How does Virginia classify retainers, advanced fees, fixed fees, and contingent fees, and when must a fee go in trust or be refunded?

Plain-English summary

LEO 1606 is a compendium opinion the committee issued to reconcile a body of fee opinions that had used overlapping and inconsistent terminology. It addresses retainers, advanced legal fees, non-refundable fees, fixed fees, and contingent fees, drawing on DR 2-105 (reasonable, adequately explained fees), DR 2-108 (withdrawal on discharge; refund of unearned advance fees), and DR 9-102 (trust-account handling of client funds). Its organizing premise, drawn from Heinzman v. Fine, Fine, Legum and Fine, is that a contract for legal services is not construed like an ordinary commercial contract, and that the label the parties attach to a fee does not change its true nature, its ownership, or whether it has been earned.

On the core distinctions, the committee held that a true retainer is a payment to secure the lawyer's availability (and unavailability to adverse parties), not a prepayment for services; it is earned when paid, becomes the lawyer's property on receipt, and therefore may not be placed in trust. Advanced legal fees, by contrast, are prepayments for specific future services; they remain the client's property until earned and must be deposited in a trust account. A fixed fee, a sum certain to complete a defined task, is treated as an advanced legal fee subject to the same trust and refund rules. The committee reaffirmed that any advance fee labeled "non-refundable" or as a "minimum fee" is improper, because it compromises the client's absolute right to discharge counsel (DR 2-108(A)(3)), defeats the duty to refund unearned advances (DR 2-108(D)), and amounts to collecting an unreasonable fee (DR 2-105(A)) when unearned.

On discharge and contingent fees, the committee restated that a client may discharge a lawyer at any time, and a discharged lawyer recovers only the reasonable value of services actually rendered in quantum meruit, not contract damages or the full agreed fee. Contingent fees are permissible under DR 2-105(C) in matters that generate a res from which the fee can be paid, but not for ministerial or no-risk recoveries, and they are rarely proper in domestic-relations cases, allowed only where the committee's four factors are met (sufficient passage of time, the client's inability to pay an hourly or fixed fee, crediting any court-awarded fees against the contingent fee, and overall fairness). The opinion also overrules earlier opinions to the extent they used "retainer" loosely to describe what were really advanced legal fees.

Currency note

LEO 1606 is a compendium opinion with a revision history. The committee first issued it on November 22, 1994, under Virginia's former Code of Professional Responsibility, and the Supreme Court of Virginia approved the current version on November 2, 2016. The reproduced text retains the older Code citations (DR 2-105, DR 2-108, DR 9-102), but the committee notes tie the analysis to the current Rules of Professional Conduct (Rule 1.5, including Rule 1.5(d)(1) and 1.5(e)). Verify the current rule text before relying on any specific requirement mentioned here.

In practice

Under the Virginia rules as approved when this compendium was last adopted, the classification of a fee turns on its function, not its label: a payment that secures availability is a retainer the lawyer owns, while a payment for future services is an advanced legal fee the client owns until earned. The opinion holds that advanced and fixed fees must be deposited in trust and the unearned portion refunded if the client discharges the lawyer, and that calling an advance fee "non-refundable" does not make it so. For contingent fees, the opinion permits them where a recovery creates a res but treats them as improper for no-risk matters and as rarely justified in domestic-relations cases outside the four-factor exception.

Common questions

Q: Does it matter whether a fee is called a "retainer" in the engagement letter?

A: The opinion holds the label is not dispositive. A fee is a true retainer only if it is paid to secure the lawyer's availability rather than as payment for future services; if it is credited against future work, it is an advanced legal fee regardless of the term used.

Q: Can a Virginia lawyer charge a non-refundable retainer or minimum fee?

A: No, not as an advance fee for services. The opinion concludes a non-refundable or minimum advance fee is improper because it compromises the client's right to discharge counsel, defeats the duty to refund unearned advances, and is per se unreasonable when unearned.

