ABA issues ethics opinion to guide lawyers' handling of prepaid fees for individual clients
The American Bar Association Standing Committee on Ethics and Professional Responsibility released a formal opinion Wednesday that examines a lawyer’s ethical obligations for fees paid for legal work to be performed by the lawyer in the future.
Formal Opinion 505 points to the ABA Model Rules of Professional Conduct — and particularly applications of model rules related to fees and safekeeping of others property — to explain how lawyers should handle advance fees paid by individual clients, usually for a single legal matter that will not recur on a regular basis. These matters could include divorce, defense of criminal charges or civil matters not handled on a contingent fee basis.
The opinion notes that a retainer is often conflated with an advance fee, and it says in a footnote the former should not be construed as a “payment for the performance of services, but rather is compensation for the lawyer’s promise of availability … (and) is not an advance deposit against future legal services.”
“Given the rarity and unusual nature of a general retainer, and the fact that very few clients would actually need or benefit from one, the nature of the fee and lawyer’s obligations and client’s benefits under such an agreement must be explained clearly and in detail,” the opinion said.
Formal Opinion 505 was blunt in defining the problem. “These terms are most often used in an attempt to make an advance fee nonrefundable,” it said, before adding the model rules “do not allow a lawyer to sidestep the ethical obligation to safeguard client funds with an act of legerdemain: characterizing an advance as ‘nonrefundable’ and/or ‘earned upon receipt.’ This approach does not withstand even superficial scrutiny. A lawyer may not charge an unreasonable fee.”
The formal opinion also provides three hypothetical situations, including scenarios involving a divorce case, to examine situations when a lawyer might tell a client that the prepaid fee was nonrefundable. In most cases, the opinion suggests, the lawyer would be acting contrary to the model rules.
“We offer the following suggestions in relation to the matters addressed in this opinion. Use plain language,” it said. “Thus, instead of ‘retainer’ say ‘advance’ and explain that it is a ‘deposit for fees.’ Explain that the sum deposited will be applied to the balance owed for work on the matter, and how and when this will happen.”
The ABA Standing Committee on Ethics and Professional Responsibility periodically issues ethics opinions to guide lawyers, courts and the public in interpreting and applying ABA model ethics rules to specific issues of legal practice, client-lawyer relationships and judicial behavior.
Formal Opinion 505 and other recent ABA ethics opinions are available at www.americanbar.org/groups/professional_responsibility/publications/ethics_opinions/?login.
Former trial attorney honored with ABA ethics award
Jayne R. Reardon, a former trial attorney who became one of the nation’s leaders in lawyer professionalism and ethics, is the 2023 recipient of the Michael Franck Professional Responsibility Award, one of the American Bar Association’s top ethics honors. The award recognizes an individual whose contributions reflect the highest level of dedication to legal professionalism.
A University of Michigan law School graduate, Reardon joined the Illinois Attorney Registration and Disciplinary Commission (ARDC) as disciplinary counsel after a career as a trial attorney. She spent a decade in that role, enforcing the Illinois Rules of Professional Conduct and studying recurring disciplinary issues. In 2006, she was appointed deputy director of the Illinois Supreme Court Commission on Professionalism and in 2009 was appointed executive director, where she remained until her retirement in 2021.
The Commission on Professionalism is charged with promoting greater integrity, professionalism and civility among both lawyers and judges in Illinois; fostering a commitment to the elimination of bias and divisiveness within the legal and judicial systems; and ensuring the legal and judicial systems provide equitable, efficient and effective service to Illinois citizens.
Reardon also served as an ABA leader in various roles, including chairing the Standing Committee on Professionalism, and her current role as a member of the Standing Committee on Public Protection. Through her work on ethics and professionalism, she became nationally recognized as a thought leader, lecturer, teacher and commentator about civility and professionalism in the legal system.
“There are few people who have dedicated so much time, passion and energy to improving the profession,” wrote a fellow lawyer in nominating Reardon for consideration.
The award is named in honor of Michael Franck, the late director of the State Bar of Michigan and long-time champion of improvements in lawyer regulation in the public interest. It will be presented to Reardon on June 1 at the National Conference on Professional Responsibility in New Orleans, Louisiana.
The Center for Professional Responsibility (CPR) Coordinating Council, which consists of the chairs of the committees and commissions that are housed within CPR, made the selection.
