Opinion 93-2
FLORIDA BAR ETHICS OPINION OPINION 93-2 October 1, 1993 Advisory ethics opinions are not binding. Earned fees, including “true retainers,” must not be placed in the trust account. Unearned fees and advances for costs must be placed in the trust account. Nonrefundable fees are permissible, but remain subject to the rule regarding clearly excessive fees. When charging a flat fee (a portion of which will be used to pay costs), the lawyer must deposit into the trust account any unearned fee, as well as the estimated amount of costs. An attorney who charges a flat fee, a portion of which will be used to pay costs, must deposit into the trust account any unearned fee, as well as the estimated amount of costs. Note: Rule 4-1.15 was significantly amended by the Supreme Court in April 2002. The substance of the rule is now incorporated into Rule 5-1.1. Rule 4-1.5 was amended effective February 1, 2010, to require that nonrefundable fees be confirmed in writing. RPC: Opinions: Misc.: 4-1.8(e); 4-1.15; 4-1.15(a); 5-1.1; 5-1.1(a) 76-27 [since withdrawn] Drinker, Legal Ethics, p. 172; 7 AmJur.2d, Attorneys at Law, §245, p. 286; 7A CJS, Attorney and Client, §282, p. 522 In 1976 this Committee, at the request of the Board of Governors, published an advisory opinion addressing several common questions relating to trust accounting. Opinion 76-27 [since withdrawn] was based on the former Code of Professional Responsibility and Integration Rule, both of which were replaced in 1987 by the Rules Regulating The Florida Bar. Accordingly, we hereby withdraw Opinion 76-27 [since withdrawn] and issue this new opinion in which we undertake to answer some trust accounting questions that are regularly faced by many Florida attorneys. We begin by setting forth some of the pertinent provisions of the Rules Regulating The Florida Bar. Rule 4-1.15 provides in part: (a) Clients’ and Third Party Funds to be Held in Trust. A lawyer shall hold in trust, separate from the lawyer’s own property, funds and property of clients or third persons that are in a lawyer’s possession in connection with a representation. All funds, including advances for costs and expenses, shall be kept in a separate account maintained in the state where the lawyer’s office is situated or elsewhere with the consent of the client or third person, provided that the funds may be separately held and maintained other than in a bank account if the lawyer receives written permission from the client to do so and provided that such written permission is received prior to maintaining the funds other than in a separate bank account. In no event may the lawyer commingle the client’s funds with those of his or hers or those of his or her law firm. Other property shall be identified as such and appropriately safeguarded. Complete records of such account funds and other property, including client funds not maintained in a separate bank account, shall be kept by the lawyer and shall be preserved for a period of 6 years after termination of the representation. * * * (d) Compliance With Trust Accounting Rules. A lawyer shall comply with The Florida Bar Rules Regulating Trust Accounts. Rule 5-1.1 provides in part: (a) Nature of Money or Property Entrusted to Attorney. Money or other property entrusted to an attorney for a specific purpose, including advances for costs and expenses, is held in trust and must be applied only to that purpose. Money and other property of clients coming into the hands of an attorney are not subject to counterclaim or setoff for attorney’s fees, and a refusal to account for and deliver over such property upon demand shall be deemed a conversion. This is not to preclude the retention of property upon which the lawyer has a valid lien for services or to preclude the payment of agreed fees from the proceeds of transactions or collection. Controversies as to the amount of fees are not grounds for disciplinary proceedings unless the amount demanded is clearly excessive, extortionate, or fraudulent. In a controversy alleging a clearly excessive fee, announced willingness of an attorney to submit a dispute as to the amount of a fee to a competent tribunal for determination may be considered in any determination as to intent or in mitigation of discipline; provided, such willingness shall not preclude admission of any other relevant admissible evidence relating to such controversy, including evidence as to the withholding of funds or property of the client, or to other injury to the client occasioned by such controversy. (b) Trust Accounts Required. Any bank or savings and loan association account maintained by a member of The Florida Bar to comply with rule 4-1.15, Rules of Professional Conduct, is and shall be clearly labeled and designated as a trust account. Any safe deposit box used in connection with the practice of law in Florida maintained by a member of The Florida Bar to comply with rule 4-1.15 shall be located in this state unless the client otherwise consents in writing. A member of The Florida Bar shall advise any institution in which such deposit box is located that it may include property of clients. * * * (d) Trust Accounting. Minimum trust accounting records shall be maintained and minimum trust accounting procedures must be followed by all attorneys practicing in Florida who receive or disburse trust money or property. With these rules in mind, we turn to the following questions. Question 1. What is a “true retainer”? Is a “true retainer” to be deposited in the trust account? A retainer, in the sense in which it was probably used originally, was the fee a client paid a lawyer in return for the lawyer’s agreement to accept employment from the client and thus not accept employment from adverse parties, whether paid with or without reference to any specific legal services. Drinker, Legal Ethics, at 172; 7 AmJur.2d, Attorneys at Law, §245, at 286. A retainer is defined in 7A CJS, Attorney and Client, §282, at 522 as follows: A retaining fee is a preliminary fee given to an attorney or counsel to insure and secure his future services, and induce him to act for the client. It is intended to remunerate counsel for being deprived, by being retained by one party, of the opportunity of rendering services to the other and of receiving pay from him; and the payment of such fee, in the absence of an express understanding to the contrary, is neither made nor received in payment of the services contemplated. Its payment has no relation to the obligation of the client to pay his attorney for services which he has retained him to perform. [Footnotes omitted.] In essence, a “true retainer” is akin to an option contract: the client pays the attorney a fee for the right to employ the attorney. The “true retainer” is