Q: Where does a true retainer go, in trust or the operating account?

A: The opinion holds a true retainer is earned when paid and becomes the lawyer's property on receipt, so it may not be deposited in the trust account. Advanced legal fees and fixed fees, by contrast, stay in trust until earned.

Q: What can a discharged lawyer collect?

A: The opinion states that a client may discharge a lawyer at any time, and the lawyer is entitled only to the reasonable value of services actually rendered in quantum meruit, not contract damages and, for a contingent matter, not the full agreed fee.

Q: When is a contingent fee proper?

A: The opinion permits a contingent fee where the matter generates a res from which the fee can be paid, but not for ministerial or no-risk recoveries, and only rarely in domestic-relations cases, where it requires the committee's four factors to be met.

Background and rules framework

The opinion interprets former Virginia DR 2-105 (reasonable, explained fees; contingent fees), DR 2-108 (withdrawal on discharge; refund of unearned advances), and DR 9-102 (trust-account handling of client funds). Those provisions now correspond to Virginia Rule 1.5 (fees, including the domestic-relations contingent-fee limits in Rule 1.5(d)(1) and fee sharing under Rule 1.5(e)), Rule 1.15 (safekeeping property), and Rule 1.16 (declining or terminating representation). As the opinion's committee notes record, Rule 1.5(d)(1) and Comment [3a] codify when family-law matters may be handled on a contingent-fee basis, and Rule 1.5(e) permits fee sharing between lawyers in different firms with client consent and a reasonable fee.

Citations and references

Rules of Professional Conduct:

• Former Virginia DR 2-105(A)-(C); DR 2-108(A)(3), (D); DR 9-102(A), (B)(4); EC 2-20, 2-21, 2-22 (Code of Professional Responsibility)
• Virginia Rule 1.5(d)(1) and Comment [3a]; Rule 1.5(e) (per the committee notes)
• ABA Model Rule 1.5 (fees); Model Rule 1.15 (safekeeping property); Model Rule 1.16 (terminating representation)

Cases:

• Heinzman v. Fine, Fine, Legum and Fine, 217 Va. 958 (1977), legal-services contracts are sui generis; discharged lawyer recovers in quantum meruit.
• In the Matter of Edward M. Cooperman, 83 N.Y.2d 465, 633 N.E.2d 1069 (N.Y. 1994), non-refundable retainers compromise the right to discharge counsel.
• Wood v. Carwile, 231 Va. 320 (1986); County of Campbell v. Howard, 133 Va. 19 (1922), quantum meruit measured by value of services, not benefit to client.

Other opinions cited:

• Virginia LE Op. 1178, 1322, 1370: define and distinguish "retainer" and "advanced legal fees"; non-refundable advance fees improper.
• Virginia LE Op. 189, 405, 423, 568, 588, 667, 850, 1062: contingent fees in domestic-relations matters and the four-factor exception.
• Virginia LE Op. 510, 681, 1246, 1461: fee ownership, quantum meruit on discharge, and improper contingent fees for no-risk recoveries.

See also

• VA LEO 1747: Honoring a Lien on Settlement Funds
• VA LEO 1807: Garnishing Fees in a Trust Account
• VA LEO 1653: Assigning Marital-Home Proceeds to Secure a Divorce Fee
• VA LEO 1835: Disbursing Uncollected Trust Funds

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1606.pdf

Original opinion text

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

Supreme Court Approved
November 2, 2016
Committee Opinion
November 22, 1994

LEGAL ETHICS OPINION 1606

FEES (COMPENDIUM OPINION).

