Ethics Opinion No. 238
Adopted March 17, 1966
This Committee has been asked by the Chairman of a Grievance Committee of a County Bar Association the following questions:
1. Is it proper for an individual who possesses the dual qualifications of both a lawyer and a doctor to hold himself out to the public as qualified in both professions?
2. Are all of the members of a law firm guilty of impropriety when one member of the firm is guilty of unethical conduct?
3. Is it unethical for one firm of lawyers and two doctors all engaged in the general practice of law and medicine to occupy a one-story building and to advertise and name the building, “Medical-Legal Building”?
Syllabus 1. Dual Professions. It is improper for a lawyer to engage in the carrying on of dual professions when they are of such a nature or are so conducted as to be inconsistent with his duty to his client and as a member of the Bar.
Syllabus 2. Advertising. The person who is qualified as both a lawyer and a doctor must choose between holding himself out as a lawyer and holding himself out as a doctor, even when each profession is carried on from different locations.
Syllabus 3. Dual Professions. It is improper for a lawyer to practice two professions where there might be a possibility of a conflict of interest or a violation of confidence of the client.
Syllabus 4. Responsibility of Firm for its Member Acts. A firm of lawyers may not knowingly permit one of its members to engage in unethical conduct without each member of the firm becoming equally responsible for such acts of conduct.
Syllabus 5. Advertising. It is a violation of Canon 27 to advertise or name a building a “Law Building” or a “Medical-Legal Building” where only one firm of lawyers occupies said building.
Question 1. When a person becomes a lawyer he takes on a mantle that he cannot thereafter take on or off as he pleases. Conduct in which he engages which involves the practice of law when engaged in by lawyers must be in accordance with the ethical standards of the profession if he is to retain his professional status.
Canon 47 provides, “No lawyer shall permit his professional services, or his name, to be used in aid of, or to make possible, the unauthorized practice of law by any lay agency, personal or corporate.”
In a number of opinions, both the Oklahoma Bar Association and the American Bar Association have held that it is unethical for a lawyer to engage in various other businesses and occupations where such business was of such a nature that readily lent itself to procuring professional employment for him as a lawyer, or was of such a nature that it could be used as a cloak for indirect solicitation on a lawyers behalf, or was of a nature that, if handled by a lawyer, would be regarded as the practice of law.
While the practice of medicine if handled by a lawyer would not be regarded as the practice of law, this Committee feels that the maintenance of the strictest standards by both professions would be violated in many respects if a lawyer were permitted to engage in the practice of medicine.
Canon 6 states,
“The obligation to represent the client with undivided fidelity and not to divulge his secrets or confidences forbids also the subsequent acceptance of retainers or employment from others in matters adversely affecting any interest of the client with respect to which confidence has been reposed.
“It is unprofessional to represent conflicting interests, except by express consent of all concerned given after a full disclosure of the facts. Within the meaning of this canon, a lawyer represents conflicting interests when, in behalf of one client, it is his duty to contend for that which duty to another client requires him to oppose.”
Canon 35 states,
“The professional services of a lawyer should not be controlled or exploited by any lay agency, personal or corporate, which intervenes between client and lawyer. A lawyer’s responsibilities and qualifications are individual. He should avoid all relations which direct the performance of his duties by or in the interest of such intermediary. A lawyer’s relation to his client should be personal, and the responsibility should be direct to the client.”
Canon 37 states,
“It is the duty of a lawyer to preserve his client’s confidences. This duty outlasts the lawyer’s employment, and extends as well to his employees.”
It is this Committee’s opinion that the practice of medicine by a lawyer, from the same location or different locations, is by its nature so fraught with the dangers of conflict of interest, violation of the confidences of a client, and so readily lends itself as a cloak for indirect solicitation and the means for procuring professional employment, that it would be practically impossible to adhere to the Canons of Professional Ethics of the Bar Association. It is readily apparent that a doctor-lawyer, who treated a patient in a professional capacity, would become the patient’s confidant and as such, if retained by the patient to handle his legal matters in a lawyer-client relationship, could not ethically testify as a medical witness. It is patently obvious that a doctor who is in a confidential relationship with a patient is in a position to direct him in his legal affairs even though there might be a conflict of interest. The dual capacity of a doctor-patient and a lawyer-client relationship both one and at the same time by the same person is, in this Committee’s opinion, totally incompatible and is reprehensible. Since each by their very nature involves total devotion to the duties of the separate professions as well as extreme confidential relationship with the patient or client, avoidance of any suspicion of impropriety is of the utmost importance.
