MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2007-11
Retaining Portion of Fixed Fee Retainer as Fee
In your request, you offer the following scenario and related questions:
- Attorney represents a Client regarding a pending bankruptcy.
- Client paid a total of $700.00 into the firm to be applied toward the fixed fee service. $200.00 of that was to pay the cost of filing fees.
- After a follow up interview, Client decides not to file for bankruptcy and fails to reply to the attorney’s inquiries.
- The Attorney ceases following up with the client and closes Client’s file.
- Three years later, the Client contacts the Attorney and requests a refund of the entire retainer.
You have asked whether it is ethical to keep $500.001 of the prepaid fee based upon the time and effort you have spent upon the case. The Committee concludes that under the circumstances you may retain the portion of the fee that has reasonably been earned, subject to the concerns raised by the Committee.
Effective July 1, 2005, the Court of Appeals of Maryland adopted the latest version of the Maryland Lawyers’ Rules of Professional Conduct (“MLRPC”). MLRPC 1.16(d), sets forth the rule regarding the safekeeping and return of advance payments. That rule provided as follows:
Rule 1.16. Declining or Terminating Representation
(d) Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client’s interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee or expense that has not been earned or incurred. The lawyer may retain papers relating to the client to the extent permitted by other law.
Under Maryland law, a retainer paid in advance for legal services to be performed remains the client’s property until it is earned by performance of legal services, and must be segregated in a separate account and may not be drawn down by use by the attorney until it is earned. Md. Business Occ. And Prof. Code Ann § 10-301(d). Further, it is professional misconduct to retain unearned attorney’s fees both when a client terminates the representation, see Attorney Girevance Com’n v. Blum, 373 Md. 275, 818 A.2d 219 (2003), and when an attorney abandons his representation of the client, see Attorney Grievance Com’n v. Velasquez, 380 Md. 651, 846 A.2d 422 (2004).
While lawyers have a duty to return any unearned fees to a client, courts have held that an attorney may recover the reasonable value of the services he provided up until the date of discharge or withdrawal. Comment [4] of Rule 1.5 states that “[l]awyers often receive funds from which the lawyer’s fee will be paid. The lawyer is not required to remit the client funds that the lawyer reasonably believes represents fees owed.” MLRPC 1.15 Comment [4].
In Somuah v. Flachs, the Court of Appeals held that “[w]here a client terminates an attorney-client relationship without any cause, or an attorney terminates the relationship with cause, the attorney may be entitled to immediate quantum meruit recovery from the client, that is, the reasonable value of the legal services rendered prior to the attorney’s discharge.” Somuah v. Flachs, 352 Md. 241, 721 A.2d 680 (1998). The Court found that this adherence to the quantum meruit principle of contract law “acknowledges the attorney’s right to fair compensation for work performed”. Id.
Of course, any fee charged must be reasonable. MLRPC 1.5(a) states that “[a] lawyer shall not make an agreement for, charge, or collect an unreasonable fee for an unreasonable amount of expenses.” Among the tests used to judge the proper fee to be allowed for legal services are: time and labor involved, novelty and difficulty of questions involved, skill requisite properly to conduct the cause, customary charges of Bar for similar services, amount involved in controversy and benefits resulting to client from the services. See In re Family Sav. & Home Loan Associations, 246 Md. 219, 228 A.2d 233 (1967).
Your letter indicates that you completed the initial steps to go forward with the bankruptcy and held a follow-up interview with the client. When the client did not complete the supplied worksheets, the attorney attempted to contact her to determine her intent and progress. In a bankruptcy matter, the court has held that a “prepetition retainer paid to debtor’s counsel is for prepetition services and costs that were earned prepetition, application of retainer to prepetition services for which retainer was paid is appropriate.” In re Printing Dimensions, Inc., 153 B.R. 715 (Bankr. D. Md. 1993). Therefore, the prepetition retainer may be kept as a fee if it was, in fact, earned.
In this regard, the Committee has two concerns:
First, the attorney’s lack of discernable recording concerning his fee does merit comment by the Committee. The attorney indicated that the file was opened in 2003 and that he had only located notes, but had not found the closed file. The letter is unclear as to whether a written retainer agreement existed. See MLRPC 1.5(b) (scope of representation and basis and amount of fee must be communicated to the client, preferably in writing). The letter also does not indicate whether any attorney time records exist or what the attorney’s usual hourly rate is.
The Court of Appeals has previously found that though an attorney’s $150.00 hourly rate may be reasonable by itself, the overall fee was unreasonable “given [the] impossibility in determining from [the] attorney’s filling ‘system’ whether he actually earned that amount.” Attorney Grievance Com’n v. Monfriedi, 368 Md. 373, 794 A.d 92 (2002). In addition, the Court has held that “[f]or purposes of attorney misconduct, a fee charged for which little or no work was performed is an unreasonable attorney fee.” Id.
If the amount of the fee in question was higher, greater detail would be required to justify an attorney’s action in keeping a prepaid fee. If $500.00 (or more) is the reasonable value of the legal services rendered prior to the attorney’s discharge, then it may be retained.
Second, your letter does not indicate whether the fee was placed into the attorney trust account. All unearned fees must be in the attorney trust account. See Md. Rule 16-604 (setting forth the required deposits into the attorney’s trust account).
1 Attorney indicated that $200.00 of the fee was paid toward the bankruptcy fees, and the prepaid costs would be returned to the client as they were not earned fees.