Edward Poll
Dolan Media Newswires
Money spent on a shirt whose seams rip the first time you wear it is refundable. So is money spent on food that is rotten when you bring it home or a video game that won’t play even the first time you put it in your game player. But what about legal fees? Are legal fees refundable?
Flat fees and refunds
Charging a flat fee can raise the issue of whether that fee can — or should — be refundable. Consider the example of a lawyer who has an estate planning practice and provides for flat fees that are nonrefundable. In one instance, a client requested an estate plan. The lawyer completed the documents and sent them to the client for signature. The client then informed the lawyer that she had changed her mind and did not want the type of trust that the lawyer had created. Worse, at this point, she wanted the fee refunded. As a matter of professional courtesy, the lawyer made an adjustment that the client accepted. But months later, the same client filed a complaint with bar counsel. Bar counsel then called this lawyer to challenge the lawyer’s fee structure. Bar counsel went further and suggested that maintaining a record of hours billed is a requirement.
According to the ABA Model Rules of Professional Conduct, fees must be “reasonable.” Each jurisdiction has its own standards that define this term, but the important point is that you must be able to defend the fee and the fee structure. Using an hourly standard is only one method of doing so. No jurisdiction requires that fees be charged by the hour or that a record of hours be maintained. If a flat fee meets the standard of being “reasonable” and the client knowingly accepts the fee in a written fee agreement, the lawyer charging it is within the rules.
Special note: While time records may not be required in fixed-fee matters, a fee dispute as to the reasonableness of a fee is often resolved by reference to time records. If there is a fee dispute and the lawyer is awarded quantum meruit (Q.M.) and the Q.M. is based on time, then there seems to be little incentive to move away from the billable- hour standard.
Fees for hire and refunds
If you take a retainer in advance, whether the fee is called “refundable” or not, and work is promised in exchange for that fee, then failure to perform the work requires a refund. It doesn’t matter what you called the fee.
There is some dispute concerning taking an advance fee and calling it nonrefundable when what you mean is that it is a minimum fee. If you do not “use up” the full advance, some would argue that you still “earned” it because it is a minimum fee. Others would argue that you are obligated to refund the difference. The former position permits deposit to the general account; the latter position requires deposit to the client’s trust account.
However, if you take a fee in exchange for “coming off the market,” this fee may not be refundable because you’ve already done the work. In other words, there is a value that can be assigned to being prevented by the rules of conflict of interest from representing the other party. Again, the rule of reasonableness comes into play.
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Edward Poll, J.D., M.B.A., CMC, is a law practice management thought leader and contributor to this publication. His website is at www.lawbiz.com.