therefore earned upon receipt and should not be deposited in the trust account. In today’s practice, however, the term “retainer” is used in a variety of ways -- often as a synonym for “fee.” Thus the Committee believes that trust accounting questions should be analyzed not by the application of labels, but by considering the purpose of the subject funds in light of the facts and circumstances attending their payment. Question 2. Does any applicable rule require that prepaid costs and prepaid fees for services to be performed be deposited and kept in the trust account until earned? Regarding prepaid costs, Rule 4-1.15(a) states that money entrusted to an attorney for a specific purpose, including advances for costs and expenses, is held in trust and must be applied only to that purpose. See also Rule 5-1.1(a). Accordingly, in view of the specific requirement of these rules, advances for costs and expenses must be deposited in the attorney’s trust account and withdrawn and applied against such expenses as they are incurred and paid. As to prepaid fees, the key issue can be stated thusly: Is the money earned at the time it is received by the attorney? For example, a fee paid for the right to employ an attorney to perform future services (the “true retainer” situation) is earned by the attorney upon receipt and should not go in the trust account. A prepaid fee which the attorney and client have expressly agreed is nonrefundable is likewise earned upon receipt and so should not be held in trust but should be deposited into the attorney’s general account. Nevertheless, the lawyer may later be obligated to refund part, or possibly all of it, if the legal services are not performed, in which case the fee may be found to be excessive, but the money is the lawyer’s upon receipt of it. On the other hand, the prepaid fee may be given to the attorney with the understanding that it is a deposit securing a fee that is yet to be earned. Such money does not belong to the lawyer, and should be held in trust until it has been earned by performance of the agreed-upon services. The Committee believes that there should exist a presumption that prepaid fees are an advance deposit against fees for work that is yet to be performed. Certainly, this is the assumption that the typical client would make. The attorney should bear the burden of rebutting this presumption. Question 3. Must a fee that lawyer and client have agreed is a “nonrefundable fee” go in the trust account? Again, the issue is whether the funds in question are earned upon their receipt by the attorney. A fee that lawyer and client have clearly agreed (preferably in writing) is nonrefundable should be considered earned by the attorney upon receipt, even though the attorney might not yet have performed all of the contemplated services. Question 4. If an attorney-client employment contract provides for the advance payment of a “nonrefundable fee” that will be applied to the total fee finally billed to the client, is this “nonrefundable fee” to be deposited in the trust account? No. Because the payment is described as a nonrefundable fee, it appears that client and lawyer intend that the money is to be the lawyer’s regardless of what happens thereafter, even though it is anticipated that the money would ultimately be applied to the complete fee for legal services. Such a payment is not subject to refund whether or not the lawyer actually has to perform the legal services contemplated. Question 5. If a substantial nonrefundable fee is paid to the attorney and, before any services are performed by the attorney, the client dies, or discharges the attorney, or the services called for by the attorney-client employment agreement are no longer needed for some other reason, could the attorney be subject to discipline for charging a clearly excessive fee in violation of Rule 4-1.5(a) in the event of a refusal to refund any of the “nonrefundable fee?” As we stated in Opinion 76-27 [since withdrawn], the lawyer might but would not necessarily be guilty of charging an excessive fee. Again, we get into definitions of terms. We interpret the question as referring to a payment by a client to a lawyer of a sum of money designated as “nonrefundable fee,” part of which is intended to compensate the lawyer for being available but not for specific services, and part of which is intended as a present payment for legal services to be performed in the future. If the lawyer performs no legal services, obtains no benefits for the client, and has not lost other employment opportunities as a result of agreeing to represent the client, we believe the lawyer might well be guilty of charging an excessive fee if no part of it was refunded. Dealing with an abstract situation, we cannot be more precise. On the other hand, an attorney of towering reputation just by agreeing to represent a client may cause a threatened lawsuit to vanish and thereby obtain a substantial benefit for the client and be entitled to keep the entire amount paid, particularly if other employment had been lost or declined in order to represent that particular client. The Committee does not believe that, by designating a retainer as nonrefundable, a lawyer is automatically insulated from a claim that the fee is excessive. Whether or not the fee is excessive under the circumstances is governed by Rule 4-1.5 rather than use of the description “nonrefundable.” Question 6. If an attorney receives a “flat fee” that is a payment for services to be rendered as well as the costs associated with the performance of those services, does all or part of this payment go in the trust account? The entire payment should be first deposited in the trust account. Then that portion, if any, of the payment that is considered an earned fee upon receipt should promptly be withdrawn from the trust account. Any portion that does not constitute earned fees must remain in the trust account. The fact that costs are to be paid out of this “flat fee” complicates matters somewhat. As required by Rules 4-1.15(a) and 5-1.1(a), any advance of costs is to be held in trust until used to pay those costs. Therefore, the attorney must make a good faith estimate of the amount of costs to be incurred and must hold that amount in the trust account. Failure to hold the estimated costs in the trust account would result in the attorney paying the costs out of his or her own funds, which would violate Rule 4-1.8(e) (lawyer may not provide financial assistance to client, except to advance costs and expenses). Not holding the estimated costs in the trust account would also result in a commingling violation under Rule 4-1.15(a) when those funds, which should have been left in trust, are removed and commingled with the attorney’s own funds.