Wisconsin Lawyer: Practice Tips: How to Handle Nonrefundable Fees:

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    Practice Tips: How to Handle Nonrefundable Fees

    Since changes to the Wisconsin Supreme Court Rules dealing with fees went into effect in July 2007, the issue of the validity and use of nonrefundable retainers continues to emerge. The underlying question is whether Wisconsin recognizes nonrefundable fees, and if so, when and how they may be used.

    Nerino J. Petro Jr.

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    Wisconsin LawyerWisconsin Lawyer
    Vol. 82, No. 7, July 2009

    Under the current Supreme Court Rules, an attorney may not charge a nonrefundable fee that the attorney then bills against for time spent representing the client or for costs. The only nonrefundable fee option that a Wisconsin attorney has under the Rules is to charge a “retainer” as described in SCR 20:1.0(mm), which states the following:

    (mm) “Retainer” (also called: “General Retainer,” “Engagement Retainer,” “Reservation Fee,” or “Availability Fee”): An amount paid specifically and solely to secure the availability of a lawyer to perform services on behalf of a client. This amount does not constitute payment for any specific legal services, whether past, present, or future and may not be billed against for fees or costs at any point. A retainer becomes the property of the lawyer upon receipt, but is subject to the requirements of SCR 20:1.5 and SCR 20:1.16(d).

    Such a retainer is earned when paid and guarantees an attorney’s availability for representation only, nothing more. Fee or representation agreements that provide for a nonrefundable retainer or fee that the attorney will bill against for legal services provided to the client are strictly prohibited. Referrals to Practice411™, the State Bar of Wisconsin Law Office Management Assistance Program, demonstrate that using such language will result in the Office of Lawyer Regulation (OLR) taking issue with the fee or representation agreement if a client files a grievance for that or any other reason. Another critical point is that what this nonrefundable payment is called isn’t important; how the payment itself is treated is the controlling factor.

    Nerino J. Petro Jr.

    Nerino J. Petro Jr., Northern Illinois 1988, is the advisor to the State Bar of Wisconsin Law Office Management Assistance Program (Practice411TM). He assists lawyers in improving their efficiency in delivering legal services and in implementing systems and controls to reduce risk and improve client relations. Visit the Law Practice Management area at www.wisbar.org regularly for practice management guidance. You can reach Petro at (800) 444-9404, ext. 6012, or email org practicehelp wisbar wisbar practicehelp org.  

    Many attorneys want to charge a fee to ensure their availability, and an attorney can charge a retainer as defined in SCR 20:1.0(mm) at the time of engagement to fulfill this goal. However, in addition to the requirements found in the Rules, any such retainer also must be reasonable. Based on available information, it appears that the OLR will not closely scrutinize a retainer of several hundred dollars, but retainers higher than this will be closely reviewed if there is any dispute with the client. Therefore, an attorney may be able to allocate some nominal sum (no more than several hundred dollars) of any initial payment as a SCR 20:1.0(mm) retainer, but any amount in excess of this becomes questionable and the attorney will need to treat the excess as being refundable. This affects how an attorney charges for the balance of the representation, because the attorney will still have the same amount of hours to bill but can’t bill against the retainer paid. Attorneys may wish to consider charging a flat fee for the rest of the representation. SCR 20.1.0(f) defines a flat fee as follows:

    (f) “Flat fee”: A fixed amount paid to a lawyer for specific, agreed-upon services, or for a fixed, agreed-upon stage in a representation, regardless of the time required of the lawyer to perform the service or reach the agreed-upon stage in the representation. A flat fee (sometimes referred to as “unit billing”) is not an advance against the lawyer’s hourly rate and may not be billed against at an hourly rate. Flat fees become the property of the lawyer upon receipt and are subject to the requirements of SCR 20:1.15; SCR 20:1.15(b)(4) or (4m); SCR 20:1.15(e)(4)(h).; SCR 20:1.15(g); and SCR 20:1.16(d).

