Not quite, we told you so, BUT ………
The American Bar Association has released Formal Opinion 505 titled “Fees Paid in Advance for Contemplated Services” which addresses, namely flat fees. Its opinion in short is FEES PAID IN ADVANCE (such as Flat Fees or Retainers) FOR SERVICES TO BE RENDERED IN THE FUTURE MUST BE PLACED INTO A LAWYER’S IOLTA ACCOUNT.
For those keeping track, this is contrary to a portion of the Opinion issued by the Ohio Board of Professional Conduct and Rule 1.5(d)(3) of the Ohio Rules of Professional Conduct discussing something called “earned upon receipt”.
In 2016, the Ohio Board of Professional Conduct, in Opinion 2016-1 which, in part, opined that “Under Prof.Cond.R. 1.15(c), a lawyer is required to deposit flat fees and expenses paid in advance for representation into an IOLTA account, unless designated as “earned upon receipt” or similarly, and only may withdraw the fees as they are earned or the expenses as they are incurred.“
The Board further advised that, “An “earned upon receipt” fee is a flat fee paid in advance that is deemed earned upon payment regardless of the amount of future work performed. Prof.Cond.R. 1.5, Cmt. [6A]. When a fee is denoted as “earned upon receipt,” those fees are considered the lawyer’s funds, and not the client’s funds. As a result, those fees should not be placed in the lawyer’s IOLTA account, as it is impermissible to commingle a lawyer’s own funds with those of a client.”
But, based upon the Board’s Opinion and Rule 1.5(d)(3), in order to forgo the proper accounting mechanism of utilizing the lawyer’s IOLTA, the fee agreement must also note that in the case of the representation not being complete, the client would be entitled to a refund, based upon quantum meruit value of the services performed. Using both sets of language/words in the singular Client Engagement Letter, as proposed by the Ohio Board of Professional Conduct and Rule 1.5(d)(3), are contradictory and more importantly confusing to our clients.
From the issuance of the Ohio Advisory Opinion and change to Rule 1.5(d)(3) of the Ohio Rules of Professional Conduct, we have adamantly advised that this is improper and contrary to a lawyer’s ethical obligation to use the verbiage “earned upon receipt” and “non-refundable”. It has been our position that for fees earned in advance of representation (flat fees, hourly retainer, etc) the funds must be deposited into the Lawyer’s IOLTA. Que in ABA Formal Opinion 505.
The ABA Opinion, based upon the Model Rules of Professional Conduct (and not O.R.P.C) holds that,
“ … a fee paid to a lawyer in advance for services to be rendered in the future must be placed in a client trust account and may be withdrawn only as earned by the performance of the contemplated services. This protects client funds and promotes client access to legal services in the event the representation terminates before all contemplated services have been rendered. All fees must be reasonable, and unearned fees must be returned to the client. Therefore, it is not accurate to label a fee “nonrefundable” before it actually has been earned, and labels do not dictate whether a fee has been earned.
Cleary this the correct analysis and appropriate method to be followed by Attorneys and law firms. Outside of the basis for the ABA’s Opinion, there are a number of benefits for lawyers to be using their IOLTA for advanced retainers and fees, including, but not limited to, being able to refund a client money when the representation, for some reason is not complete. In our practice, having represented hundreds of lawyers in ethical inquiries and grievances, we see that once the monies are placed into a lawyer’s operating account, it is, usually, spent.
Our advice and counsel have always been in the interest of lawyers and our experience in representing lawyers before the Ohio Disciplinary Process. Should you have any questions regarding this post or the Ohio Rules of Professional Conduct please contact our office.