Question 2. A partnership is a separate legal entity and the relations of partners in a law firm are so close that the firm, and each member thereof, is responsible for knowingly permitting or condoning the unethical act of any one of its members. We have qualified this opinion by adding the word, “knowingly”, since it is conceivable that one member of a firm could be guilty of impropriety without the knowledge or consent of the other members. It is the opinion of this Committee that if any one of the members of the firm knows of acts of unethical conduct by his partner or associate, and permits such conduct to continue, passively or otherwise, that such member is equally guilty of misconduct.
Question 3. It is unethical to name a building, occupied by only one firm of lawyers, a “Law Building”, “Legal Building”, or any other name which would advertise the lawyers’ profession. It follows that using the name, “Medical_ Legal Building”, in the question submitted would be advertising and in violation of Canon 27.
See Canons 6, 27, 35, 37, and 162 of the Canons of Professional Ethics of the American Bar Association; Advisory Opinions 185 and 208 of the Oklahoma Bar Association; and Advisory Opinions No. 33, 272, and 297, and Informal Opinions No. C_424, C_441, C_442, C_501, C_506, C_520, C_556, C_565, C_682, and C_709 of the American Bar Association Committee on Professional Ethics.
Adopted December 13, 2002
TOPIC: Non-Refundable Retainer Agreements
INQUIRY: Is a non-refundable fee agreement a per se violation of the Oklahoma Rules of Professional Conduct (“ORPC”)?
ABSTRACT: Every attorney fee must be earned and must be reasonable. ORPC, Rule 1.5 comment  provides: “A lawyer may require advance payment of a fee, but is obligated to return any unearned portion.” Neither decisional authorities of the Oklahoma Supreme Court nor the ORPC expressly prohibit advance fees which are designated as non-refundable retainers. However, ORPC Rule 1.16(d) provides, upon termination of representation, a lawyer must refund “any advance payment of fee that has not been earned.”1 Generally, any portion of a reasonable advance fee payment that is deemed earned should not be subject to a refund. Although there are certain fee agreements where the advance fee might be considered earned when paid,2 ordinarily an hourly fee agreement for services to be performed in the future indicates any fees advanced would not be considered earned until the services are actually performed by the attorney. If the attorney is discharged or the representation terminates before the retainer fee is earned, the client would ordinarily be entitled to a refund of the remainder. In some circumstances, a non-refundable retainer agreement in an hourly fee contract for services to be performed in the future may contravene Rule 1.16(d) if it materially impairs the client’s right to discharge the attorney at any time.3
I. The Basics of Fee Agreements
Every fee agreement must be reasonable.4 ORPC Rule 1.5(a) lists eight factors that can be considered when establishing a reasonable fee.5 All fee agreements must also comply with Rule 1.16(a)(3) which recognizes the client’s right to discharge the attorney at any time and (d) which states that upon termination of representation, the unearned portion of any fee paid in advance must be returned.6 Thus, when and if an advance fee payment is deemed earned is an important consideration in determining whether the non-refundable retainer provision is enforceable.
The Oklahoma Supreme Court has previously refused to uphold or enforce a fee contract “where the compensation is so excessive as to evidence a purpose on the part of the attorney to obtain an improper or undue advantage over the client.”7
II. A Brief Discussion of Various Fee Agreements
A number of jurisdictions that have addressed the issue of non-refundable retainers recognize that a reasonable non-refundable advance payment to assure the attorney’s availability is enforceable.8 Fees paid in advance for this purpose are sometimes known as an “availability fee,” an “engagement fee,” or a “general retainer fee.” The attorney earns this kind of “retainer” by agreeing to be available, regardless of whether any actual services must be performed.9 From the client’s point of view, one benefit of such a retainer is to make a particular attorney unavailable to a potential adversary in the event of litigation.
A fee paid in advance for this purpose is generally considered to belong to the lawyer when it is paid, and it should be deposited into the attorney’s operating account and should not be commingled in the clients’ trust account.10 When and if the client actually needs legal services it is common for the attorney to provide them for an additional hourly fee that is lower than the attorney’s ordinary rate.11 It is the attorney’s responsibility to draft the fee contract clearly and concisely to ensure that the client understands the fee paid in advance is intended to guarantee the attorney’s availability and is not intended to pay for future services. The engagement fee should bear a reasonable relationship to the income the lawyer sacrifices by accepting it.
