Monday, December 29, 2008

Michigan Supreme Court rules non refundable fees are OK

Professor Larry Dubin of University of Detroit Mercy Law School has an opinion piece in Detroit on the recent Michigan Supreme Court decision overturning a Attorney Discipline Board order imposing discipline for failure to return an unearned fee. Dubin states:

Does Supreme Court give lawyers a license to steal?
Larry Dubin

A client hires a lawyer for representation in a divorce. The lawyer presents a written fee agreement in which the client agrees to pay a minimum, nonrefundable retainer fee of $4,000. This amount is also to be credited against the charges for future legal services at the rate of $195 per hour.

Shortly after hiring the lawyer and paying the fee, the client informs the lawyer that she and her husband have reconciled; there is no further need for representation. The client demands that the lawyer return the unearned portion of the retainer.

These are the facts that were recently presented to the Michigan Supreme Court in the case of Grievance Administrator v. Patricia Cooper. How it decided the case will hurt consumers and the image of the legal profession.

Cooper refused to refund the entire unearned portion of the $4,000 retainer, so she was accused of professional misconduct. The Michigan Attorney Discipline Board held that she did commit misconduct.

The board's decision protected the interests of the client and was supported by the lawyer's noncompliance with the ethics rules promulgated by the Michigan Supreme Court. Under these rules, a client has the absolute right to discharge the services of a lawyer at any time and for any reason. In this case, the reason was reconciliation, but in another case the reason might be a lack of trust in the lawyer.

Whatever the reason, a client's termination of a lawyer's services is not viewed under the law as a breach of contract. The public policy of permitting a client to discharge a lawyer for any reason is necessary to preserve the client's trust toward the lawyer.

Also, the ethics rules require the lawyer to place the money for future services into a client trust account. The funds cannot be withdrawn unless actually earned. In other words, the money remains the property of the client until some service is performed. And when a client discharges a lawyer, the attorney must refund the client.

The Attorney Discipline Board made the correct decision because the lawyer, Patricia Cooper, had not earned the entire retainer fee by performing sufficient hours of legal services.
Cooper appealed to the Michigan Supreme Court, which, in a brief order, summarily stated, "As written, the agreement clearly and unambiguously provided that the respondent (Cooper) was retained to represent the client and that the minimum fee was incurred upon execution of the agreement regardless of whether the representation was terminated by the client before the billings at the stated hourly rate...."

The court concluded that the lawyer had the right to keep the unearned portion of the retainer because the contract stated the retainer as a minimum fee.

The Supreme Court's holding in this case makes new law that favors the rights of lawyers to keep money from clients even for services that they don't perform. The decision will create a financial disincentive for clients to exercise their right to fire lawyers or discontinue services because they can't recoup their money to hire a new lawyer.

This decision ushers in a new era that is very hostile to the interests of clients. Under this court ruling, the funds paid to a lawyer for future services will not be returned even when unearned as long as the lawyer slips in the term "nonrefundable" and "minimum fee" in the agreement.
This decision is likely to increase the number of grievances against lawyers and the cynicism that many members of the public will have toward lawyers. Consumers will feel cheated by lawyers being able to keep their money without performing the agreed-upon legal services.

Critics of lawyers sometimes state that a lawyer has a license to steal. The Attorney Discipline Board's ruling challenged that cynical notion by holding that a contract provision written by a lawyer cannot negate an attorney's ethical duties to a client. The Michigan Supreme Court decision unfortunately creates public cynicism toward lawyers.

I hope the Michigan Supreme Court will reconsider its decision in light of the adverse consequences consumers will experience.

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