Inquiry: Because a number of existing opinions pertaining to fee arrangements are sometimes
inconsistent or incomplete in the description and definition of those arrangements, this
Committee has chosen to review existing opinions and issue a compendium opinion discussing
the propriety of fee arrangements. Some of the issues the Committee has decided to consider
include the various types of fee arrangements, when the fee is the property of the client and when
it can be considered the property of the attorney, and when and under what circumstances a client
is entitled to a return of fees paid to an attorney. Specifically, the Committee has chosen to
address the following types of legal fees:
Retainers
Advanced Legal Fees
Non-refundable Legal Fees (“Non-refundable Retainers” or “Minimum Fees”)
Fixed Fees
Contingent Fees
Applicable Disciplinary Rules: The appropriate and controlling disciplinary rules relevant to the
questions raised are:
DR:2-105(A) which requires that a lawyer's fees be reasonable and adequately explained to
the client.
DR:2-105(B) which requires that upon request a lawyer shall furnish to the client the basis or
rate of the lawyer's fee.
DR:2-105(C) which permits (with exceptions) a fee contingent on the outcome of a matter for
which the service is rendered.
DR:2-108(A)(3) which requires a lawyer to withdraw from representing a client if the lawyer
is discharged by the client.
DR:2-108(D) which requires that upon termination of representation a lawyer shall refund
any advance payment of fees that has not been earned.
DR:9-102(A) which requires a lawyer to deposit all funds received on behalf of a client,
except reimbursement of costs and expenses, in a separate identifiable account which does
not contain funds belonging to the lawyer.
DR:9-102(A)(2) which permits the lawyer to deposit into the trust account funds which
belong in part to the client and in part presently or potentially to the lawyer. The portion

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belonging to the lawyer must be withdrawn when earned unless the right to receive it is
disputed by the client.
DR:9-102(B)(4) requiring a lawyer to promptly pay or deliver to the client or another all
funds in the possession of the lawyer which the client is entitled to receive.
Prior Legal Ethics and Court Opinions: The following opinions and court cases have dealt with
the issue of legal fees:
Legal Ethics Opinions: LE Op. 189, LE Op. 214, LE Op. 510, LE Op. 528, LE Op. 568, LE
Op. 646, LE Op. 681, LE Op. 1062, LE Op. 1246, LE Op. 1322, LE Op. 1370,
Case Law: AFLAC, Inc. v. Williams, 1994 Ga. LEXIS 466 (Ga. 1994); County of Campbell v.
Howard, 133 Va. 19 (1922); In the Matter of Edward M. Cooperman, 83 N.Y.2d 465, 633
N.E.2d 1069, 611 N.Y.S.2d 465 (N.Y. 1994); Heinzman v. Fine, Fine, Legum and Fine, 217
Va. 958 (1977); Mullins v. Richlands National Bank, 241 Va. 447 (1991); Tazwell Oil Co. v.
United Virginia Bank, 243 Va. 94 (1992); Wong v. Kennedy, 1994 U.S. Dist. LEXIS 6875
(E.D. N.Y 1994); Wood v. Carwile, 231 Va. 320 (1986).
Opinion: 1. Fees in General. An analysis of legal fees begins with the proposition that contracts
for legal services are not construed as are other commercial contracts. Citing with approval
Drippner v. Mutz, 205 Minn. 497, 287 N.W. 19 (1939) the Virginia Supreme Court has noted:
It is a misconception to attempt to force an agreement between an attorney and his client
into the conventional modes of commercial contracts. While such a contract may have similar
attributes, the agreement is, essentially, in a classification peculiar to itself. Such an
agreement is permeated with the paramount relationship of attorney and client which
necessarily affects the rights and duties of each. Heinzman v. Fine, Fine, Legum and Fine,
217 Va. 958, 962 (1977).
The Disciplinary Rules set certain restrictions on all legal fees that cannot be avoided by the
employment contract. Regardless of the agreed terms, the designation of the fee in the
employment contract cannot alter the true nature of the fee and will not be dispositive in
determining whether there is a violation of the Disciplinary Rules. Neither will the terminology
used to describe the fee determine whether the fee has been earned by the lawyer or into which
type of account the fee must be placed. LE Op. 510. A lawyer cannot by contract alter the nature
or the ownership of fees received, nor can he legitimize a fee that is otherwise prohibited by the
Disciplinary Rules.
DR:2-105 directs that a lawyer's fees be adequately explained to the client, and that the basis of
the fee be furnished to the client. EC:2-21 suggests that there be a clear agreement as to the basis
of the fee as soon as feasible after a lawyer has been employed. It also encourages the use of
written contracts of employment as the preferred means of complying with the requirement of
DR:2-105. A lawyer must, upon request, furnish to his client an itemized breakdown of legal fees,
costs and related expenses paid by that client. LE Op. 214.
All fees must be reasonable. DR:2-105(A). In determining the reasonableness of the fee, one
may take into account the lawyer's experience, ability and reputation, the nature of the