The term “non-refundable retainer” is sometimes applied to a “fixed fee” paid by a client at the outset of a matter intended to be the entire fee attributable to a specific task. Fees paid in advance for this purpose may also be referred to as a “flat fee” or “lump sum fee.” Fees paid in advance for this purpose are intended to cover a specified amount of work estimated by the attorney for a particular matter. The attorney usually does not receive any additional fee even if more work is required, unless specifically agreed to by the client. Clients often prefer fees determined in advance to be a specified sum because it allows the client to know in advance how much the total cost for legal services will be, permitting the client to budget based on a fixed sum rather than face potentially unlimited hourly fees that may exceed the client’s ability to pay.
A fee in this category is not necessarily based on an estimate of hours. The attorney’s reputation is a valid factor in establishing the fee.12 For example, a flat fee may be determined based on an attorney’s “towering reputation” for making a civil case “vanish” just by agreeing to the representation, or resolving a criminal matter with a few telephone calls. Having obtained the desired result, the attorney is entitled to keep the fee.13 Even if the result is not particularly successful, if the fee is reasonable, the terms have been adequately explained to the client in the fee contract, and the services agreed upon have been performed, the lawyer ordinarily will not be required to refund any of the fee to the client.14
A number of jurisdictions that have addressed flat fees determined they are earned when paid and, therefore, must be deposited into the attorney’s operating account.15 In reaching this conclusion, jurisdictions consider whether the flat fee is fully explained to the client in a written agreement; whether the arrangement specifies the dollar amount of the retainer and its application of the scope of the representation, and/or the time frame in which the agreement will exist; and whether the fee is reasonable.
Sometimes an hourly fee contract providing for the attorney’s services to be compensated by the amount of time expended may be joined with a provision designated as “non-refundable retainer.” The use of the term “non-refundable retainer” which represents an advance payment of fees for hours of legal services that the attorney will perform in the future is impermissible. These fees may be designated “minimum,” “fixed” or “hourly” fees, but cannot impair the client’s rights under Rule 1.16(d). These fees are not “non-refundable” because if the attorney withdraws from the case, or is terminated before completing the work, the attorney must refund the unearned portion of the advance.
In Wright v. Arnold,16 the attorney charged a four thousand dollar ($4,000) non-refundable retainer to handle a domestic case.17 Several days later, the client discharged the attorney who testified he had worked twenty-two and one-half (22.5) hours on the case. The Oklahoma Court of Civil Appeals held that a “non-refundable retainer provision in an hourly-rate contract for legal services is unenforceable.” The Court found that the retainer was “an impermissible restraint on the right of a client to freely discharge her attorney” and was, therefore, in contravention of ORPC Rule 1.16(d).18 The Court specifically limited its holding to hourly-rate contracts and declined to address the issue of contingency fee contracts or fixed-rate contracts.19 the case was remanded for a determination of the reasonable value of the attorney’s services.
In light of the decision in Wright v. Arnold, the LEC is of the opinion that a non-refundable retainer provision in an hourly-fee agreement for service to be performed in the future may be unenforceable and may contravene ORPC Rule 1.16(d) if it materially impairs the client’s right to discharge the attorney at any time. Accordingly, any advance payment made pursuant to this type of fee contract should be held in the lawyer’s trust account until the funds are earned by the attorney. when the representation terminates, any unearned funds must be refunded to the client.
The LEC does not offer an opinion regarding the enforceable nature of fee contracts containing non-refundable “engagement fee” or “fixed fee” provisions.20 Nevertheless, the likelihood of enforcement of these types of non-refundable retainers is enhanced by implementing certain safeguards.21 For example, the fee contract should be in writing, the writing should fully and precisely explain the purpose of any fee paid in advance, the language should be clear and unambiguous regarding the scope of the attorney’s rights and obligations, as well as the client’s rights and obligations, the contract should be signed at the outset of the relationship, and the fee must be reasonable.
