Sorted by Commenter - Ethics - State of California

RRC – Rule 1.5 [4-200]
E-mails, etc. – Revised (6/1/2010)
arrangement collapses and loses its status as a true retainer no matter what the fee
agreement says.
Alternative Fee Agreements
Many clients wish to avoid hourly billing rates and prefer to pay a flat fee. Such an
arrangement can be valuable to clients who want to avoid surprise bills and stay within a
budget. Attorneys who perform work for a flat fee should be careful in how they structure
the client relationship so as to comply with the rules governing true retainers.
A flat fee is not necessarily a true retainer; in fact, based on State Bar Opinion 01-02, in a
true retainer situation attorney services (as opposed to availability) would be charged to the
client separately, and no part of the retainer would be applied to pay for actual services. A
flat fee for services may be acceptable if it is tied to the accomplishment of a specific
milestone and refunded if the milestone is not reached.
For example, to form a limited liability company a lawyer may charge a flat fee of $1,000
that is advanced by the client; the parties may stipulate that the fee is earned after the
attorney files articles of organization and delivers the completed operating agreement to the
client. Under these circumstances, the fee should be deposited in the attorney's trust
account. If the attorney does not complete the specified tasks, the fee has not been earned
and must be refunded.
A well-drafted flat fee agreement should state exactly what services will be performed and
when the fee is considered earned. If several services are involved, a portion of the fee
should be earned after each service is completed. Not only is this fair to both parties, but it
also avoids confusion if the attorney's services are terminated short of the final milestone.
For clients who seek to economize, there are alternatives to the flat fee. For example, an
attorney may choose to bill the client by the hour but cap the fee at a specific amount within
the client's budget.
In large part, the true retainer seems to be a vestige of days gone by. Today it is rarely
used correctly, although many attorneys continue to insist on collecting nonrefundable
retainers. Such agreements are risky and must be structured carefully.
Not only must a nonrefundable retainer fit within the narrow definition of a true retainer, it
also must be appropriate to the client's situation. The State Bar will scrutinize the
arrangement to determine whether the fee is unconscionable—that is, if a client receives
little or no value at all by ensuring the availability of the attorney; if the attorney has no
particular reputation or expertise to justify a nonrefundable payment; or if there is "an
abundance of other competent attorneys available to handle the client's matter." (See
Opinion 01-02 at subsection C (Unconscionability).)
True retainers exist, but they are not very common. In most cases, advance payments are
just that: advances that cover fees to be earned in the future. And remember that if the fees
are not earned, they must be returned to the client at the conclusion of the engagement.
Leigh Chandler and Aaron Shechet are the founders of Chandler & Shechet, a businessdevelopment
law firm based in Los Angeles (solutionsllp.com).
RRC - 4-200 [1-5] - E-mails, etc. - REV (06-01-10).doc -129-
Printed: May 26, 2010
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