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employment, the responsibility and effort involved and the results obtained. EC:2-20. It is also
proper to consider such circumstances as the time consumed, the effort expended, the nature of
the services rendered, and other attending circumstances. Tazwell Oil Co. v. United Virginia
Bank, 243 Va. 94 (1992); Mullins v. Richlands National Bank, 241 Va. 447 (1991).
The Committee has previously opined that the fact that a fee is stated and agreed to in a contract
is not dispositive of whether it is reasonable under the Code of Professional Responsibility. LE
Op. 528. It is also important to note that because of the unique nature of the legal contract, a
determination of the reasonableness of the fee is not necessarily limited to the circumstances
which existed at the time of the agreement. The occurrence of unusual or extraordinary events not
contemplated by the parties at the outset of the representation may effect the ultimate
reasonableness of the agreed upon fee.
A client retains the absolute right to discharge the lawyer at any time for any reason or without
reason. Disciplinary Rule 2-110 imposes no restriction or condition on the client's right to
discharge his lawyer. Even when the discharge constitutes a breach of the employment contract,
the lawyer is entitled only to that portion of the fee that has been actually earned prior to the
termination. LE Op. 681. When the attorney is discharged prior to the completion of the
representation he may only recover the reasonable value of the services which he has rendered.
He cannot recover for damages for the breach of the contract, and, in instances where the fee is
contingent upon the outcome of the matter, the attorney may not recover the full agreed upon fee.
He is entitled only to a recovery in quantum meruit for services actually rendered. Heinzman,
supra. The quantum meruit determination must look to the reasonable value of the services
rendered, not to the benefit received by the client. Wood v. Carwile, 231 Va. 320 (1986); County
of Campbell v. Howard, 133 Va. 19 (1922).
Finally, if the lawyer is discharged by the client, he must refund to the client all advanced legal
fees which have not been earned. DR:2-108(D).
2. Retainers. This Committee has on several occasions addressed the unique features of a
retainer. The Committee is mindful, however, that the term is probably misused more often than
not (a fault for which the Committee must accept some responsibility), to describe any type of
advanced legal fees. As the Committee opined previously in LE Op. 1322, a retainer (or advance
periodic payment) is a payment by a client to an attorney to insure the attorney's availability for
future legal services and/or as consideration for his unavailability to a potential adverse party in
the future. A retainer is not a pre-payment for legal services to be rendered in the future, and is
thus distinguished from advanced legal fees. A retainer seeks to guarantee the client's right to
secure the attorney's employment for representation of his interests in a matter which may arise in
the future. This Committee has previously opined, and continues to believe that a retainer is not
violative of the Disciplinary Rules. LE Op. 1178.
The Committee is further of the opinion that because retainers are paid to secure the availability
of an attorney in the future, and not as payment for future legal services, retainers are earned
when paid and become the property of the attorney upon receipt. Such fees are deemed earned by
the lawyer at the time of payment in consideration for the lawyer's availability to the client and
unavailability to potential adverse parties. LE Op. 1178. Because retainer fees are the property of
the lawyer when paid, they may not be deposited into the attorney's trust account. DR:9-102(A).

