As you probably know, the basic standard to determine if a fee is ethical is that it must be "reasonable" and typically the rules of professional conduct (or its comments) will provide a list of factors to consider when trying to determine if a fee is, in fact, unreasonable. Interestingly, one factor usually not mentioned is whether the fee is "non-refundable."
Can an attorney charge a non-refundable fee or would that be, by definition, unreasonable. Given the state of things, the accurate but not very helpful answer has to be: that a non-refundable fee is OK as long as it is not unreasonable. Not very helpful, is it?
Not surprisingly, thus, there has been a lot of debate as to whether attorneys can charge non-refundable fees. I recently posted a comment on this here.
Enter the Missouri Advisory Committee on Professional Responsibility, which just about a month ago issued a new opinion on the matter in which it concludes that non-refundable fees are to be considered unethical in Missouri. (Go to the Ethical Quandary blog for more).
Saying that non refundable fees are just not allowed sounds simple enough, but, in reaching the conclusion the Committee makes a number of mistakes and I am not sure that the end result is justified.
The Committee starts by stating that there are "two types of cases [that] provide good examples of situations in which supposedly nonrefundable fees are involved." The first example is a case “where the client pays a flat fee or makes an advance deposit on fees against which the attorney will bill on an hourly basis."
Here is the first problem. An "advance deposit" such as the one described is what other jurisdictions typically call a "security retainer" which can never be non-refundable. There has never been any debate about this.
If we take this "example" out of the equation, what is left is what the Committee calls "a flat fee."
From here, the Committee points out that a "flat fee" is not earned automatically when agreed to. The fee is only earned when it is, well, earned, and it is not until then that there is an obligation to pay it. There is a certain obvious logic to this reasoning but it still does not explain when the flat fee is actually earned other than to state that the fee is earned when the representation is completed.
If the representation ends before the representation is completed, however, the Committee states that the attorney must analyze the factors set out in the rule regarding fees "to determine the extent to which the attorney must refund all or a portion of the fee."
In other words, the attorney must determine if not refunding the fee would result in an unreasonable fee or as the Committee explicitly states it: "because an attorney may not charge or collect an unreasonable fee, the attorney must determine that the fee was reasonable."
And so we are back where we started... is a non-refundable fee unreasonable? Only if we determine that it is.
In the end, I am afraid this analysis adds nothing and clarifies little. The Committee essentially concludes - without stating it - that a flat fee has to be analyzed just like the "advance payment" described in the beginning of the opinion (aka a "security retainer") which has never been allowed to be non-refundable. After reading the opinion, all we know is that you can't call the fee non-refundable, that you can call it "flat," that it can't be unreasonable and that in some cases (but not others) not refunding part (or all) of the fee would be unreasonable. Nothing new there.
What would be new, I think, is to consider whether allowing non-refundable flat fees in some cases might actually be a good alternative to other forms of fees. I discussed this issue here.
You can find the full text of the opinion here.
One final note of interest: the Committee explicitly discourages attorneys from using the term "retainer" from now on because "the term has taken on many meanings which are inconsistent with one another and which are confusing to clients." And, in support of this conclusion, the Committee cites Dowling v. Chicago Options Associates, Inc., 875 N.E.2d 1012, 1018 (IL 2007), an Illinois case, that I have long argued makes little sense... but that is another story....
For more on the Missouri Advisory Committee opinion go to the Ethical Quandary blog.