1 OKLA. STAT. ANN. tit. 5 Ch. 1 App. 3-A Rule 1.16(d)
2 See discussion of various fee agreements below.
3 Wright v. Arnold, 1994 OK CIV APP 26, 877 P.2d 616.
4 OKLA. STAT. ANN. tit. 5 Ch. 1 App. 3-A Rule 1.5(a).
5 These factors include:
1. The time and labor required, the novelty and difficulty of the questions involved, and the skill required to perform the legal service properly;
2. The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
3. The fee customarily charged in the locality for similar legal services;
4. The amount involved and the results obtained
5. The time limitations imposed by the client or by the circumstances;
6. The nature and length of the professional relationship with the client;
7. The experience, reputation, and ability of the lawyer or lawyers performing the services; and
8. Whether the fee is fixed or contingent.
6 The relevant portions of OKLA.. STAT. ANN. tit. 5 Ch. 1 App. 3-A Rule 1.16 state:
(a) Except as stated in paragraph (c), a lawyer shall not represent a client or, where representation has commenced, shall withdraw from the representation of a client if:
(5) the lawyer is discharged.
(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 that has not been earned. The lawyer may retain papers relating to the client to the extent permitted by other law.
7 Robert L. Wheeler, Inc. v. Scott, 1991 OK 95, 818 P.2d 475, 480 (Okla. 1991) (citing Reneger v. Staples, 1964 OK 207, 388 P.2d 867, 872 (Okla. 1964).
8 Alaska Op. 87-1; Arizona State Bar Ass’n, Op. 99-02; California Rule of Professional Conduct No. 3-700(D)(2) (which defines “true retainer fee” as one “paid solely for the purposes of ensuring the availability of the attorney for the matter”); Connecticut Bar Assoc. Committee on Professional Ethics Op. 00-12 (2000); District of Columbia, Opinion No. 264 (1996); Florida State Bar Ass’n Comm. on Professional Ethics, Op. 93-2 (1993); 4 Hawaii B.J. 14, Ethics and Issues (May, 2000); Illinois State Bar Ass’n, Op. 90-10 (1991); Kentucky Bar Ass’n Ethics Comm., Op. E-380 (1995); Maryland State Bar Ass’n, Comm. on Ethics, Informal Opinion 92-41, 93-20 (1992); State Bar of Michigan, Standing Committee on Professional and Judicial Ethics, Op. R-7 (1990); Minnesota Opinion No. 15 (1991); New Jersey Supreme Court Advisory Comm. on Professional Ethics, Op. 644 (1990); Oregon Formal Opinion 1998-151; Pennsylvania Op. 85-120, Op. 95-100; South Carolina Bar, Ethics Advisory Op. 81-15 (1981); Supreme Court of Texas Opinion 431 (1986); Tennessee Board of Professional Responsibility, Formal Ethics Op. 92-F-128 (a) & (b) (1992); Utah State Bar Ethics Opinion Advisory Comm., Op. 136 (1993); Virginia Legal Ethics Comm., Op. 1606 (1994); Wisconsin Op. E-93-4; State of Washington Opinion 173 (1980); Virginia Opinion LEO 1606 (1994); West Virginia Opinion 99-03.
See also In re Hirschfeld, 192 Ariz. 40, 960 P.2d 640 (1998); In re Scimeca, 265 Kan. 742, 962 P.2d 1080, 1091-92 (1998); In re Hathaway Ranch Partnership, 116 Bankr. 208, 216 (Bankr. C.D. Cal. 1990)(wherein the court stated that “[a] true earned upon receipt retainer is one paid to a lawyer for which the only consideration exchanged is the promise to represent the client and no other party in the particular matter);In the Matter of Larry Sather, 3 P.2d 403, 414 (Colo. 2000); Iowa Bd. of Ethics v. Apland, 577 N.W. 2d 50 (Iowa 1998); In re Lochow, 469 N.W.2d 91, 98 (Minn. 1991); Cohen v. Radio Electronics, 679 A2d 1188 (N.J. 1996); Toledo Bar Assoc. v. Zerner, 718 N.E.2d 1283 (Ohio 1999). See also Restatement of the Law Third, The Law Governing Lawyers sec. 34 (2000); ABA/BNA Lawyers’ Manual, 45:110-11(1993); Lester Brickman & Lawrence A. Cunningham, Nonrefundable Retainers Revisited, 72 N.C. L. Rev. 1, 6 (1993).“
9 Why is it appropriate for this fee to be “non-refundable”? Imagine, for example, a client pays $20,000 as an availability retainer to an attorney in a case that will take an entire month. The attorney crosses off the month of May, for example, and takes on no new clients and schedules no work during that period. Perhaps the attorney hires extra staff to handle the case. Then the client decides to forego the case, or hires other counsel. The attorney has lost one month’s worth of income in order to be available for the client. The client paid for the attorney to be available. The attorney is available. The attorney, who otherwise is losing income, should not be penalized by the fact that the client chooses not to take advantage of that availability. See Generally Thomas D. Morgan & Ronald D. Rotunda, Professional Responsibility, at 154 (7th ed. 2000).
