SC Lawyer, September 2006, #5. Understanding retainer fees.

• Author: By John Freeman

South Carolina Lawyer

Ethics Columns.

SC Lawyer, September 2006, #5.

Understanding retainer fees

South Carolina LawyerSeptember 2006Understanding retainer feesBy John FreemanMoney is tight these days. Adjusted for inflation, the average South Carolina wage-earner's income dropped last year. The ever-present need for legal fee charges to be fair, fully disclosed and properly recorded takes on added importance when times are not flush and bills receive extra scrutiny. This issue's ethics column presents a tune-up lesson on fees received in advance from clients.

Lawyers receive advances for different reasons. Often clients are asked to advance money to pay costs. These advances need to be deposited in the lawyer's trust account with disbursements made as expenses come in. Likewise, if the advance payment is intended to cover, in whole or in part, future payments for the lawyer's fees, the money must be deposited into the lawyer's trust account, to be disbursed as services are performed and fees are earned. This type of advance payment from a law client is sometimes called a "special retainer." If the fee ultimately earned turns out to be less than the special retainer, the excess must be refunded to the client. See Rule of Professional Conduct 1.15.

Another form of fee advance is the so-called "general retainer." General retainers commonly arise in one of two ways: the lawyer agrees to work on a case, or the lawyer agrees to be available to handle legal matters for the client for a specific period of time. General retainers are more hazardous to your professional health, for they present more ways for lawyers to get into trouble.

One way a lawyer can get into trouble over general retainers is to fail to clearly spell out with the client the nature of their agreement. Guess who gets the benefit of the doubt if there is a dispute? The client, of course: "A fee payment that does not cover services already rendered and that is not otherwise identified is presumed to be a deposit against future services." Restatement (Third) of the Law Governing Lawyers§ 38, cmt. g (2000). "Clients who pay a fee without receiving an explanation ordinarily will assume they are paying for services, not readiness." Id.

Another problem area arises where, as the general retainer functions as a form of "nonrefundable retainer," it must be...