Can a lawyer take a guaranteed annual retainer from one client, work from that client's offices at the client's expense, and offset fees earned from other clients against the retainer?

Plain-English summary

A lawyer was offered employment by client A on a guaranteed annual retainer, with A furnishing office space, library, staff space, and operating overhead on A's premises. A proposed that the lawyer could represent other clients, but the net amount earned from those other clients would be credited against the guaranteed retainer; the lawyer would not reimburse A for the overhead. The lawyer would be listed under his own name and telephone number in the directory, not A's, and A would not exploit the lawyer's services, control his handling of other clients' matters, or intervene between the lawyer and his other clients. The inquiry asked whether the arrangement violated any Canon.

The Committee held it did not. In effect, A agreed to pay the lawyer the difference between the guaranteed retainer and the net fees received from other clients, plus certain overhead. The Committee analyzed three Canons. Canon 11, on fixing the amount of fees, was not violated; the itemized factors were proper to consider in setting fees but were not controlling. Canon 31 was not violated because there was no division of fees, since A would receive no part of any legal fee paid to the lawyer. Canon 32 was not violated because the inquiry expressly stipulated that A would neither control the lawyer's relations with other clients nor intervene in them. The vote was 7-0.

Currency note

This opinion was issued in 1959, under the former Texas Canons of Ethics, which the Texas Disciplinary Rules of Professional Conduct replaced effective January 1, 1990. 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 Treat this page as historical context, not current guidance.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 offset fees from other clients against a guaranteed retainer from one client?

A: Under this opinion, yes. The Committee held that crediting the net fees a lawyer earns from other clients against a guaranteed annual retainer did not violate the Canons, where the client did not share in any legal fee.

Q: Why didn't the client paying the lawyer's overhead create a problem?

A: The Committee treated the office space and overhead as part of the compensation arrangement under Canon 11 and found no violation, because those factors are proper to consider in setting fees and were not controlling.

Q: What conditions did the opinion attach?

A: The arrangement was acceptable because the client would not control or exploit the lawyer and would not intervene between the lawyer and his other clients, which kept Canon 32 from being violated.

Background and rules framework

The opinion interprets former Texas Canons 11 (fixing the amount of fees), 31 (division of fees), and 32 (a third party's influence over a lawyer's independent judgment). The modern analogs are ABA Model Rule 1.5, on fees, Model Rule 5.4, on a lawyer's professional independence, and Model Rule 1.8(f), on accepting compensation for representing a client from someone other than the client.

Citations and references

Rules of Professional Conduct:

• MR 1.5 (fees), as the modern analog
• MR 5.4 (professional independence of a lawyer), as the modern analog
• MR 1.8(f) (compensation from a third party), as the modern analog
• Texas Canons 11, 31, 32 (former canons)

See also

• TX Ethics Op. 260: Insurer Counsel and the Insured
• TX Ethics Op. 264: Insurer Fee to Push a Tax Plan
• TX Ethics Op. 269: Executor's Commission Plus Legal Fee

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-231/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_231.pdf

Original opinion text

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

QUESTION PRESENTED

An attorney is offered employment by client A on a guaranteed annual retainer basis, with client A also furnishing requisite office space for the attorney and his staff upon client A's premises, library, and operating overhead. Client A proposes that the attorney may represent other clients provided the net amount so earned by the attorney from other clients is to be credited against the guaranteed annual retainer. The attorney will not be required to reimburse client A in any manner for any of the costs incurred by client A in providing offices, library, and operating overhead. The attorney will be listed in the usual section of the telephone directory; only the separate telephone number of the attorney will be listed, and not the telephone number of client A. Client A will not exploit the services of the attorney and will not intervene in any way between the attorney and his other clients. Furthermore, client A will not in any way control the attorney in his handling of legal matters for his other clients.

Does such proposed arrangement violate any of the Canons of Ethics of the State Bar of Texas?

18 Baylor L. Rev. 312 (1966)

FIXING THE AMOUNT OF FEES - RETAINER AGREEMENTS - DIVISION OF FEES
An attorney may properly agree to employment by a client whereby the client will furnish office space and certain other overhead expenses, and will pay the attorney a guaranteed annual retainer, as reduced by the net amount of fees received by the attorney from other clients.

INTERMEDIARIES
An attorney may accept employment by a client for an annual retainer, as reduced by the net amount of fees received by the attorney from other clients, and may maintain offices on premises of, and at the expense of, such client, provided the client does not improperly control or exploit the attorney or intervene between the attorney and his other clients.

Canons 11, 31, 32.

In effect client A has agreed to pay the attorney an annual fee equal to the difference between X dollars (guaranteed annual retainer) and the net amount received from other clients, and to pay for certain overhead expenses.

Canon 11, relating to fixing the amount of fees, is not violated; the things itemized in the inquiry are proper things to consider in fixing fees but are not controlling.

Canon 31 is not violated, because there is no division of fees. Client A will not under this arrangement receive any part of a legal fee paid the attorney.

Canon 32 is not violated. The inquiry expressly stipulates that client A is neither controlling the attorney in his relations with other clients nor intervening therein in any way. (7-0.)

Tex. Comm. On Professional Ethics, Op. 231 (1959)