LEO: Fees - Trust Account: Resolution of  LE Op. 1246

 

Fees - Trust Account: Resolution of Initial Retainer Paid to

Attorney After Being Discharged by Client.

 

June 1, 1989

 

You advised that Law Firm X was retained to review a possible case for

which the firm received $500 from Client A. Client A did not wish to

proceed in the manner in which Law Firm X was prepared to act and, because

of time constraints, Law Firm X and Client A did not enter into a written

agreement of employment. Now Client A has taken the position that the $500

was not paid simply for review of the case, but was instead a retainer

toward a larger fee or retainer which Law Firm X would have received had

the firm agreed to take the case on the client's terms. However, Law Firm

X is of the view that the amount charged was for the initial review with

no assurances regarding the outcome of that review. This is the standard

practice of the firm and is usually set out in a letter to the prospective

client. Therefore, ever since Client A's request for a refund of the $500,

Law Firm X has retained the money in escrow in a trust account. In

addition, the firm offered Client A three alternatives to resolve this

dispute: (1) a refund of $100 in exchange for a full release; (2) fee

arbitration; and (3) Law Firm X's payment for Client A to consult with a

lawyer referred by a local bar referral service, with the provision that

the client accept that lawyer's decision as to whether she is entitled to

a refund.

 

Client A rejected all three of the proposals and Law Firm X wishes to

know whether it is ethically bound to retain the money indefinitely in

escrow if the client is not amenable to some resolution other than the

entire refund.

 

The Committee believes the appropriate and controlling rule relative to

your inquiry is DR:9-102(A)(2), which provides that funds of a client

paid to a lawyer or law firm, other than advances for cost and expenses,

shall be deposited in one or more identifiable bank trust accounts

maintained in the state in which the law office is situated; that where

part of the funds belong to the client and in part presently or

potentially to the lawyer or law firm, the portion belonging to the lawyer

or law firm may be withdrawn when due unless the right of the lawyer or

law firm to receive it is disputed by the client, in which event the

disputed portion shall not be withdrawn until the dispute if finally

resolved. Furthermore, DR:9-102(B) provides that a lawyer shall maintain

complete records of all funds, securities, and other properties of a

client coming into the possession of a lawyer and he shall promptly pay or

deliver to the client or another as requested by such person the funds,

securities, or other properties in the possession of the lawyer which such

person is entitled to receive. (See DR:9-102(B)(3) and (4)

 

The Committee has previously opined that a "retainer" or "guaranteed

minimum fee" made as a prepaid fee for specific services to be rendered in

the future, should be placed in a trust escrow account and paid over to

the attorney's general account only as services are rendered in accordance

with DR:9-102. The Committee further opined that it is the duty of an

attorney to refund any portion of a retainer fee which has not been earned

by performance of the services for which the attorney was retained. (See

Heinzman v. Fine, Fine, Legum & Fine, 217 Va. 958 (1977) and LE Op.

510, LE Op. 646, and LE Op. 1178) In addition, LE Op. 681 states that

a lawyer is required to account to his client, upon request, for all or

any part of a fee paid for services to be rendered in the future. Thus, an

attorney who is paid a substantial portion of an agreed fee in a criminal

matter and whose services are terminated prior to the conclusion of that

matter must, upon demand by his client, provide an accounting of fees

received and expended which fees must be reasonable.

 

In the Committee's view, the only proper and ethical course of action to

resolve a fee dispute between an attorney and his client is to retain that

portion in dispute by the client in a trust account, after rendering an

accounting to the client of the amounts earned and returning any refund

due the client, until the matter can be resolved by the appropriate legal

means. The Committee also directs your attention to EC:2-25 which

provides in part that a lawyer should be zealous in his efforts to avoid

controversy over fees with his clients and should attempt to resolve

amicably any differences on the subject.

 

Committee Opinion June 1, 1989