A quick note on some retainer agreements.
When your ex-client complains to the State Bar about you, they may just be doing so for a refund and make the claim you didn't do a good job on their case.
Once the client alleges this and demands a refund, the Office of Chief Trial Counsel ("OCTC"), the investigative arm of the State Bar of California, will be going over your retainer agreement with a fine-tooth comb.
In particular, the investigator will review your retainer's scope of services section, and of course the section where you describe your fees.
A lot of my clients charge hourly and bill accordingly, however I have seen an upswing of flat fee retainer agreements.
Even though the rules do allow flat fee agreements, I want you to be thinking about a few things next time you do engage in flat fee agreements with clients.
First, your flat fee agreement is not a “true” retainer agreement. Flat-fees are “refundable”, even though you might write in your retainer that they are not. I find myself explaining this to many clients and many push back on this issue. Flat fees are not earned upon receipt.
Second, even though your flat fee agreement is simply that- an agreement to do something for a flat fee, I suggest you keep track of your hours as the State Bar may conclude: you did not fully earn the fee and will question whether fees were not fully earned and/or why you did not refund any portion. If you are under investigation, I as your defense counsel will ask you to provide me with a detailed accounting of hours worked in order to mount a good defense that you earned most, if not all fees the client paid you. (Of course every investigation is handled differently by the investigator and by me as your counsel, but if my job is to get your investigation closed, then there are many things you can do during your representation of your client, that can help me defend you better. Keeping track of your time and having a organized client file is just a few of those things.)
Some of the applicable rules and cases are discussed below.
California Rule of Professional Conduct Rule 3-700(D)(2) states that: “A member whose employment has terminated shall… (2) Promptly refund any part of a fee paid in advance that has not been earned. This provision is not applicable to a true retainer fee which is paid solely for the purpose of ensuring the availability of the member for this matter.”
To explain, if true retainers are the only retainers where the fee is earned upon receipt, then your flat fee agreement falls within “promptly refund” portion of rule 3-700(D)(2), and you must return any fee that was not earned. (There is a lot more to discuss here regarding advances fees, and what to do with disputed money etc., but that will be for another topic.)
Another reason why your flat fee agreement is always refundable is the fact that case law has also taught us that if your retainer is tied to a specific service, then it is not a true retainer at all. (Matter of Fonte (Rev.Dept. 1994) 2 Cal. State Bar Ct.Rptr. 752, 757; In re C & P Auto Transport, Inc. (BC ED CA 1988) 94 BR 682, 686-687])
This fact alone should prove the point that your flat fee agreement is not a “true retainer”, and if it is not a true retainer, then by definition your flat fee agreement is refundable.
It certain jurisdictions, your nonrefundable retainer language is considered unethical and against public policy. In the Matter of Cooperman (1994), the court states that nonrefundable retainers restrict the clients “absolute” right to fire his or her attorney without penalties. (Matter of Cooperman (1994) 611 NYS2d 465, 468-469, 633 NE2d 1069, 1072. See also West Virginia State Bar Form.Opn. 99-03 (1999), which states in part: “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”]
Another issue to think about is just because you say something in a contract, doesn't mean its going to hold up later. A prime example of this is you labeling your flat fee agreement as nonrefundable. How you act, and your treatment of the fee is what ultimately will control later on in a dispute.
Remember also that fee agreements are construed from the perspective of a “reasonable client”, so even though your understanding and you intent of the retainer is important, the adjudicator will construe your contract from a reasonable client's perspective.
I will leave you with a couple last thoughts. Not only does your failure to refund clients prompt them to make state bar complaints, it can ultimately lead to being disciplined especially if there are multiple complaints against you. In the Matter of Lais, the attorney was disciplined for failing to return unearned fees for 2.5 months. (Matter of Lais (Rev.Dept. 1998) 3 Cal. State Bar Ct.Rptr. 907, 912-914, 918)