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(3) An "advance payment retainer" represents advance payment for services the attorney is expected to perform for the client, up to the amount of the retainer. The court said that ownership of the funds is intended to pass to the attorney upon receipt, in exchange for the commitment to provide legal services, even though the balance would be refundable if representation ended before services valued at the full retainer amount were performed. The McDonald Brothers court explained that court approval is necessary before retainers can be used if those retainers are property of the estate, held in trust by counsel. But the court may only require disclosure of attorney compensation from nonestate funds, and disgorgement if they are excessive. Courts may disregard attorneys' categorization of their fees, and look to the retainer purpose to determine if it is an advance fee to be refunded if unearned, or can be considered earned on receipt.
4. State rules of professional conduct require any retainer that is an advance against fees or costs, but still property of a client, to be deposited into a trust account. Several state bar ethics committees have concluded, however, that a nonrefundable retainer which operates as a minimum fee agreement may be taken into firm income immediately. That is, a client may agree that hourly fees are to be billed against the retainer; if hourly fees exceed the retainer amount the client must pay for the fees in excess, but if hourly fees never exceed the retainer amount the retainer is not refunded. The total fee--including the minimum fee--must be reasonable in amount, based on all the circumstances. One state's highest court has interpreted the ethics rules to preclude any
This outline is adapted from Chapter 27, Ethical Responsibilities, Norton Bankruptcy Law & Practice 2d (Thomson-West 2005)
