The Ethics Committee of the Florida Bar has brought clarity to the method of determining “to which bank account should monies be directed, when provided by a client to their attorney”.
In many states, funds are often subject to specific labels, for example ‘true retainer’, ‘advance payment’ & ‘flat fee’. Such terms can mislead, so the bar promotes an approach based on examining the facts and circumstances and allowing a proper analysis of the true nature of the funds.
This article explores this topic in detail.
A fee to secure services
A client may seek to pay a fee to an attorney to secure their services. This fee is earned upon payment, as it is not a fee for the provision of any specific legal work. It is a retention fee – an agreement that the attorney will work solely for that client and not for any other client who may seek a retainer. At the time of payment, it is deemed to be earned and thus cannot be considered trust monies. Placing such a sum into trust would be considered commingling – mixing the attorney’s own funds with those of their clients (in excess of nominal amounts to cover bank charges).
Such a fee can be properly described as a true retainer. It may still be refundable from an attorney’s office account to return to their client. For example, if the attorney failed to make themselves solely available for that client. If a true retainer fee is paid and further advanced costs are also included in the remittance, the entire sum must be paid into the trust account and portion held to be the true retainer immediately transferred to the office account.
Attorneys often have need to arrange the disbursement of expenses on behalf of their clients. If an outlay is foreseen and monies requested, the question of whether to place into office or trust hinges on whether the outlay has been paid at time of receipt of funds. If the outlay has been paid, the reimbursement from the client must be place against the attorney’s office account. If the outlay remains unpaid, the receipt must be placed in trust and those same funds may then be used to fund the outlay.
The key issue is at what point is the fee earned. If earned on receipt (as is the true retainer) it must be placed into the office account. If a fee is agreed to be non-refundable yet the attorney has not performed any work, the fee can be held to be earned and placed into office. An obligation to refund part of the fee may still arise later. However a prepaid fee that is a deposit securing further fees has not been earned and cannot be held to be non-refundable.
If an attorney accepts a non-refundable pre-paid fee and deposits to their office account (as they would be permitted to do), the fee can still be later deemed ‘excessive’ if the work for which it is paid is not preformed. If the client passes away or discharges the attorney before work is performed, the attorney is obligated to return the fee. Retaining the fee, despite agreeing it was non-refundable, results in an excessive fee.
The facts and circumstances of the receipt of client funds inform the decision of which bank account they may be applied to. The key issue rests upon whether the remittance has been earned at the precise point received. If earned, it is clearly the attorney’s own money upon receipt. A fee can be earned after receipt - avoiding commingling means an attorney is required to remove those funds from trust immediately.