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When Fees Are Not Refundable

IMPORTANT NOTICE: This article is provided solely for research and archival purposes. MCLE self-study credit is no longer available. Even if you follow the instructions and submit payment you will not be granted MCLE self-study credit. Please note that low-cost MCLE is provided by the California Lawyers Association, pursuant to Business and Professions Code section 6056.

After termination, blind reliance on 'non-refundable fee' provisions can lead to discipline problems

© 2006. All rights reserved.

Ellen R. Peck

Samantha Strate!" cooed California Joan on the telephone to her longtime friend. "Why is one of California's finest State Bar prosecutors telephoning me? Am I in trouble? Was it something I wrote?"

"Not this time, Cali. I want you to join me on an MCLE panel, discussing the ethics of non-refundable fees. My experience is that lawyers rely upon non-refundable fee provisions without regard to violations of ethical rules and then suffer disciplinary liability," Samantha Strate explained.

"Sam, of course I'll be on the panel. Surely, the Office of Chief Trial Counsel does not have a position that non-refundable fees are invalid per se?" Cali asked.

"Granted, no court has ruled that non-refundable fee provisions are invalid per se," Sam acknowledged. (Vapnek et al., Cal. Practice Guide: Professional Responsibility (The Rutter Group 2004) ¶ 5:285, p. 5-38.3.) "But the use of non-refundable fees can be so fraught with peril that I think the bar should be warned about the consequences. You could help . . ."

Cali had hardly put the receiver down from Sam's call when Cali's client, family law practitioner Dan Divorce, called. "Cali! I can't take it any more! Family law clients retain me with an advance fee retainer; I do a bunch of work to get the case going; they change their minds or switch to a lawyer cousin of a friend, and demand all of the money back. If I withhold the money that I have earned, the client threatens me with a disciplinary action. I want to ask all future clients for a non-refundable fee."

"Dan, blind reliance upon 'non-refundable fee' provisions when a client requests a refund after termination of employment can lead to discipline," Cali warned. "As early as 1985, an attorney's claim that his fee was non-refundable was rejected and he was disciplined for failure to return an unearned fee. In Dixon v. State Bar (1985) 39 Cal.3d 335, 216 Cal.Rptr. 432 ("Dixon"), an attorney had an oral fee agreement for a retainer of $4,500 to represent the clients in an existing medical malpractice action. Mr. Dixon thought that 'retainer' meant that the fee was non-refundable, but the client understood that the money was for litigation expenses only.

"Before Dixon became attorney of record, his clients discharged him, claiming that he had failed to return their calls, and requested the return of their money. Dixon refused and in the subsequent disciplinary proceeding claimed to have spent almost 200 hours on the case prior to discharge, but never provided any supporting documentation or accounting of any expenses incurred or time spent. After discharge, Dixon sent the clients a fee agreement memorializing his understanding of the engagement, including his receipt of the $4,500 retainer, but the clients refused to sign it. Dixon continued to claim that the $4,500 was for a non-refundable retainer, without documentary support. (Dixon, supra, at pp. 339, 340-341.)

The California Supreme Court affirmed the State Bar's findings that Dixon attempted to charge an unconscionable fee in violation of the predecessor of CRPC 4-200(A); that he failed to render accountings to the client for the use of the $4,500 in violation of the predecessor of CRPC 4- 100(B)(3); and that he failed to return an unearned fee after discharge in violation of CRPC 3-700(D)(2). Because of his prior discipline and other factors, Dixon was disbarred. (Dixon, supra, at pp. 340-341.)

"Since the purpose of studying disciplinary cases is to learn from the mistakes of others . . ."

Dan interjected, "Dixon teaches us:

  • "First, always have any non-refundable fee provisions in writing, preferably in a written fee agreement in compliance with Business and Professions Code §§6147-6148.

  • "Two, make sure that the retainer is identified as 'non-refundable' in writing so that the client understands that it is non-refundable and that there is not a material ambiguity which would void the agreement. (See e.g., In the Matter of Van Sickle (Rev. Dept. 205) 4 Cal. State Bar Ct. Rptr. 756, 763-764.)

  • "Three, a lawyer must account to the client for any retainer paid in advance as part of the accounting requirements of CRPC 4-100(B)(3).

  • "Four, the amount of the non-refundable fee should not be unconscionable."

