Tuesday, January 20, 2009

Case Law Development: Nonrefundable Retainer Fee in Divorce Approved

The Rules of Professional Conduct in most states prohibit family law attorneys from charging contingent fees for fear that this would provide an incentive for attorneys to discourage reconciliation.  The American Academy of Matrimonial Lawyer's Bounds of Advocacy, while arguing for more flexible fee arrangements in matrimonial matters, agrees with this same rationale that fee agreements should not discourage reconciliation (See AAML Rule 4.5).

Yet a recent decision by the Michigan Supreme Court likely has at least one client considering the high cost of her decision to drop her divorce because of a different fee device: the nonrefundable retainer.  The Michigan Supreme Court dropped disciplinary charges against an attorney who had charged a non refundable $4000 "minimum fee” for a divorce. The opinion has generated a good deal of controversy, as many other states have found nonrefundable retainers unreasonable. The attorney's fee agreement in this case provided that the $4000 minimum fee was nonrefundable "under any circumstances" and provided for a $195 an hour fee once the $4000 was earned.  The client soon thereafter reported to the attorney that she and her husband had reconciled and asked for a refund of the retainer.  The attorney provided the client an invoice for 6.4 hours of work and refunded $1,385.75, noting that he didn't have to do so, but “from the goodness of my heart, I'll give you half of the unearned fees.”  The client complained to the disciplinary authority.  The disciplinary board concluded that “there really is no such thing as a nonrefundable retainer” and ordered the attorney to pay the balance of the unearned fees but imposed no other discipline.

The Supreme Court reversed: “As written the agreement clearly and unambiguously provided that the respondent was retained to represent the client and that the minimum fee was incurred upon execution of the agreement, regardless of whether the representation was terminated by the client before the billings at the stated hourly rate exceeded the minimum.”

Grievance Administrator v. Cooper, Mich., No. 135053, (December 12, 2008)
The opinion, briefs, and amicus briefs by the Majority of the Michigan Bar Association, the American Academy of Matrimonial Lawyers, and by the law firm of Varnum, Riddering, Schmidt & Howlett LLP are available online. (last visited January 20, 2009 bgf)

In his post, Mike Frisch of the Legal Profession Blog (a sister Law Prof blog) contrasts the disciplinary board's careful analysis with the cursory discussion by the court. Likewise, the Detroit News carried this editorial criticizing the opinion by Law Prof Lawrence Dubin of the University of Detroit Mercy School of Law and a former chairman of the Michigan Attorney Grievance Commission.

http://lawprofessors.typepad.com/family_law/2009/01/case-law-deve-1.html

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UPDATE - In December 2008, the Michigan Supreme Court reversed this decision and held that the non-refundable retainer passed ethical muster because the agreement was unambiguous. See here . Thank goodness for lawyers who are willing to risk a... [Read More]

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