts with DR 2110(A)(3).

Ethics Opinion 92-F-128(a) permits advanced earned fees in the nature of a non-refundable retainer fee in certain instances; to compensate the lawyer for being available to represent the client; to compensate for committing time for representation precluding acceptance of other employment; and, to compensate for being conflicted out of accepting adverse employment. The ethics opinion permits earned advanced or flat fees in criminal, domestic or juvenile matters, and routine legal services. All instances involving prepaid fees are subject to a clear understanding with the client, preferably in writing, that the fees are earned and non-refundable.

There are presently no compelling reasons why the traditional rule embodied in Formal Ethics Opinion 92-F-128(a) should be abandoned in favor of the old New York rule, providing that all advanced fees belong to the lawyer, now under attack; or, the potentially revised New York rule prohibiting non-refundable retainers.

This 10th day of September, 1993.

ETHICS COMMITTEE:

Thomas-H. Rainey

Herman Morris, Jr.

Walker T. Tipton

APPROVED AND ADOPTED BY THE BOARD