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Beware the Mis-named Non-Refundable Retainer

by Carolyn Elefant on September 24, 2007 · 17 comments

in Dealing With Clients, Ethics & Malpractice Issues, Retainer Agreements

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UPDATE – In December 2008, the Michigan Supreme Court reversed this decision and held that the non-refundable retainer passed ethical muster because the agreement was unambiguous. See here .
Thank goodness for lawyers who are willing to risk a disciplinary sanction to retain $2500 of money that any objective observer would recognize as unearned and undeserved. After all, if we didn’t have lawyers like this, we wouldn’t have the benefit of this well written and researched decision by the Michigan Attorney Grievance Board that describes the difference between an ordinary retainer fee (which represents advance payment for services to be rendered) and a non-refundable retainer fee (which is typically allowed only where a fee agreement states specifically that the retainer is intended to compensate the attorney for availability, not for service to be rendered) (hat tip to Legal Profession Blog for the link.

The Michigan case involved attorney Patricia Cooper, who collected a $4000 non-refundable retainer from a client to handle her divorce. After two weeks, the client changed her mind about going forward with the divorce and asked to Cooper to stop work, provide an itemized bill and return an unearned balance. Cooper sent an itemized bill showing that she performed $1228 worth of work and agreed to return $1385 “out of the goodness of her heart.” She refused, however, to return the balance, citing the non-refundable nature of the retainer agreement.

The client filed a grievance seeking a refund. The Michigan Board agreed. The Board explained that Cooper’s designation of a retainer as “non-refundable” was irrelevant because the retainer was intended to secure advance payment for services to be rendered in the future. Because Cooper did not render the services contemplated, she was bound to refund the unearned amount. Citing cases from a variety of jurisdictions, the Michigan Board cautioned that a non-refundable retainer could be used only in situations such as to secure a lawyers availabilty and that the purpose of the non-refundable retainer must be explained to clients.

For those who have wondered about non-refundable retainers, the Michigan Board clarifies that they’re generally a “don’t” except in narrow situations. And the Board also makes clear that if you’re not sure of whether a retainer is non-refundable or not, then GIVE THE UNEARNED MONEY BACK!!

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