Opinions of the General Counsel, 0317 ALBJ, 78 The Alabama Lawyer 168 (2017)
Lawyers’ Trust Account Obligations with Regard to Retainers and Set Fees
QUESTION:
Should a flat fee that is received prior to the conclusion of representation be deposited into an attorney’s IOLTA account or is it earned at the time of receipt?
ANSWER:
In Alabama, a flat fee that is received prior to the conclusion of the representation or prior to the performance of services must be deposited in the attorney’s IOLTA account until the fee is actually earned.
DISCUSSION:
In RO 1992-17, the Disciplinary Commission previously stated that: [T]he client has the absolute right to terminate the services of his or her lawyer, with or without cause, and to retain another lawyer of their choice. This right would be substantially limited if the client was required to pay the full amount of the agreed-on fee without the services being performed. In Gaines, Gaines and Gaines v. Hare, Wynn, 554 So.2d 445 (Ala.Civ.App. 1989), the Alabama Court of Civil Appeals stated:
“The rule in Alabama is that an attorney discharged without cause or otherwise prevented from full performance is entitled to be reasonably compensated only for services rendered before such discharge. Mall v. Gunter, 157 Ala. 375, 47 So.2d 144 (1908).”
Likewise, in RO 1993-21, the Disciplinary Commission held that an attorney “may not characterize a fee as non-refundable or use other language in a fee agreement that suggests that any fee paid before services are rendered is not subject to refund or adjustment.”
As in RO 1993-21, the commission noted that “non-refundable fee language is objectionable because it may chill a client from exercising his or her right to discharge his or her lawyer and, thus, force the client to proceed with a lawyer that the client no longer has confidence in.” As such, the overriding principle of RO 1992-17 and RO 1993-21 is that a non-refundable fee would impinge on the right of the client to change lawyers at any time. Allowing an attorney to keep a fee, regardless of whether any service has been performed for the client, would certainly restrict the ability of a client to terminate the attorney and seek new counsel. In reaching this conclusion, the commission also made clear that the rule applied to all arrangements where fees are paid in advance of legal services being rendered. As such, all retainers...
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