1. Rule 42, ARIZ.R.S.CT.; E.R. 1. 5(d) provides in part:
(d) A lawyer shall not enter into an arrangement for, charge or collect:
( 3) a fee denominated as “earned upon receipt,” “nonrefundable”
or in similar terms unless the client is simultaneously advised in
writing that the client may nevertheless discharge the lawyer at
any time and in that event may be entitled to a refund of all or part
of the fee based upon the value of the representation pursuant to
paragraph (a) [which addresses the factors considered in determining the reasonableness of a fee].
2. Rule 42, ARIZ.R.S.CT.; E.R. 1. 5 Comment 7.
3. See generally Douglas R. Richmond, Understanding Retainers snd
Flat Fees, 34 J. LEGAL PROF. 113 (2009).
5. The word earned is in quotes because even a true, general retainer
is subject to challenge as unreasonable under E.R. 1. 5(a). See In re
Sather, 3 P.3d 403, 414 (Colo. 2000) (General retainers, which the
court termed “engagement retainers,” “are always subject to refund
if excessive or unearned, and an attorney cannot communicate otherwise to a client.”); 2008 N.C. Ethics Op. 10, 2008 WL 5021158
(“a general retainer, like all other fees, must not be clearly excessive”).
6. Rule 42, ARIZ.R.S.CT.; E.R. 1. 5 Comment 7.
7. In re Hirschfeld, 960 P.2d 640 (Ariz. 1998).
8. Id. at 642.
9. Id. at 643.
11. 686 P.2d 1236 (Ariz. 1984).
12. The lawyer in In re Swartz took a personal injury case on a one-third
contingency-fee basis. Liability and damages were clear. No suit was
ever filed. The case settled within two months for the $150,000 policy
limits after minimal negotiations. The lawyer nonetheless claimed his
full $50,000 contingency. Id. at 1238.
13. Id. at 1243.
14. 960 P.2d at 643.
15. Arizona State Bar Committee on the Rules of Professional Conduct
Ethics Op. 99-02.
16. 633 N.E.2d 1069 (N. Y. 1994). See also Cuyahoga County Bar Ass’n.
v. Ack, 901 N.E.2d 225 (Ohio 2009) (disapproving of nonrefund
able earned upon receipt fees outside of the context of a true general
retainer that secures attorney’s availability); and articles cited infra
17. Op. 99-02 at 3.
18. Id. at 4.
20. Id. at 5.
21. 55 P.3d 756 (Ariz. 2002).
22. The case is unusual because most of the disciplinary cases involving
non-refundable fees and/or retainers involve unsophisticated clients
with no ability to negotiate the fee. In most disciplinary cases, the
fee involved is less than $5,000, but a substantial sum to the individual
client who, as discussed below, is often required to pay the full amount
over time before the lawyer will begin to do any work on their case.
23. 55 P.3d at 758.
24. Id. at 761.
25. Id. The Court defined a non-refundable fee as a lump-sum fee consti-
tuting a lawyer’s entire fee for services. Id. at 762 n. 7. It reserved
the terms non-refundable retainer or advanced payment for classic
or general retainers paid to ensure a lawyer’s future availability. Id.
26. Id. at 762, quoting Op. 99-02 at 6.
28. Rule 42, ARIZ.R.S.CT.; E.R. 1. 5(d)( 3).
29. Rule 42, ARIZ.R.S.CT.; E.R. 1. 5, Comment 7; see also E.R. 1. 16(d),
“Upon termination of representation, a lawyer shall take steps to the
extent reasonably practicable to protect the client’s interests, such as
giving reasonable notice to the client, allowing time for employment
of other counsel, surrendering documents and property to which the
client is entitled and refunding any advance payments of a fee that has
not been earned” (emphasis added).
30. 686 P.2d 1236.
31. Rule 42, ARIZ.R.S.CT.; E.R. 1. 5 Comment 7.
32. See generally Lester Brickman & Lawrence A. Cunningham,
Nonrefundable Retainers Revisited, 72 N.C. L. REV. 1, 12 (1993);
Richmond, supra note 3 at 113.
33. 942 N.E.2d 799, 807 (2011).
“Nonrefundable” Advance Fees
In cases where the client fails to pay the
full retainer, the lawyer performs no work.
In other cases, where payments are made
over months or years, no work is performed
during the interim, yet the fees are treated
as “earned upon receipt.”
A Modest Proposal
Fees paid for services to be rendered in the
future have not yet been earned, and un-
der the holding of In re Swartz, they are,
in fact, refundable. A fee agreement that
says such fees are “earned upon receipt” or
“nonrefundable,” even if followed by the
written disclaimer required by E.R. 1. 5, is
confusing at best. Based on the volume of
disciplinary complaints filed involving such
agreements, the public and the Bar would
be better served by a ban on such agree-
ments such as those adopted in New York
and other jurisdictions. Advance fee agree-
ments are typically used in cases where both
the scope of representation and the tasks re-
quired to complete that representation are
well defined. Rather than stating the fee is
“nonrefundable” or “earned upon receipt,”
lawyers could achieve much the same result
with less confusion by specifying what por-
tion of the fee will be earned as each task
is completed, an approach adopted by the
Indiana Supreme Court in In re O’Farrell. 33
Treating advance fee payments as
earned, on receipt or other wise, can only be
justified if the lawyer actually does perform
the agreed-upon work. It is impossible to
justify treating a partial payment as “earned”
if the parties have agreed the lawyer will
perform no work unless and until the ad-
vance is paid in full. In such cases, the lawyer
has performed no work and has not earned
any portion of his or her fee. The client has
the absolute right to terminate the relation-
ship and demand a full refund at any time.
At least in that context, telling a client that
such fees are “earned upon receipt” or
“nonrefundable” is simply false and mis-
leading. That practice, which the Court has
never had occasion to address, should be
expressly banned. Partial payments should,
under such circumstances, be treated as the
client funds they are and held in trust.