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The Committee recognizes that it is common practice for lawyers to accept fees described as
retainers to secure the lawyer's future availability and agree to credit those fees against legal
services to be provided in the future. The Committee is of the opinion that while such an
arrangement is not improper, if the employment agreement provides for fees, regardless of their
designation, to be applied against future services to be rendered by the attorney, the fee is not a
retainer, but rather an advanced legal fee and must be handled as discussed below. LE Op. 510.
LE Op. 1178, LE Op. 1322 and LE Op. 1370 properly define and distinguish the terms
“retainer” and “advanced legal fees”. As noted previously, however, various other opinions have
used the term “retainer” in a generic sense which often is inconsistent with its true meaning.
Accordingly, to the extent, and only to the extent, that previous opinions, including LE Op. 186A, LE Op. 558, LE Op. 646, LE Op. 681, LE Op. 1081, LE Op. 1117, LE Op. 1238, LE Op. 1246
and LE Op. 1318, have used the word “retainer” to describe a fee arrangement that is inconsistent
with this opinion, they are overruled. See generally, L. Brickman and L. Cunningham,
Nonrefundable Retainers Revisited, 72 NCL Rev. 1, 3-5 (1993).
3. Advanced Legal Fees. Fees paid in advance for particular legal services not yet performed
are advanced legal fees regardless of the terminology used in the employment contract. Advanced
legal fees are not violative of the Disciplinary Rules as long as they are properly deposited and
identified as belonging to the client until earned. The Committee has consistently opined that the
element of payment for future legal services differentiates advanced legal fees from a retainer. LE
Op. 1322, LE Op. 1178. The two terms are not synonymous.
Because advanced legal fees do not belong to the lawyer until the services are rendered, it is the
opinion of the Committee that they must be deposited in an identifiable account (trust account)
and remain the property of the client until they are earned by the attorney. The Committee notes
that in some situations, the employment contract may provide that a portion of an advanced legal
fee is considered to be earned at the time it is paid. In this case the earned portion becomes the
property of the lawyer and may not be deposited in the lawyer's trust account.
Upon termination of the representation it is the duty of the attorney to refund any portion of an
advanced legal fee which has not been earned. In addition, all fees charged against the account
must be reasonable and must be adequately explained to the client. DR:2-105(A).
4. Non-refundable Legal Fees. The Committee has previously opined and continues to be of the
opinion that any fee arrangement involving advanced legal fees and providing for a nonrefundable or minimum fee violates the Disciplinary Rules and is thus improper. LE Op. 1322
and LE Op. 1370. If the fee is an advance payment for legal services, as described above, it
continues to be the property of the client. The fee must be deposited in a trust account and may
only be paid over to the lawyer when and if it is earned. An advanced legal fee cannot, by
employment contract or otherwise, be termed non-refundable without violating the Disciplinary
Rules. See LE Op. 510, LE Op. 1246 and LE Op. 1322. And, as noted above, using the term
“retainer” to describe what is, in reality, an advanced legal fee does not change the true nature of
the fee, nor does it allow the fee to be considered non-refundable. See Wong v. Kennedy, 1994
U.S. Dist. LEXIS 6875 (E.D. N.Y 1994).
The Committee believes that the concept of a non-refundable or minimum fee paid in advance
for specific legal services is violative of the Disciplinary Rules for the following reasons:

