Lawyer Disbarred for Failure to Refund "Nonrefundable" Fees

• Pages: 8-8
• Date: 01 April 2023
• Author: Mark A. Flores
• Subject Matter: Civil Law

n attorney who spent a cli-

ent’s advance fees pursuant

to an “earned on receipt”

fee agreement was dis-

barred when he failed

to complete the work and did not

refund the unused fees. ABA Litigation

Section leaders counsel practitioners

to carefully consider the risks and

inherent temptations when holding

client money in an operating account

before earning the fees.

In In re Long, the respondent attor-

ney had limited f‌inancial resources

and for that reason entered into an

“earned on receipt” or “nonrefundable”

fee agreement with multiple clients.

That allowed him to access client funds

before performing the agreed-upon

work. Oregon Rule of Professional

Conduct 1.5(c)(3) permits these types

of fee arrangements so long as there

is a signed written agreement explain-

ing that (1) the advance fees will not

be placed into a trust account, and (2)

that the client can terminate the attor-

ney at any time, and “may be entitled

to a refund of all or part of the fee if

the fee for which the services was paid

are not completed.” Otherwise, under

Rule 1.15-1(a), advance fees generally

must be kept separately in the lawyer’s

trust account and may be transferred

to the lawyer only after the promised

work is performed.

In this case, the attorney used the

advance fees to pay his personal and

business expenses. Due to personal

issues, he did not provide his clients

with the agreed-upon legal services.

When the attorney’s clients terminated

him, he lacked the funds to return his

clients’ money. Based on that conduct,

a trial panel of the Oregon State Bar

Disciplinary Board concluded that dis-

barment was appropriate. The attor-

ney appealed to the Oregon Supreme

Court.

On appeal, the court explained that

while the fee arrangement “left respon-

dent’s clients vulnerable” by “shift[ing]

Lawyer Disbarred for Failure to

Refund “Nonrefundable” Fees

the risk of loss to the client,” the attor-

ney’s handling of the advance fees did

not violate any ethical rules. The court

noted that Rule 1.5(c)(3) permits such

fee arrangements and that the attorney

had complied with the rule’s require-

ments by entering into a written fee

agreement, designating the fees as

“earned on receipt,” and billing against

the advance.

However, the court agreed that the

attorney’s failure to return unearned

fees in multiple matters violated Rule

1.5(a), which prohibits charging exces-

sive fees, and Rule 1.16(d), which requires

“refunding any advance payment of fee

or expense that has not been earned or

incurred” when a client terminates his or

her lawyer’s representation.

To determine whether disbarment

was appropriate, the court relied on the

ABA’s Standards for Imposing Lawyer

Sanctions “to determine a preliminary

sanction by considering the ethical

duties violated, respondent’s mental

state at the time of the misconduct, and

the potential or actual injury caused by

respondent’s misconduct.” It noted that

the attorney had committed 40 viola-

tions in 14 matters “that involved failing

to refund unearned fees, collecting illegal

fees, failing to communicate with clients,

neglecting client matters, and failing to

cooperate with the Bar’s investigation

into that conduct,” as well as four viola-

tions related to his intentional conver-

sion of client funds. The court further

observed that the clients had not only

suered f‌inancial injury and emotional

distress, but that many had also gone

without legal representation because

they could not hire new attorneys with-

out the return of the advance funds.

Additionally, the court determined

that “the aggravating circumstances

substantially outweigh[ed] the miti-

gating circumstances” as the attor-

ney “repeatedly put his own interests

ahead of his clients, to their f‌inancial

and emotional detriment.” It also stated

that the attorney’s “fail[ure] to fully

By Mark A. Flores , Litigation News As sociate Editor

acknowledge the harm he has caused

to his clients and to the profession . . .

demonstrates respondent’s unf‌itness to

represent future clients.” For those rea-

sons, the court armed the sanction of

disbarment.

Litigation Section leaders believe

that while “earned on receipt” fee

agreements provide f‌lexibility, attor-

neys must also ensure the work gets

done. “That’s where lawyers get into

trouble,” says David Seserman, Denver,

CO, cochair of the Section’s Solo &

Small Firm Committee. “When they

have fees and they take them prema-

turely, that is where you start having

ethical problems.”

“If you hire a painter to paint a

house, you expect the painter to paint

it and you will get your money back

if it does not happen,” explains John

M. Barkett, Miami, FL, cochair of the

Section’s Ethics & Professionalism

Committee. “We are a self-policing

profession, and you have to be able to

make sure you trust lawyers and the

lawyer here was going to get punished

no matter what, as no bar ever toler-

ates the mishandling of client funds,”

he adds.

SPRING 20 23 • VOL. 48 NO. 3

8 | A BA LITIGATION SECTION

ETHICS STRU GGLES IN THE LEGAL WORLD