Safekeeping Property · 2-8% of the exam
20.1.2Advance fees vs. true retainers (Rule 1.15(c))
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- Rule 1.15(c) — Advance fees vs. true retainers
Why
The risk is that a lawyer treats pre-paid money as earned income while the client's funds stay unprotected. A client who pays before any work is done has no way to police what happens to the money afterward, and a drafter free to rename the payment could otherwise write that protection out of the agreement.
Plain English
Rule 1.15(c) calls this money "legal fees and expenses that have been paid in advance": money paid to fund future services belongs to the client until those services are performed and must go into trust.
Only a payment for availability alone, with no connection to future work, is earned on receipt and may go into the operating account — that carve-out is state practice and case law, not Rule 1.5 or Rule 1.15. A contractual label such as "nonrefundable" does not settle which category a payment falls into; substance governs.
Rule
Rule 1.15(c) — Advance fees vs. true retainers
- Advance payment — Rule 1.15(c)'s "legal fees and expenses that have been paid in advance"
Money paid before the work is performed belongs to the client until earned. Must be deposited into client trust. The lawyer may withdraw corresponding amounts:
- as fees are earned or
- expenses incurred.
Any unearned portion must be refunded at the end of the representation.
- True retainer — state practice and case law, not Rule 1.5 or Rule 1.15
A payment solely for availability (reserving the lawyer, preventing the lawyer from representing adversaries) is earned upon receipt; goes into the operating account, not trust.
- Label does not control — state practice and case law, not Rule 1.5 or Rule 1.15
A fee agreement calling a payment "nonrefundable" or "earned on receipt" does not make it so if the payment funds future services. Substance governs, not the contractual label.
- Contingent-fee verdicts
A full jury award or settlement enters trust first; the lawyer's cut may move to the operating account only after the fee has been calculated and separated from the client's portion.
Example 1
Ex. 1
Dan's company retains Elena for a contract dispute. The fee agreement calls the opening $50,000 payment a "nonrefundable retainer, earned on receipt." Elena deposits the full amount in her operating account on day one. Over six weeks she completes $30,000 in work, then discovers a conflict and withdraws.
Elena violated Rule 1.15(c) from day one. Because the $50,000 funded future services, it was an advance payment belonging to Dan's company until earned. It should have gone into trust. Elena must refund the $20,000 she never earned. The "nonrefundable" label doesn't override the refund obligation. Subtract the $30,000 Elena actually earned and the refund figure is what is left.
Trap
Tip
Questions · 1
Q 01ch20-e03
Question 1 of 1 · Rule 1.15(c)
A manufacturing Company retained Attorney to defend an environmental enforcement proceeding. The written fee agreement described the opening payment of forty thousand dollars as nonrefundable and earned on receipt. The same agreement stated that the payment would be applied against the hours Attorney expected to bill during the first phase of the case. Attorney had performed no work when the payment arrived and deposited the entire sum into the firm operating account that day. Attorney began work the following week and had billed roughly half the sum by the end of the month. Was Attorney's deposit of the payment into the firm operating account proper?
Keys 1 to 4 choose.