Distinguished by RI-10
September 2, 1983
A lawyer who charges a "non-refundable retainer" to accept a case must, if discharged, return the unearned portion of the retainer.
A lawyer accepting a personal injury case on a contingency basis should not insure against loss of compensation in the event litigation is unsuccessful by requiring the client to pay a portion of legal fees in advance.
References: MCPR DR 2-106(B)(8), DR 2-110(A)(3) and (B); CI-548; ABA i1317, ABA i988.
A lawyer representing a client in a personal injury matter proposes to charge $1,000 in advance. The lawyer retains this money as a fee if no recovery is obtained, and the money is applied toward the attorney's fee if recovery is secured. The lawyer asks whether the unearned portion of the "non-refundable retainer" may be retained if the lawyer is discharged, and whether the client may be required to reimburse the lawyer for advanced expenses regardless of outcome.
Failing to return the retainer is improper. MCPR DR 2-110(B) requires a lawyer who has been discharged by a client to withdraw from representation. DR 2-110(A)(3) states:
"A lawyer who withdraws from employment shall promptly return any part of a fee paid in advance that has not been earned."
The purpose of the proposed agreement is to mitigate the risk to a lawyer in a personal injury case. GCR 928 does not require a lawyer to accept only a contingency fee in a personal injury case; the rule specifically preserves the lawyer's choice of compensation. Nevertheless, such practices, while not proscribed by ethics rules, are viewed with caution and discouraged.
A lawyer may never enter into an agreement for, charge, or collect a "clearly excessive fee" under any circumstances, according to MCPR DR 2-106 and CI-548. The proposed agreement would violate the rule if an initial and minimal inquiry revealed that the client has no cause of action and the case was dropped; or if the client's case were dismissed by a court before the lawyer had performed services justifying the fee. Further, the proposed fee arrangement is unwise, even though this problem could be avoided by conditioning the lawyer's retention on the fee, or a portion of it, upon an hourly rate or other factors justifying a reasonable fee.
The lawyer proposes to insure against loss of compensation or a portion of it should the litigation be unsuccessful. Regarding a proposal of greater complexity but similar intent, ABA i1317 states:
"Since, under the arrangement which you propose, the lawyer is insuring himself against loss of compensation if the litigation is unsuccessful, we think this fact should be disclosed to the client, and may have a bearing upon the reasonableness of the contingent fee. Even if there is no violation of DR 2-106(B)(8), the arrangement is more commercial and less professional than that suggested in the Ethical Considerations quoted. Accordingly, we would not encourage the program suggested . . . ."
ABA i998 states:
"We think it is unethical to require the client to agree that the retainer paid will be kept by the lawyer under all circumstances. Undoubtedly in most instances the retainer will be earned but the retainer should only be kept if it is earned. A retainer is an advance payment in connection with fees and not a payment unrelated to fees."
Contingency fees in civil cases are considered an exception to the general rule that prohibits an attorney from acquiring a proprietary interest in the litigation on which the lawyer represents a client. The exception is considered appropriate to expand the availability of legal services to those who may not otherwise be able to afford them. The proposed agreement runs contrary to that purpose. While the prospective client is always free to seek another lawyer, many will not. Such persons would therefore either pay a fee that they cannot afford or abandon a worthy cause.
While the proposed agreement is not unethical, similar arrangements are disfavored, and it therefore should not be utilized.