"Non-refundable" Retainer Rule in Minnesota

Minnesota has for a number of years now allowed "non-refundable" retainers and they have been a matter of concern for the Office of the Lawyer Board of Professional Responsibility.

The MSBA Rules of Professional Conduct Committee has taken up that issue and drafted a proposal to change the rule.  You can see the full rule change on the Minnesota State Bar Association's website.

My understanding is that the intent of the rule is not a great change in previous practice.  It has always been a misnomer that there was such a thing as a "non-refundable" retainer.  All retainers, including retainers under Rule 1.5(b) for a "non-refundable" retainer have always been subject to the overarching principle in Rule 1.5 that "A lawyer shall not...collect an unreasonable fee...."  Thus regardless of the "non-refundable" language in a retainer agreement if the services provided would make the fee "unreasonable," there must be a refund.

The classic example is the criminal law case where the client signs a "non-refundable" retainer agreement and then decides the following day to hire a different lawyer.  Since no (or little) work has been done on behalf of the client it would be unreasonable and thus a violation of Rule 1.5(a) to retain that fee.  That is a far cry from hiring a lawyer with the reputation and clout to get a quick resolution of the matter when that is the client's intention.  The work has been done for the client and the client was well served.  The problem, of course, is the vast gray area in between - but that has always been the case and a fee generally is going to have to be patently unreasonable before the OLBPR to step in and declare it a violation of Rule 1.5(a).

It strikes me that with continued (and understandable) pressure from clients for more certain billing practices - i.e. moving away from hourly billing - that there will more rather than less flat fee billing in lawyers' futures.  The proposed rule change, as I understand it, is meant to make it abundantly clear that flat fees are going to be ultimately judges by the "reasonable fee" standard that has always been present in the rule.  Again, I don't see this as a huge change since Rule 1.5(a) has always been the trump card in the attorneys' fees deck.

- Peter H. Berge

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What ever happened to contract rights?
written by rjon robins, February 19, 2010

Another classic example (and one I've actually seen in real life) is the case where the client hires the lawyer to represent him in a divorce. Before the lawyer has a chance to do anything but listen to the client explain where he has been hiding all his assets the client reconciles. Lawyer refunds several thousand dollar "non-refundable" fee.

Fast forward a few years. A different client comes in wants to sue crooked business partner who has been embezzling assets from the company. New client has plenty of cash to pay the bill and plenty of motivation too. Plus the lawyer who was one of my Members came highly recommended. Slam dunk engagement right? Wrong!

Of course you can guess who the alleged embezzler is can't you? That's right! The old on-again/off-again divorce client who had previously outlined all his favorite hiding places for his assets. Unfortunately though as we all know my Member had to decline the representation because of a conflict of interest. A representation I might add which the lawyer who my Member did refer the would-be client to later told us he ended up earning something like $40,000 in legal fees over a relatively short period of time from a very grateful client.

OK Contracts 101

Offer, acceptance & consideration.

Offer: Please represent me.

Acceptance: I will agree to represent you.

Consideration: Non-refundable fee from the client & permanent waiver of right to ever represent anyone with an adverse position to you for the rest of my life.

Any questions?

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