Use caution in transactions involving fixed fees

Published on: 
Published 1/9/06

When can a flat fee or a retainer be placed into a general account or withdrawn from a client's trust account?

Consult your engagement agreement, not the Rules of Professional Conduct. Almost anything (except unconscionable or unreasonable fees) can be negotiated and approved in the engagement letter.

If you charge a flat fee and agree that it is earned on receipt, withdrawal probably cannot be questioned. It may be better to deposit the flat fee into a client's trust account and withdraw when reaching specific events: a date certain, the filing of a complaint, the signing of a settlement or merger agreement.

Even retainer fees can be deposited into a general account if the agreement says that the retainer is not for future work but for the lawyer specifically being engaged (and thus taken off the market). In other words, there is a valid charge for not being available to others. Opinions I've seen on the subject suggest that the retainer for this purpose must be "reasonable," again as negotiated and detailed in the engagement agreement.

If you receive a retainer for future work, it would seem best to put this into your client's trust account. However, I once more suggest that the engagement agreement provide for this upon realizing a date certain or event.

When discussing flat or fixed fees, it seems to me that hours involved are irrelevant. If you compute the flat fee based on the number of hours you anticipate and discuss that with the client (suggesting that the fee will increase if actual hours exceed the estimate), that looks like hourly billing.

Traditionally, hourly-billing fees require deposit of retainers into the trust account first, then withdrawal and deposit into the general account once the fee has been earned. The real issue, I believe, is that when the fee is earned, it's yours and must be withdrawn from the client's trust account. Otherwise, it's commingling, which violates the code.

Some lawyers whom I've advised will split the fee, making part of it a non-refundable retainer and placing the balance into the trust account for withdrawal as the work is performed. I prefer this method because it makes a clear distinction between the two elements - one non-refundable and one to be paid only when earned or work is performed.

Even with the latter, I once again encourage you to specify the event or date that is the trigger for allowing you to take money from the trust account and placing it into the general account. This avoids waiting for the client to say "yes" after the fact and allows you to get the money sooner.

Finally, I recommend putting a "protest process" into the engagement agreement. Provide that if you don't receive a complaint or dispute in writing from the client within 10 business days from the date of the invoice or statement, the client is deemed to have approved the billing.

If the client protests later, you will have a prima facie reason for the transfer and the money will be in your pocket (not the trust account). Defend yourself with the client's money, not yours!

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