"That's a start," Cali went on. "There is also Matthew v. State Bar (1989) 49 Cal.3d 784, 263 Cal.Rptr. 660 ("Matthew"). In two client matters, Matthew agreed to represent clients in separate fraud matters. In each matter, his retainer agreement provided for a non-refundable retainer fee. After he failed to perform or communicate with the clients, they each fired him. After he refused to refund any portion of the fees he had received, disciplinary proceedings ensued.

"The California Supreme Court affirmed the State Bar's conclusions that Matthew had failed to return unearned fees in violation of the predecessor of CRPC 3-700(D)(2) even though they were denominated as 'non-refundable' fees. The implication in each case is that the 'non-refundable' fee was for the provision of legal services." (Matthew, at pp. 787-788, 789, 791.)

"So, Matthew teaches us that calling a fee 'non-refundable' in a written retainer agreement agreed to by a client is not enough to prevent duties to refund unearned fees, especially when the fee is for the provision of legal services and the lawyer fails to perform them," Dan said.

"What about establishing a 'minimum fee, earned on receipt' for performing legal services?"

"Let me tell you about the Matter of Fonte (Rev. Dept. 1994) 2 Cal. State Bar Ct. Rptr. 752. Fonte agreed to represent clients in a civil suit for a 'minimum' retainer fee of $5,000; he charged them $180 per hour and received more than $14,000 in legal fees. After Fonte did not send any bills or accountings for three years, the clients obtained new counsel. In the subsequent disciplinary proceeding, Fonte was charged with failing to account for the 'minimum' fee. (Fonte, at pp. 756-757.)

"He argued that he did not have to account for the minimum fee because it was a retainer and earned on receipt. The Review Department held that this fee was not 'earned on receipt.' It observed that the only fee which is earned on receipt is that paid by a client to secure an attorney's availability over a given period of time. Since the clients were paying for the legal services on the case, it was for more than Fonte's availability. Moreover, Fonte never made any particular provision to allot or set aside time specifically for the clients' case or that he turned away other business in order to proceed with their matters." (Fonte, at p. 757.)

"'Minimum' fees can be dangerous because they can confuse the client (who may interpret them as 'flat' or 'maximum' fees), leading to difficulties of enforcement. (Vapnek et al., Cal. Practice Guide: Professional Responsibility (The Rutter Group 2004) ¶ 5:289.5.)

"O.K., no minimum or earned upon receipt fees! I don't get it . . . when I negotiate a fee agreement with a new client for a new matter, the negotiation of that fee agreement is an arms-length transaction," Dan said. (Setzer v. Robinson (1962) 57 Cal.2d 213, 217, 18 Cal.Rptr. 524, 368 P.2d 124; Baron v. Mare (1975) 47 Cal.App.3d 304, 311, 120 Cal.Rptr. 675.) "Why can't I provide for a 'non-refundable fee' in a written fee agreement?"

"Because, even though such transactions are at arms-length, the resulting fee agreement must be fair, reasonable and fully explained to the client. (Severson & Werson v. Bolin-ger (1991) 235 Cal.App.3d 1569, 172, 1 Cal.Rptr.2d 531; Alderman v. Hamilton (1988) 205 Cal.App.3d 1033, 1037, 252 Cal.Rptr. 845.) Moreover, you are prohibited by CRPC 4-200(A) from entering into an agreement for, charging or collecting an illegal or unconscionable fee. If your fee provision is inconsistent with law, it may be deemed to be illegal," Cali countered.

She went on, "CRPC 3-700(D)(2) requires that when any lawyer's employment is terminated, the lawyer must '[p]romptly refund any part of a fee paid in advance that has not been earned. This provision is not applicable to a true retainer fee which is paid solely for the purpose of ensuring the availability of the member for the matter.'" (Emp. added.)

"All right," Dan begrudgingly agreed. "So every type of advance fee, except a true retainer, must be refunded. Maybe we could get around refunding the fee by using a true or classic retainer. What is that?"

Cali answered, "A true or classic retainer is a sum of money paid by a client to secure an attorney's availability over a given period of time or for a particular matter. The fee is earned by the lawyer when paid, since the attorney is entitled to the money regardless of whether the lawyer actually performs any services for the client. If any part of funds are paid for or applied to fees for the performance of legal services, it loses its character as a true or classic retainer and is converted to an advance fee or security deposit." (Baranowski v. State Bar (1979) 24 Cal.3d 153, 164, fn. 4; In the Matter of Fonte (Review Dept. 1994) 2 Cal. State Bar Ct. Rptr. 752, 757.)

