Can a lawyer charge a non-refundable retainer, and can the lawyer always keep it?

Plain-English summary

The Committee revisited the propriety of non-refundable retainers. It noted that Opinion 391 (1978) had stated an attorney may deposit non-refundable retainer fees into a general operating account because the fee is "earned" once received, and that the practice had been presumed proper, but it found the law on retainer fees unsettled and worth re-examination. It reviewed the general fee standards in EC 2-17 and EC 2-18 and surveyed other jurisdictions, including a New York decision barring non-refundable retainers in domestic relations cases and Washington and Maryland opinions addressing them outside that context, observing that Texas had no definitive case law on the question.

The Committee explained the core tension: a non-refundable retainer is not unethical per se, but an attorney may be disciplined for refusing to refund an unearned fee (DR 2-110(A)(3)) or for charging a clearly excessive fee (DR 2-106). DR 2-110 requires refunding any unearned portion of an advance fee when the attorney withdraws, regardless of whether the withdrawal follows the client's discharge of the lawyer, so an agreement that lets the attorney keep the fee despite withdrawal or discharge may contravene DR 2-110 and may deny the client's right to discharge the attorney.

The Committee distinguished an advance payment for services (which must relate to the services and, if not, may be excessive) from a "true" retainer that secures the lawyer's availability and compensates for lost opportunity. If the lawyer can substantiate that other employment will probably be lost, a true retainer may be deemed earned when received; but if the client discharges the lawyer for cause before opportunities are lost, or the lawyer withdraws voluntarily, an equitable portion should be refunded. The Committee held Opinion 391 is still viable but is overruled to the extent it states that every retainer designated non-refundable is earned at receipt: a fee is not earned simply because it is labeled non-refundable.

Currency note

This opinion was issued in 1986, under the former Texas Code of Professional Responsibility, which the Texas Disciplinary Rules of Professional Conduct replaced effective January 1, 1990. The Disciplinary Rules have since been amended, and Texas never adopted the ABA's Ethics 2000 framework. The current Texas rules on fees, declining or terminating representation, and safekeeping client property are Rules 1.04, 1.15, and 1.14, with closest ABA analogs Model Rules 1.5, 1.16, and 1.15. Subsequent rule changes 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: Is a non-refundable retainer ethical?

A: Per the opinion, it is not unethical per se, but the Committee cautioned that a fee is not earned simply because it is labeled non-refundable, and that keeping an unearned fee can violate DR 2-110.

Q: When can a lawyer keep a non-refundable retainer?

A: The Committee concluded that a true retainer securing availability may be earned when received if it is not excessive and the lawyer can substantiate that other employment will probably be lost. If the lawyer is discharged for cause or withdraws before opportunities are lost, an equitable portion should be refunded.

Q: Did this opinion change Opinion 391?

A: Yes, in part. The Committee held Opinion 391 still viable but overruled it to the extent it said every retainer designated non-refundable is earned when received.

Background and rules framework

The opinion interprets DR 2-106 of the former Texas Code of Professional Responsibility (no clearly excessive fee), DR 2-110 (refund of any unearned advance fee on withdrawal, including DR 2-110(A)(3)), and references DR 9-102 (handling client funds). The closest current concepts are Texas Rules 1.04, 1.15, and 1.14 and Model Rules 1.5, 1.16, and 1.15. The analysis turns on distinguishing an earned true retainer from an unearned advance fee that must be refunded.

Citations and references

Rules of Professional Conduct:

• MR 1.5 (fees; reasonableness)
• MR 1.16 (declining or terminating representation; refund of unearned fees)
• DR 2-106, DR 2-110, DR 9-102, Texas Code of Professional Responsibility

Cases:

• Volkell v. Volkell (N.Y. Sup. Ct., Queens County, 1984), non-refundable retainer improper in domestic relations cases
• Baranowski v. State Bar, 24 Cal. 3d 153, 593 P.2d 613, 154 Cal. Rptr. 752 (1979)

Other opinions cited:

• Texas Professional Ethics Committee Opinion 391 (1978) (overruled in part)
• Washington State Bar Association Opinion 173; Maryland State Bar Opinion 80-21; ABA Informal Opinion 988 (1967)

See also

• TX Ethics Op. 611: Nonrefundable Retainer Covering Services Through Trial
• TX Ethics Op. 701: Subscription Legal Fees, Trust and Refund

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-431/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_431.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative. The section symbol, which did not render in the source HTML, is restored as the word "Section" in the citations below.

QUESTION PRESENTED

May an attorney ethically charge a non-refundable retainer?

DISCUSSION

The Supreme Court of Texas, Comm. on Interpretation of the Code of Professional Responsibility, in its opinion Op. 391, issued in 1978, states that an attorney may deposit non-refundable retainer fees into a general operating account because the attorney has "earned" the fee once it is received. As a result thereof, the propriety of using such non-refundable retainer agreements has been presumed. See B. Kazen, Family Law Texas Practice and Procedure Section 40.01(3)(e) (1983); J. Compere, "Professional Responsibility and Malpractice," State Bar of Texas Advanced Family Law Course J-34 (1982). However, the law on the issues of fees in general as to attorneys, and especially in relation to the matter of retainer fees, is unsettled and merits further investigation and discussion at this time.

In discussing attorneys' fees in general, Ethical Consideration 2-17 states: The determination of a proper fee requires consideration of the interests of both client and lawyer. A lawyer should not charge more than a reasonable fee, for excessive costs of legal services would deter laymen from utilizing the legal system and protection of their rights . . .

Ethical Consideration 2-18 further states: A determination of the reasonableness of a fee requires consideration of all relevant circumstances, including those stated in the Disciplinary Rules. The fees of a lawyer will vary according to many factors, including the time required, his experience, ability, and reputation, the nature of the employment, the responsibility involved and the results obtained.