10 Commingling occurs when the client’s funds are combined with the attorney’s personal funds. Okla. Bar Assoc. v. Cummings, 863 P.2d at 1172. See also OKLA. STAT. ANN. tit. 5 Ch. 1 App. 3-A Rule 1.15(a) which requires that “[a] lawyer shall hold property of clients or third persons that is in a lawyer’s possession in connection with a representation separate from the lawyer’s own property”.
11 Wolfram, Modern Legal Ethics at p. 506 (1996).
12 See supra, note 3 (OKLA. STAT. ANN. tit. 5 Ch. 1 App. 3-A Rule 1.5(a)(7)).
13 See Howard Fischer, “Retainer Fees for Lawyers are ‘Gray Area’ for Courts,” Ariz. Bus. Gaz. (August 6, 1998); Restatement of the Law Third, The Law Governing Lawyers § 34 (2000).
14 See Connecticut Bar Assoc. Committee on Professional Ethics Op. 00-12 (2000). See also Raymark Industries, Inc. v. Butera, 193 F.3d 210 (3rd Cir. 1999)(wherein the Court permitted a law firm to retain a one million dollar non-refundable fixed fee paid ten weeks before the client fired the firm.)
15 In re Rogers, 2000 Ariz. Lexis 74 (Ariz. 2000); In the Matter of Larry Sather, 3 P.2d 403, 414 (Colo. 2000); Connecticut Bar Ass’n, Comm. on Professional Ethics, Informal Op. 90-29 (1990); District of Columbia, Opinion No. 264 (1996); Florida State Bar Ass’n Comm. on Professional Ethics, Op. 93-2 (1993);Disciplinary Board of the Hawaii Supreme Court, Formal Op. 29 (1985); North Carolina State Bar, Revised Ethics Op. 158 (1994); Oregon Formal Opinion 1998-151; Pennsylvania Op. 85-120; Tennessee Board of Professional Responsibility, Formal Ethics Op. 92-F-128 (1992); Supreme Court of Texas Opinion 431 (1986); Utah State Bar Ethics Opinion Advisory Comm., Op. 136 (1993);Virginia Legal Ethics Comm., Op. 1606 (1994); Restatement of the Law Third, The Law Governing Lawyers § 34 (2000).
But see 4 Hawaii B.J. 14, Ethics and Issues (May, 2000); Iowa Bd. of Ethics, 577 N. W. 2d at 54-55; South Carolina Bar, Ethics Advisory Op. 81-15 (1981); Vermont Bar Ass’n, Op. 97-07 (1997).
16 1994 OK CIV APP 26, 877 P.2d 616. See also In re Cooperman, 83 N.Y. 2d 465, 633 N.E.2d 1069, 611 N.Y.S.2d 465 (1994); Kelly V. MD Buyline, Inc., 2 F. Supp. 2d 420 (S.D.N.Y. 1998) (limiting Cooperman’s restriction of non-refundable retainers to “special” retainers. Where the retainer is a fixed amount, a non-refundable feature is permissible.)
17 The pertinent portion of the contract stated: “In consideration of the services rendered and to be rendered, I/we agree to pay my/our attorney for services . . . in the amount of $100 her hour for in-office time and $125 for in-Court time, based upon 15 minute increments, promptly upon receipt of his itemized periodic billing. I/we hereby tender to the attorney a retainer in the sum of Four Thousand and No/100’s Dollars ($4,000.00), the receipt of which is hereby acknowledged. I/We understand that this retainer is non-refundable.”
18 Id. at 618.
19 Wright v. Arnold, 877 P.2d at 619 n.3.
20 The Court’s decision in Wright v. Arnold, does not prohibit an attorney from entering into more than one fee agreement with a client.
21 See generally, P. Thomas Thornbrugh, “The Non-Refundable Retainer Minefield,” 80 A.B.A.J. 105 (1994).