Why Are Fixed Fees Problematic in Family Law?

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Why Are Fixed Fees Problematic in Family Law?

The Advisory Committee of the Supreme Court of Missouri in Formal Opinion 128 concludes that nonrefundable fees are considered unethical in Missouri. “In many instances, attorneys receive payment before the attorney has completed the services for which the payment is made. In some instances, attorneys refer to these payments as ‘nonrefundable.’ These ‘nonrefundable’ fees are often the subject of disciplinary complaints and fee disputes.”

How should a reputable attorney bill who complies with the Missouri Bar? An attorney will typically ask for an advanced fee and that the client replenish their trust account or make payment as services are rendered.

Professor Alberto Bernabe from The John Marshall Law School, Chicago explains the Missouri Advisory Committee on Professional Responsibility.

The basic standard to determine if a fee is ethical is that it must be “reasonable” and the rules of professional conduct typically will provide a list of factors to consider in determining if a fee is, in fact, unreasonable. However, one factor not mentioned is whether the fee is “nonrefundable.”

Can an attorney charge a nonrefundable fee or would that be unreasonable by definition?  The Committee states that there are “two types of cases (that) provide good examples of situations in which supposedly nonrefundable fees are involved.” The first example is a case “where the client pays a flat fee or makes an advance deposit on fees against which the attorney will bill on an hourly basis.”

According to Professor Bernabe, the first problem is this: an “advance deposit” is what other jurisdictions typically call a “security retainer,” which can never be nonrefundable. This is never debated. Take the “example” out of the equation and what is left is what the Committee calls a “flat fee.”

The Committee then points out that a “flat fee” is not earned automatically when agreed to between the attorney and client. It is only when the fee is earned that there is an obligation to pay it. This still does not explain when the fixed or flat fee is actually earned other than to state that the fee is earned when the representation is completed. This makes fixed or flat fees a “cap” on fees in a case more than a “fixed” or “flat” fee in the first place.

In the event that the representation ends before the representation is completed, the Committee states that the attorney must analyze the factors set out in the rule regarding fees “to determine the extent to which the attorney must refund all or a portion of the fee.”

Thus, the attorney must determine if not refunding the fee would result in an unreasonable fee or as the Committee explicitly states it: “because an attorney may not charge or collect an unreasonable fee, the attorney must determine that the fee was reasonable.”

Source: Can flat fees be non-refundable?…again…, By Professor Alberto Bernabe, The John Marshall Law School, Professional Responsibility Blog

Advisory Committee of the Supreme Court of Missouri Formal Opinion 128

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