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A. A non-refundable fee compromises the client's unqualified right to terminate the attorney
client relationship and is violative of DR:2-108(A)(3). See also In the Matter of Edward M.
Cooperman, 83 N.Y.2d 465, 633 N.E.2d 1069, 611 N.Y.S.2d 465 (N.Y. 1994). The client's
absolute right to discharge a lawyer contained in DR:2-108(A)(3) would be of little value if
the client must risk paying for services not rendered. Such a situation could force the client to
continue the services of an attorney in whose integrity, judgment or capacity the client had
lost confidence.
B. If the client discharges the lawyer prior to the fee being earned, the retention of a nonrefundable fee would violate the attorney's responsibility to refund to a client any advanced
fee that had not been earned. DR:2-108(D).
C. A fee that is not earned is per se an unreasonable fee. Thus the retention of an unearned
non-refundable fee would result in the lawyer collecting an unreasonable fee in violation of
DR:2-105(A).
5. Fixed Fee. The term fixed fee is used to designate a sum certain charged by a lawyer to
complete a specific legal task. Because this type of fee arrangement provides the client with a
degree of certainty as to the cost of legal services, it is to be encouraged.
A fixed fee is an advanced legal fee. It remains the property of the client until it is actually
earned and must be deposited in the attorney's trust account. If the representation is ended by the
client, even if such termination is without cause and constitutes a breach of the contract, the client
is entitled to a refund of that portion of the fee that has not been earned by the lawyer at the time
of the termination. LE Op. 681. In such circumstances, what portion of the fee has been earned
requires a quantum meruit determination of the value of the lawyer's services in accordance with
Heinzman and County of Campbell v. Howard, 133 Va. 19 (1922).
6. Contingency Fees. The Committee notes that DR:2-105(C) permits fees that are contingent
on the outcome of a matter for which the service is rendered, except in criminal cases or other
matters in which such a fee is prohibited by law. Contingent fees are generally ethically
permissible in any legal matter that generates a res from which the fee can be paid, unless
otherwise prohibited. One purpose of a contingent fee arrangement is to encourage a lawyer to
accept a case which carries inherent risks of nonpayment of legal fees. This Committee has
previously opined, and continues to believe that ministerial matters that carry no such risk, such
as recovering funds that could be obtained by the client without the services of the lawyer, are not
matters in which a contingent fee arrangement is proper, nor do they create the type of res from
which a contingency fee may be paid. It would, therefore be improper for a lawyer to receive a
contingent fee to recover medical compensation payments which an insurance carrier is
contractually obligated to pay to the client. LE Op. 1461
The Council of the Virginia State Bar has opined that, except in extremely rare situations, it is
ethically improper for an attorney to enter into a contingent fee arrangement in family law and
domestic relations cases. LE Op. 189. “Because of the human relationships involved and the
unique character of the proceedings, contingent fee arrangements in domestic relations cases are
rarely justified.” EC:2-22. Thus it would be improper for an attorney to enter into a contingent fee
agreement to represent a divorced spouse in a claim against her husband's military retirement pay.

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Committee Opinion
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LE Op. 568. It would similarly be improper to enter into a fee agreement where the attorney's fee
would consist of a percentage of a lump sum property settlement. LE Op. 423.
This Committee has opined that only where the following four factors exist may a contingent
fee agreement be employed in a domestic relations matter:
1. There has been the passage of a sufficient length of time so as to preclude the continued
existence of any meaningful human relationship which might be undermined by litigation
handled on a contingent fee basis;
2. The client is not able to pay reasonable attorney's fees charged on an hourly or fixed basis;
3. Any attorney's fees awarded by the court will be credited against the contingent fee; and
4. The contingent fee charged would be fair and reasonable under all the circumstances. LE
Op. 189, LE Op. 405, LE Op. 423, LE Op. 588, LE Op. 667, LE Op. 850 and LE Op. 1062.
Contingency fee arrangements must state the method by which the fee is determined, including
the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or
appeal, expenses to be deducted from the recovery, and whether expenses are to be deducted
before or after the contingent fee is calculated. Upon conclusion of a contingent fee matter, the
lawyer shall provide the client with a closing statement showing the fee and the method of its
determination.
Supreme Court Approved
November 2, 2016
Committee Opinion
November 22, 1994

Legal Ethics Committee Notes. – Rule 1.5(d)(1) and Comment [3a] codify the
circumstances in which lawyers may handle family law matters on a contingent fee basis.
Rule 1.5(e) permits fee sharing between lawyers in different firms provided the client
consents and the fee is reasonable. The referring attorney may charge a fee for referring
a case to another lawyer without further participation in the client’s matter.

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