Question

I heard that some lawyers who charge a minimum fee for representation are also claiming that the fee is nonrefundable. Is that permissible?

Answer

Lawyers certainly are allowed to charge a minimum fee or a flat fee for the services that they provide to clients. Many lawyers have changed to a flat fee for representation to give some certainty to clients regarding the cost of representation, but that does not mean that the lawyer automatically earns the minimum fee or flat fee at the start of the representation. Many lawyers also use the new procedures in the trust account rule, which allow a lawyer to place the minimum or flat fee in the lawyer’s business account provided the lawyer follows several requirements, including agreeing with the client to arbitrate any fee dispute. This article will focus, however, on the minimum-fee issue only.

Lawyers are allowed to charge a minimum or flat fee for representation. Normally, the flat fee would cover all agreed-on aspects of the representation but would not cover any costs that might, but will not necessarily, be incurred, depending on the agreement with the client. The lawyer normally communicates the amount of the flat fee to the client either in a written fee agreement or a written letter. Whichever document is used should clearly describe the nature and scope of the representation so there is no confusion over exactly which legal services will be provided for the flat fee.

It is clear, however, that a minimum fee for representation cannot be deemed nonrefundable in the sense that the lawyer would never have to return the fee or a portion of the fee to the client regardless of how the representation ultimately is handled. Difficulties arise when the representation is terminated (usually by the client) before all anticipated services have been provided. When this occurs, the lawyer may be obligated to return a portion of the minimum or flat fee, because the lawyer has not provided all the services that were originally discussed and covered under the fee communication.

In these instances, a question arises whether the minimum fee charged by the attorney for the representation comports with SCR 20:1.5 of the Wisconsin Rules of Professional Conduct, under which the fee charged by the lawyer must be reasonable. Several factors are to be considered in determining reasonableness, including the following:

• The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
• The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
• The fee customarily charged in the locality for similar legal services;
• The amount involved and the results obtained;
• The time limits imposed by the client or by the circumstances;
• The nature and length of the professional relationship with the client;
• The experience, reputation, and ability of the lawyer or lawyers performing the services; and
• Whether the fee is fixed or contingent.

If not all the services contemplated in the representation are provided, the client has a legal basis for expecting the refund of a portion of the fee charged by the lawyer. This is why it is inappropriate to consider a minimum or flat fee to be a nonrefundable fee. A recent decision by the Supreme Court of North Dakota supports this conclusion. In Disciplinary Board of Supreme Court v. Hoffman, 203 N.D. 137 (2013), a disciplinary proceeding against a lawyer, the court held the following:

“Courts have discussed that while nonrefundable retainers may be permitted, there is also a general reasonableness standard, including a requirement that the total fee charged must be ‘reasonable.’ See Kentucky Bar Ass’n v. Earhart, 360 S.W.3d 241, 244 (Ky. 2012). Thus, even when a fee agreement is designated ‘nonrefundable’ and is reasonable at the time of entering the agreement, an attorney may be required to refund any advanced fee that has not been earned under Rule 1.16, incorporating the concept that the ‘total’ fee must still be reasonable. Id.

‘In determining the “reasonableness” of a lawyer’s fee, the factors mentioned in Rule 1.5(a) apply, and the lawyer has the responsibility to prove the “reasonableness” of the fee applying principles of equity and fairness. Although “reasonableness” at the time of contracting is relevant, consideration is also to be given to whether events occurred after the fee agreement was made which rendered the fee agreement fair at the time it was entered into, but unfair at the time of enforcement. See McKenzie Constr., Inc. v. Maynard, 758 F.2d 97 (3rd Cir. 1985). Hence, the client may be entitled to a return of some portion of the ‘non-refundable’ fee retainer upon the termination of the representation, depending upon all the circumstances; that is, the “reasonableness” of the fee.’

“Earhart, 360 S.W.3d at 244. See also In re Smith. 659 N.E.2d 896, 907 (Ill. 1995) (client may discharge lawyer at any time for any reason, and a lawyer is not entitled to the full amount of fees contractually agreed to following the discharge, but is only to be compensated on a quantum meruit basis for legal services actually performed on the client’s behalf).”

In Wisconsin, lawyers should not use the word “nonrefundable” to describe fees because there are very few, if any, circumstances in which a lawyer could justify a fee being considered nonrefundable. Every situation must be evaluated on its specific circumstances, including the nature of the representation and the extent to which the representation has been provided.