Can a West Virginia lawyer charge a non-refundable retainer, and when does keeping the unearned fee violate the rules?

Plain-English summary

The Lawyer Disciplinary Board addressed agreements providing for non-refundable payments, which generated frequent client complaints (the Board noted 31% of complaints received in 1997 were fee-related or financial). The Board anchored the analysis in Rule 1.5, whose thrust is that a lawyer's fee shall be reasonable and which lists eight factors for reasonableness; Comment 2 states a lawyer may require advance payment but is obliged to return any unearned portion, and Rule 1.16(d) requires refunding any advance payment of fee that has not been earned upon termination of representation.

The Board distinguished two main types of retainers. In the first, the lawyer is hired to be available to do business as needed; the fee is akin to a salary, paid for availability rather than a specific work product (including arrangements where the client wants to prevent the lawyer from working for an opposing party). In the second, the lawyer is hired to accomplish a particular task, and this is the type most fraught with misunderstanding, because lay people expect work to justify the fee and feel cheated when circumstances change, work is not done, and fees are not refunded regardless of the contract. The Board noted many jurisdictions had banned the non-refundable retainer (citing In re Cooperman) and that an earlier West Virginia informal opinion stated there is technically no such thing as a non-refundable retainer, because a fee that fails the reasonableness test violates Rule 1.5 and Rule 1.16(d) requires refund of unearned advance payments. It also cited Statler v. Dodson, in which the West Virginia Supreme Court held that a discharged attorney's measure of damages under a contingent fee agreement is the value of services rendered.

The Board proposed four guidelines: (1) in agreements where a specific work product is expected, avoid the concept of non-refundable retainers, because all fees must be earned (Rule 1.16(d)); (2) where the attorney is retained for availability, it is not a per se violation of Rule 1.5 to enter a non-refundable written fee agreement, provided it is clearly explained to the client; (3) it is a violation of Rule 1.5 if the agreement is enforced with the effect of charging an unreasonable fee; and (4) any non-refundable retainer agreement must be written and explained to the client and must meet the Rule 1.5 reasonableness test, and if the facts indicate the effect is an unreasonable fee, counsel will be subject to discipline for violating Rule 1.5 and the possibility of disgorgement of the fee.

Currency note

This opinion was issued in 1999, before the West Virginia Supreme Court of Appeals' comprehensive 2015 revision of the West Virginia Rules of Professional Conduct (effective January 1, 2015). 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: Were non-refundable retainers banned outright in West Virginia?

A: No. The opinion treated them by type: a non-refundable fee for availability was not a per se violation of Rule 1.5 if clearly explained, but where specific work was expected the concept should be avoided because all fees must be earned.

Q: Did a "non-refundable" label make the fee non-refundable?

A: No. The Board noted an earlier West Virginia informal opinion that there is technically no such thing as a non-refundable retainer, because a fee that fails the reasonableness test violates Rule 1.5 and unearned advance payments must be refunded under Rule 1.16(d).

Q: What happened if a non-refundable retainer turned out to be an unreasonable fee?

A: The opinion stated counsel would be subject to discipline for violating Rule 1.5 and to the possibility of disgorgement of the fee.

Q: Did the agreement have to be in writing?

A: Yes. The opinion stated any agreement concerning non-refundable retainers must be written and explained to the client and must meet the Rule 1.5 reasonableness test.

Background and rules framework

The opinion interpreted West Virginia's Rules as they stood in 1999. Rule 1.5 (Model Rule 1.5) required fees to be reasonable, listing eight factors, and its Comment 2 obliged a lawyer to return any unearned advance payment. Rule 1.16(d) (Model Rule 1.16) required a lawyer, on termination, to take steps to protect the client's interests, including refunding any advance payment of fee not earned. The Board drew on West Virginia case law on fee reasonableness and quantum meruit, including Statler v. Dodson, Committee on Legal Ethics v. Gallaher, and Committee on Legal Ethics v. Tatterson.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.5 / WV Rule 1.5 (reasonable fees; eight factors; return of unearned fees)
• Model Rule 1.16 / WV Rule 1.16(d) (duties on termination; refund of unearned advance payments)

Cases:

• In re: Cooperman, 591 N.Y.S.2d 855 (1993), non-refundable fee retainer violated DR 2-110(A)(3)
• Statler v. Dodson, 195 W.Va. 646, 466 S.E.2d 497 (1995), discharged attorney's measure of damages is value of services rendered
• Committee on Legal Ethics of West Virginia State Bar v. Gallaher, 180 W.Va. 332, 376 S.E.2d 346 (1988)
• Committee on Legal Ethics of West Virginia State Bar v. Tatterson, 177 W.Va. 356, 352 S.E.2d 107 (1986)

See also

• WV Ethics Op. 98-01: Flat-Fee Insurance Defense
• ABA Formal Op. 505: Fees Paid in Advance
• ABA Formal Op. 02-427: Security Interest to Secure a Fee

Source

• Landing page: https://wvodc.org/Legal-Ethics-Opinion
• Original PDF: https://storage.googleapis.com/msgsndr/Rgd68xOkcVdteTsBkf6O/media/66a7ea7ec87f33ffcb49ff05.pdf

Original opinion text

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

L.E.I. 99-03

NON-REFUNDABLE RETAINERS

Introduction.

