The Illinois Supreme Court recently announced amendments to Illinois Rules of Professional Conduct 1.5 and 1.15 to clarify the law related to retainers. Unfortunately, the changes do not address the most important issue that needed to be addressed.
On the positive side, the amendments explicitly note that nonrefundable fees and nonrefundable retainers are prohibited, and “any agreement that purports to restrict a client’s right to terminate the representation or that unreasonably restricts a client’s right to obtain a refund of unearned or unreasonable fees is prohibited.” This is a clarification that would be helpful in many other states where the issue is still confusing.
However, the amendments did not get rid of the notion of a "special purpose (or advance payment) retainer." The concept originates in the Court's decision in Dowling v. Chicago Options Associates, a case that was wrongly decided and which, in the end, validated a scheme to use a law firm to hide assets from a creditor.
A special purpose retainer is defined as a “present payment to the lawyer in exchange for the commitment to provide legal services in the future." Note how that is exactly the same definition of a security retainer, so to distinguish them it is said that the special purpose retainer "may be used only when necessary to accomplish some purpose for the client that cannot be accomplished by using a security retainer” and that, unlike the security retainer, a special purpose retainer is "earned immediately."
Thus, the special purpose retainer is considered to be a fee that immediately becomes the property of the lawyer, whether the services are performed or not. If that means that the retainer pays just for the commitment to perform the services, then how is it different than a classic retainer? On the other hand, if it pays for the actual services, then it is nothing other than a fee paid in advance, which can't be earned immediately because they can't be earned until the work is done. So, in the end, if the special purpose retainer pays for services not yet rendered but is earned immediately nonetheless, it is actually earned and not earned at the same time. And, if that is the case, it does not matter where the lawyer deposits the money, the lawyer will be commingling. And that is just two of the problems with it.
Years later, the Court was confronted with the consequences of that new type of retainer and had a chance to get rid of it, but instead decided to ban it in certain types of cases only. See, In re Marriage of Earlywine (2013). I wrote about that case back then here.
In considering the amendments recently announced it seems that the Court had yet another opportunity to fix its original mistake but again failed to do so.
You can read more about the recently adopted changes here or here. You can read more about my thoughts on fees that are earned and not earned at the same time here and here.
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