Q. In divorce cases, my retainer provides that a $1,000 "engagement fee" is "non-refundable" and "earned upon receipt." This assures my client that I won't represent the other side. Must I put this fee in my trust account?
A. Unless you count the ring, your client probably didn't charge an "engagement fee" before her marriage. You shouldn't do so before her divorce.
Sorry to kill the romance, but most courts and disciplinary boards frown upon lawyers who take money without doing any actual work. Technically, the rules do not prohibit an attorney from charging an engagement or "availability fee" to bind a lawyer to represent a particular client while foreclosing that attorney from appearing on behalf of an adverse party. The practice probably started in small towns where one spouse would consult with a high-powered divorce lawyer as a pretext for precluding the other from retaining him. To deter this practice, and to ensure that the lawyer receives some compensation for passing up other clients, this made sense to several courts that condoned the practice.
Unfortunately, these decisions are often cited in opinions that punish lawyers for pocketing retainers that should have gone into escrow, or for charging unreasonable fees without providing legal services. No matter how well things are spelled out in your retainer agreement, courts rarely hold fees as "non-refundable" or "earned upon receipt."
Under Rule 1.15 of the Rules of Professional Conduct, one need not place retainers into trust if "the client gives informed consent, confirmed in writing, to a different arrangement." To get "informed consent," you must provide "adequate information and explanation about the material risks of and reasonable alternatives to the proposed course of conduct." At the very least, you must explain that funds held in an operating account are subject to greater risk, which may make it more difficult to get a refund in the event of your death, bankruptcy or other event which may impair the liquidity of your assets. In some jurisdictions, you may even need to expressly affirm the client's right to consult with other counsel before assuming such risks. In most instances, this would not be worth the trouble and increased scrutiny.
In the dictionary, "effort" and "earned" always come before "fees." When that order is reversed, and clients hand you a check up front, follow the alphabet and Rule 1.5 of the Rules of Professional Conduct, place the funds into your client trust account, and be prepared to show the effort required to earn the fee.
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