It perhaps would be helpful to examine decisions of other jurisdictions in order to establish a consistent rule for Texas practitioners. A New York decision has clearly established that it is improper for an attorney to charge a non-refundable retainer in domestic relations cases. Volkell v. Volkell, ABA/BNA Lawyers Manual on Professional Conduct; New York Supreme Court, Queens County, published 7-12-84. The court there held that a non-refundable retainer violates public policy because it discourages early reconciliation and deprives the client of the right to change lawyers without suffering monetary penalties.

Other states have also issued ethical opinions referring to non-refundable retainers outside of the domestic relations context. The Washington State Bar Association issued an opinion in October 1980, which was published in the Washington State Bar News. That opinion stated that "a retainer is that non- refundable fee paid by a client to secure an attorney's availability over a given period of time and is not required to be retained in the attorney's trust account since it is considered to be earned by the lawyer at the time of payment. To determine whether the funds of clients should be deposited into the attorney's trust account depends on the agreement reached by the attorney and the client as to whether the funds constitute a retainer or an advance fee deposit." (Op. 173 citing DR 2-110(A)(3), DR 9-102(A)(2)). That opinion goes on to recommend that the attorney have each client sign a written fee agreement in such situations.

A Maryland State Bar Opinion, No. 80-21, echoes the Washington Opinion in this language: "A lawyer or law firm may enter into an agreement with a client which provides for a certain sum to be paid by the client as a non- refundable retainer. The retainer fee should be reasonable and not clearly excessive. DR 2-106(A)(B), DR 2-110 (A)(3); EC 2-15, EC 2-16, EC 2-17." See also Baranowski v. State Bar, 24 Cal. 3d 153, 593 P.2d 613, 154 Cal. Rptr. 752 (1979).

Texas seemingly has no definitive case law regarding non-refundable retainers.

While a non-refundable retainer is not unethical per se, an attorney may be disciplined for refusing to refund an unearned fee (DR 2-110(A)(3)) or for charging a clearly excessive fee (DR 2-106). This seems to present an ethical dilemma which resolves itself into a question of whether a fee is earned and is it excessive?

DR 2-110 requires an attorney to refund any unearned portion of a fee that has been paid in advance when the attorney withdraws from the case, regardless of whether the withdrawal is based upon discharge by the client. Therefore, a non- refundable retainer agreement which allows an attorney to keep the fee despite his withdrawal or discharge from the case may contravene the requirements of DR 2-110. Such an agreement would appear to deny the client's right to discharge the attorney if the client believes the retainer is non-refundable even if he discharges the attorney for cause.

If the "retainer" fee is actually an advance payment for services to be performed, the amount of the fee should be related to the services to be performed. If it is not, the fee may be found excessive. An agreement which is actually an advance payment might provide, for example: "Responsibility to provide legal services will be accepted and work begun when attorney receives $__ as an advance retainer against the fees and expenses." Kazen, supra Section 40.03F(2), at 40-58. In such a case, if the client discharges the attorney for cause, that part of the fee which has not been earned must be refunded. See ABA Comm. on Professional Ethics, Informal Op. 988 (1967) (a non-refundable retainer should only be kept if it is earned). However, a lawyer's unique experience which must be necessary to the trial of a particular case may be considered as a factor in evaluating the reasonableness of the fee.

A true retainer, however, is not a payment for services. It is an advance fee to secure a lawyer's services, and remunerate him for loss of the opportunity to accept other employment. 7A C.J.S. Attorney and Client Section 282 (1980). If the lawyer can substantiate that other employment will probably be lost by obligating himself to represent the client, then the retainer fee should be deemed earned at the moment it is received. If, however, the client discharges the attorney for cause before any opportunities have been lost, or if the attorney withdraws voluntarily, then the attorney should refund an equitable portion of the retainer.

An analysis of the above authorities indicates that Texas Ethics Opinion 391 is still viable, but is overruled to the extent that it states that every retainer designated as non-refundable is earned at the time it is received. A fee is not earned simply because it is designated as non-refundable. If the (true) retainer is not excessive, it will be deemed earned at the time it is received, and may be deposited in the attorney's account. However, if the attorney is discharged for cause, or voluntarily withdraws before opportunities have been lost, DR 2-110 imposes a duty upon the attorney to promptly refund an equitable portion of the retainer.

A retainer fee is a payment to compensate an attorney for his commitment to provide certain services and forego other employment opportunities. Non-refundable retainers are not inherently unethical, but must be utilized with caution. Such agreements pose at least three potential problems: 1. Interference with the client's right to discharge the attorney if the client fears the retainer will be forfeited under any circumstances. 2. If the attorney's action causes the value of the retainer to be reduced and he is discharged for cause or voluntarily withdraws, an equitable portion of the retainer should be refunded to the client. 3. The fee may be excessive if not determined by relevant factors such as the degree of likelihood that other employment will actually be precluded, and the experience, reputation and ability of the lawyer. See DR 2-106.

CONCLUSION

A retainer fee is a payment to compensate an attorney for his commitment to provide certain services and forego other employment opportunities. Non-refundable retainers are not inherently unethical, but must be utilized with caution. Such agreements pose at least three potential problems: 1. Interference with the client's right to discharge the attorney if the client fears the retainer will be forfeited under any circumstances. 2. If the attorney's action causes the value of the retainer to be reduced and he is discharged for cause or voluntarily withdraws, an equitable portion of the retainer should be refunded to the client. 3. The fee may be excessive if not determined by relevant factors such as the degree of likelihood that other employment will actually be precluded, and the experience, reputation and ability of the lawyer. See DR 2-106.

Tex. Comm. On Professional Ethics, Op. 431 (1986)