    An attorney may set the flat fee to cover the value (excluding expenses) of all work he or she anticipates performing for the client until and including some event such as trial or completion of a purchase, but no further. As a best practice to avoid disputes over the scope of the representation, the attorney should list specific work not covered by the fee, such as post-trial motions, appeals, post-closing issues, and so on. However, flat fees require that an attorney be able to correctly estimate the time involved (which might not be possible in some practice areas).

    If an attorney elects not to use flat fees, then any amount in excess of the retainer would be treated as an advanced fee, defined by SCR 20:1.0(a) as the following:

    a) “Advanced fee”: An amount paid to a lawyer in contemplation of future services, which will be earned at an agreed-upon basis, whether hourly, flat, or another basis. Any amount paid to a lawyer in contemplation of future services – whether on an hourly, flat or other basis – is an advanced fee regardless of how that fee is characterized (e.g. “minimum fee” or “nonrefundable fee”). Advanced fees are subject to the requirements of SCR 20:1.5; SCR 20:1.15(b)(4) or (4m); SCR 20:1.15(e)(4)h.; SCR 20:1.15(g); and SCR 20:1.16(d).

    While only a SCR 20:1.0(mm) retainer can be nonrefundable, attorneys can deposit flat fees or advanced fees into their business accounts so long as they follow the requirements of SCR 20:1.15(b)(4m):

    (4m) Alternative protection for advanced fees. A lawyer who accepts advanced payments of fees may deposit the funds in the lawyer’s business account, provided that a court of competent jurisdiction must ultimately approve the lawyer’s fee, or that the lawyer complies with each of the following requirements:

    a. Upon accepting any advanced payment of fees pursuant to this subsection, the lawyer shall deliver to the client a notice in writing containing all of the following information:

    1. the amount of the advanced payment;
    2. the basis or rate of the lawyer’s fee;
    3. any expenses for which the client will be responsible;
    4. that the lawyer has an obligation to refund any unearned advanced fee, along with an accounting, at the termination of the representation;
    5. that the lawyer is required to submit any dispute about a requested refund of advanced fees to binding arbitration within 30 days of receiving a request for such a refund; and
    6. the ability of the client to file a claim with the Wisconsin lawyers’ fund for client protection if the lawyer fails to provide a refund of unearned advanced fees.

    b. Upon termination of the representation, the lawyer shall deliver to the client in writing all of the following:

    1. a final accounting, or an accounting from the date of the lawyer’s most recent statement to the end of the representation, regarding the client’s advanced fee payment with a refund of any unearned advanced fees;
    2. notice that, if the client disputes the amount of the fee and wants that dispute to be submitted to binding arbitration, the client must provide written notice of the dispute to the lawyer within 30 days of the mailing of the accounting; and
    3. notice that, if the lawyer is unable to resolve the dispute to the satisfaction of the client within 30 days after receiving notice of the dispute from the client, the lawyer shall submit the dispute to binding arbitration.

    c. Upon timely receipt of written notice of a dispute from the client, the lawyer shall attempt to resolve that dispute with the client, and if the dispute is not resolved, the lawyer shall submit the dispute to binding arbitration with the State Bar Fee Arbitration Program or a similar local bar association program within 30 days of the lawyer’s receipt of the written notice of dispute from the client.

    d. Upon receipt of an arbitration award requiring the lawyer to make a payment to the client, the lawyer shall pay the arbitration award within 30 days, unless the client fails to agree to be bound by the award of the arbitrator.

    Conclusion

    I recommend that attorneys take a look at the June 2007 Wisconsin Lawyer article, “New Trust Account Rules: Lawyer Fees and Fee Agreements.” The article explains changes to the trust account rules, includes the full text of the new rule in SCR 20:1.15, and appends sample fee agreements. Fee agreements also are available on the State Bar’s Web site (scroll down to the sample forms section under trust account rules/sample forms). For additional information, visit Practice411 resources.   




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