"We could have all of my non-refundable fee language replaced by the term 'true or classic' retainer," Dan sounded hopeful.

"Just calling a fee payment a 'true' or 'nonrefundable' retainer does not make it one. The fee's real purpose and how the parties treat the fees are determinative of whether any unearned portion thereof must be returned to the client upon termination of the attorney's services," Cali cautioned. Matter of Lais (Rev.Dept. 1998) 3 Cal. State Bar Ct. Rptr. 907, 923 ("Lais").

"Clients retained Mr. Lais to file a child support action. He and his new clients entered into an agreement that provided, 'Client agrees to pay to [Lais] for [his] services a fixed, non-refundable retaining fee of $2,750 and a sum equal to $275 per hour after the first 10 hours of work. This fixed, non-refundable retaining fee is paid to [Lais] for the purpose of assuring the availability of [Lais] in this matter.' Five days after entering into this agreement and paying the fee, the clients changed their minds, withdrew the authority to file the action and requested the return of their fees. Lais, who had done no work in the interim, refused to refund any fees and disciplinary proceedings ensued." (Lais, at pp. 920-921.)

"The Review Department held that the lawyer violated CRPC 3-700(D)(2) because the fee was not a 'true' retainer. The court reasoned that (1) the characterization of the $2,750 as a "non-refundable retaining fee" was not determinative; (2) the fee was not earned when paid, but was for the initial 10 hours of Lais' legal services; (3) the agreement did not specify the time period during which Lais would be available to them; and (4) Lais did not set aside a particular period of time to devote to the client's matter." (Lais, at pp. 922-923.)

"Cali, I could charge a true retainer for being available to my clients, and perform no legal services. I am concerned that no client will pay it." Dan complained. "What can I do?"

Tune in next month to find out whether Cali can find any solutions to Dan's non-refundable fee blues.

Ellen R. Peck, a former State Bar Court judge, is a sole practitioner in Escondido and a co-author of The Rutter Group California Practice Guide: Professional Responsibility.


  • This self-study activity has been approved for Minimum Continuing Legal Education credit by the State Bar of California in the amount of one hour of legal ethics.

  • The State Bar of California certifies that this activity conforms to the standards for approved education activities prescribed by the rules and regulations of the State Bar of California governing minimum continuing legal education.


Indicate whether the following statements are true or false after reading the MCLE article on non-refundable fees. Use the answer form provided to send the test, along with a $25 processing fee, to the State Bar. If you do not receive your certificate within four to six weeks, call 415-538-2504.

  1. Non-refundable fee provisions are invalid per se.
  2. Client orally agrees to pay lawyer a 'non-refundable fee.' After termination, the lawyer refuses to refund the unearned portion. Lawyer may be subject to discipline.
  3. A lawyer's inability to document that she earned a non-refundable fee is a factor in determining discipline for violating CRPC 3-700(D)(2).
  4. After termination, a lawyer does not have to render an accounting for the use of a "non-refundable" fee.
  5. The failure to state that a retainer is 'non-refundable' in writing is completely unnecessary.
  6. The amount of the non-refundable fee cannot be unconscionable.
  7. Client agrees in writing to pay lawyer a 'non-refundable fee.' After termination, the lawyer refuses to refund the unearned portion. Lawyer may be subject to discipline.
  8. A written agreement between lawyer and client that fees are "non-refundable" does not make fees paid in advance "non-refundable."
  9. A written agreement between lawyer and client to a 'minimum' fee, 'earned on receipt,' does not require the lawyer to refund unearned fees after termination.
  10. Lawyers are not required to account for advanced fees.
  11. Use of the term 'minimum' fee is not subject to more than one interpretation.
  12. Generally, a lawyer's negotiation of a fee agreement with a new client for a new matter is an arms-length transaction.
  13. Lawyer-client fee agreements are never required to be fair or reasonable.
  14. A client can agree to pay a lawyer an unconscionable fee.
  15. After termination, a lawyer may refund an unearned advance fee only after fee arbitration.
  16. After termination, a lawyer must refund an unearned advance fee without exception.
  17. A classic retainer is a sum of money paid by a client to secure an attorney's availability over a given period of time.
  18. A true retainer is earned by the lawyer when paid even if the lawyer performs no legal services for the client.
  19. If any part of a true retainer is applied to fees for the performance of legal services, it still is a true retainer.
  20. A 'true' 'nonrefundable' retainer is created by the client's and lawyer's agreement labeling the fee's character in writing.
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