The Lawyer Disciplinary Board frequently receives complaints from clients who have entered into agreements with counsel which provide for non-refundable payments. Each case must be reviewed on an ad hoc basis, but there are general guidelines applicable where a non-refundable agreement may violate the Rules of Professional Conduct.

Discussion - West Virginia Rules of Professional Conduct.

The applicable West Virginia Rules of Professional Conduct include but are not necessarily limited to Rule 1.5. The thrust of the rule is that "a lawyer's fee shall be reasonable." Rule 1.5 specifies eight factors to be considered in determining the reasonableness of an attorney's fee. Comment 2 to the rule provides, "A lawyer may require advance payment of fee, but is obliged to return any unearned portion." Rule 1.16(d) states that, "Upon termination of representation, a lawyer shall take steps to the extent practicable to protect the client's interests, such as... refunding any advance payment of fee that has not been earned."

Advances vs. Retainer Fees.

There are two main types of retainers. (1) In the first, attorneys are hired to be available to do such business as might be needed. Their fee is akin to a salary; they are being paid for availability rather than for a specific work product. This type includes those arrangements where the client does not expect a work product at all, but wants to prevent the attorney from working for an opposing party. (2) In the other type of arrangement, an attorney is hired to accomplish a particular task. This second type of retainer is the one most fraught with misunderstanding.

Consumers of legal services often protest when circumstances change and attorneys' services are not required as expected, but fees are not refunded. An indication of the magnitude of the problem can be estimated from the fact that 31% of the complaints received by the Board in 1997 were for fee-related or financial issues.

Most lay people expect that eventually work will be done to justify their fees. When circumstances change, and the work is not done, most people feel cheated when their fees are not refunded no matter what contract they signed.

Many jurisdictions have banned the non-refundable retainer; for example, the New York Courts in In re: Cooperman, 591 N.Y.S. 2d 855 (1993), held that the use of a "non-refundable fee" retainer was in violation of DR 2-110 (A) (3), resulting in a two year suspension. Oklahoma, Indiana, and many other jurisdictions have imposed discipline for failure to return a retainer. Similarly, in an earlier "Informal Opinion" (2/93), the West Virginia Committee on Legal Ethics stated that there is technically no such thing as a "non-refundable retainer" because if a fee does not meet the test of reasonableness, the attorney is in violation of Rule 1.5. Rule 1.16(d) also requires the refund of any unearned advance payment.

Cases and Ethics Opinions from West Virginia.

Recently, in Statler v. Dodson, 195 W.Va. 646, 466 S.E.2d 497 (1995), the West Virginia Supreme Court held that where an attorney had been discharged, without fault on his part, from further services and a suit just begun by him under a contingent fee agreement, his measure of damages is but the value of services rendered. See also, Committee on Legal Ethics of West Virginia State Bar v. Gallaher, 180 W.Va. 332, 376 S.E.2d 346 (1988) and Committee on Legal Ethics of West Virginia State Bar v. Tatterson, 177 W.Va. 356, 352 S.E.2d 107 (1986).

What constitutes a reasonable fee will vary with the circumstances. Annotated Model Rules of Professional Conduct Rule 1.5 (3d ed. 1996) p. 47. Dale R. Agthe, Annotation, Attorneys Charging Excessive Fee as Ground for Disciplinary Action, 11 A.L.R.4th 133.

In light of these concerns, the following guidelines are proposed:

1. In the type of agreement in which a specific work product is expected, avoid the concept of "non-refundable retainers." All fees must be earned. Rule 1.16(d).

2. In the type of agreement where the attorney is retained for availability, it is not a per se violation of the Rule 1.5 for an attorney to enter into a non-refundable written fee agreement provided the same is clearly explained to the client.

3. It is, however, a violation of Rule 1.5 if the agreement is enforced with the effect of the attorney charging an unreasonable fee.

4. Any agreement concerning non-refundable retainers must be written and explained to the client and must meet the reasonableness test of Rule 1.5. If the facts and circumstances of the case indicate that the effect of the non-refundable retainer is an unreasonable attorney fee, counsel will be subject to discipline for violation of Rule 1.5 and the possibility of disgorgement of the fee.

APPROVED by the Lawyer Disciplinary Board this 30th day of April, 1999.

DAVID J. ROMANO, CHAIRPERSON
Lawyer Disciplinary Board
State of West Virginia