Prepaid legal fees and refundability of those fees was the subject of American Bar Association Formal Opinion 505. Yesterday I did a blog post about that and noted it tracked the opinion of the Oklahoma Supreme Court released in Oklahoma Bar Association v Weigel, 2014 OK 4 (2014).
This is probably a good time to note that this post contains only my personal opinions and represents no policy or view of my employer.
I note the writers of Opinion 505 had to struggle with acknowledging the tension between a somewhat archaic advance form of attorney fee payment known as the general retainer or availability retainer and the thrust of the opinion that unearned fees must be held in the trust account.
This is because there is precedent noting that availability retainers, a fee where the trust account deposit requirement is waved because the fee is earned in its entirety just based on the lawyer’s promise to be available to the client for the stated time, usually a month. The opinion notes that these types of fee arrangements have largely disappeared and are quite rare. This is largely because, as the opinion notes, “the fact that very few clients would actually need or benefit from one…” (page 3)
So why are they even discussed when they are rarely used and are objectively a bad arrangement for most clients? As a review of the case law demonstrates, lawyers charged with a legal ethics violation based on not placing client advances in their trust account will, with some quick research, determine these general or availability retainers are an exception to the general rule. So, it is easy for them to argue the retainer fee in their case must be one of the type that is allowed. It is generally not a winning argument. As noted in the opinion, these rare arrangements are often a poor arrangement for individual consumers and significant disclosure would be required to effectuate one. Sliding the word “nonrefundable” before retainer in the attorney-client agreement, as the opinion (and the Oklahoma Supreme Court) states, would not serve to create an availability retainer.
While I hesitate to quibble with legal scholars and some case law, let me also suggest that perhaps the historical use of availability retainers wasn’t really about availability as much as they were about conflicts of interest. Availability was the reasoning that could be used to approve a practice that at the time was much more common. The practice pre-dated many of the modern ethics rules and some aspects of lawyer regulation.
Suppose Big Bank has one law firm in their region that they used, and the bankers were very pleased with the firm’s competency and service level. They would not want this law firm either advising their competition or being on the opposite side of litigation from them. So, the simple solution was to keep the law firm on retainer. Availability was included, but it was perhaps not the primary motivation. No one at the time would have immediately noted any ethics issue because it was a sophisticated banking client making an arrangement with a sophisticated law firm and it was easy to see how the client benefitted, even in the months where they had little or no contact with “their” law firm. To me that seems more logical than paying the client a large retainer monthly just so someone will answer the client’s phone call at 3:00 a.m.
Now let’s move on to another area where arguably the logic of the availability retainer should apply – subscription legal services. Opinion 505 didn’t mention subscription legal services, likely because they are a relatively new innovation that is not in wide usage. But I am aware of law firms with a subscription offering, where clients can log in for resources to download, get answers to basic questions, how to’s and other resources.
So, assuming the subscription is monthly, can the law firm put all their subscription legal services revenue in their operating account on the first of the month or must it be held in the trust account until the end of the month? Assuming the law firm has made the arrangement very clear to the client and the method of unsubscribing is clear and easy, I predict it would be deemed earned on the first. First, unlike the term retainer, which was criticized in Opinion 505 and not all lawyers agree on its meaning, the term subscription is well understood by the general public. If you don’t want to pay for your subscription next month, simply cancel it this month. There is also the aspect that these services are usually targeted to assist people of modest means and have modest subscription fees. I looked at one such service based in Colorado that charged $24.95 per month and had a 30-day money back guarantee (presumably for the first month). That looks much different than the non-refundable retainer scenario where a lawyer who received a retainer that was prepayment for ten or more billable hours could retain the entire retainer even if the lawyer’s services were terminated after only working two hours on a matter.
It is hard to say when or if there will be a formal ethics opinion by any bar association or judicial body relating to subscription services. But these services may be one aspect of improving access to justice for many citizens, so I wanted to discuss them.