Notebook: A Clear Prohibition to Nonrefundable Advanced Fees

A fee agreement with a client that provides that any advanced money is nonrefundable would be prohibited under a proposed amendment to Rule 1.5 of the Rules of Professional Conduct.

Hold on, you may ask, hasn’t this always been the case?

And if you really are on top of things, you may ask, didn’t the Virginia State Bar issue a Legal Ethics Opinion 30 years ago finding “nonrefundable retainers” or other such arrangements for advanced fees to be unethical?

Yes, to both questions.

But VSB Ethics Counsel Emily Hedrick said that some lawyers either didn’t know about the prohibition in the LEO or chose to ignore it; the bar has been seeing a number of complicated fee arrangements, including those with no refund for advanced money.

Putting the prohibition with this amendment into the actual rule provides some additional force, she said.

And with the proscription in the rules, people will see it right up front, she said.

A new subsection

The amendment is straightforward. New subsection (g) would be added to Rule 1.5 on “Fees.” The new language: “Nonrefundable advanced legal fees are prohibited.”

New comment 10 provides the rationale and background. It states:

“A nonrefundable advanced legal fee compromises the client’s unqualified right to terminate the lawyer-client relationship because the right to terminate the representation would be negatively affected if the client would still risk paying for services not provided.

“Further, retaining a nonrefundable fee after being discharged by the client before the fee is earned violates the lawyer’s responsibility to refund any unearned fee upon termination of the representation.

The proposed new comment concludes, “An unearned fee is per se unreasonable and therefore charging an unearned nonrefundable fee violates Rule 1.5(a).” The comment suggests the reader “See LEO 1606.”

LEO 1606 was a compendium opinion published by the VSB in 1994 and approved by the Supreme Court of Virginia in 2016. It covers a number of fee issues, including retainers and fixed and contingent fees.

Amendment comments

Comment 10 to the 2024 amendment lifts some of the language in the 1994 opinion directly and paraphrases some other portions. The message is the same.

New Comment 11 to Rule 1.5 provides a distinction between a “retainer” paid by the client and “an advanced legal fee.” A retainer, the comment states, is paid to ensure the lawyer’s availability rather than for legal services to be provided. Here is the language of that comment:

“A retainer paid to ensure the lawyer’s availability for future legal services and/or as consideration for the lawyer’s unavailability to a potential adverse party is not an advanced legal fee and is earned when paid. The retainer must be charged solely for these purposes and not as prepayment for legal services to be rendered in the future.”

The bottom line: Nonrefundable advanced fees always were prohibited. With a rule stating that plainly, this issue should be settled.

The VSB is seeking comment on the proposed amendment to Rule 1.5 on nonrefundable advanced fees, with a deadline of Oct. 30. Comments in favor or opposition to the change should be made via email to VSB Executive Director Cameron Rountree at publiccomment@vsb.org.

The Executive Director's Notebook is a monthly column written by Paul Fletcher, executive director of The Virginia Bar Association.