As I progress through law school, I’m thinking about practicing and getting paid.
The notion of a retainer payment is great because it mitigates the risk of getting stiffed or having to chase down money. However, sometimes business concludes before earning all the retainer monies; maybe by settlement; maybe the client changed their mind; or maybe the attorney gets fired. California Rules of Professional Conduct, Rule 3-700(D)(2) says that attorneys can’t keep money that they haven’t earned at the end of employment. One might be tempted to say the retainer was ‘nonrefundable’ and keep the money anyway. However, the court will examine the intent and functions of monies, not how they are labeled.
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In re Montgomery Drilling Co. (1990) 121 B.R. 32, 37-8. T & R Foods v. Rose (1996) 47 Cal.App.4th Supp. 1, 7 enumerates three different types of retainers, one of which is to ensure the attorney’s availability, and the other two are payments for future work that are then drawn down as work is completed.
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The first one, called a “true” or “classic” retainer, is a payment to ensure that an attorney will be available, and reflects consideration for the attorney declining other work that would prevent them from performing if required. A true retainer is earned whether or not any work was done and is essentially an option contract. Banning Ranch Conservancy v. Superior Court (2011) 193 Cal.App.4th 903, 917.
The second type is a “security retainer” whereby the client maintains ownership of the funds until the attorney works and earns the fee.
The third is an “advanced payment” wherein the client advances funds for some or all of the expected work and ownership of the funds is intended to transfer to the attorney at the time of payment; however, under Rule 3-700(D)(2), the retainer funds must retain an ownership identity with the client until earned.
Most frequently, the client agrees to a security or an advanced payment retainer where payment for services is drawn from the monies held in trust. Here’s the kicker—only the true retainer is non-refundable. Unearned funds from either a security or advanced payment retainer must be refunded at the end of the work.
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Two ways to show that a retainer is non-refundable are (1) written informed consent by the client and (2) appropriate billing records. The consent should set forth distinct payment structures, one for the attorney’s availability and one for the services rendered. The bills should show that the non-refundable retainer was solely for ensuring availability and was never drawn down for completed work. There is no connection at all between a classic retainer and fees that the client incurs. In re Caesars Entertainment Operating Co. (2015) 561 B.R. 420, 437. Any completed work should be billed in a separate manner.
About the author:
Shawn McCall has been and continues to be a forensic psychologist, and he is pursuing a legal career to develop a deeper understanding of the law. He is currently a second-year law student at Golden Gate University School of Law.
Source: https://tholansonnha.com
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