Refund for Unearned Legal Fees

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 Refund for Unearned Legal Fees

When you hire an attorney, you are usually required to pay a lump sum up front. This sum is called a retainer. Your attorney will bill their hourly rate, and they will use the money in this retainer to pay it instead of sending you a bill.

Every year, Americans spend over $100 billion on legal fees. In spite of a sluggish economy, fees have increased twice as fast as inflation since 1990.

Despite most of these fees being collected by ethical attorneys providing valuable, efficient services to their clients, many fees are paid following incompetent lawyering, purposeful padding of bills, ethical violations, or improper coercion of collections.

This article outlines refunds for unearned legal fees for clients who believe that their lawyer has overbilled them.

Fighting your lawyer over their fees may seem daunting at first glance.

Your lawyer is likely to represent your interests in ongoing matters. As your lawyer is the last person you want as an adversary in litigation, you may feel obligated to pay outstanding bills, even if they are outrageous. If a billing dispute arises, you recognize that your lawyer possesses superior knowledge of the legal system.

In spite of the lawyer’s incompetence, you assume they’ll turn into a 21st century “Matlock” if they have to collect his fees. The thought of paying another lawyer – assuming you could find one willing to oppose another attorney’s fee request – does not appeal to you. Last but not least, you may feel that the legal system will protect its own and uphold the fee regardless of the facts of your case.

The client who receives an excessive bill due to unethical lawyering, waste, or incompetence can overcome these concerns with a sensible, managed approach. Communicating your concerns to your lawyer is possible both during and after the engagement. An attorney-client relationship can be strengthened by appropriately questioning bills, resulting in mutually-agreed reductions.

If all else fails, fee dispute litigation can provide substantial relief from some relatively common examples of attorney overbilling while protecting an attorney’s right to a reasonable fee.

Are Attorneys Required to Refund Legal Fees?

Hiring a lawyer can be expensive. Most lawyers require you to pay a lump sum up front, which they then draw off as they work on your case. What if your legal issue resolves itself quickly?

The good news is that attorneys are required to refund any unearned legal fees.

Every state bar association has enacted its own rules of professional conduct. A majority of these are based on the Model Rules of Professional Conduct of the American Bar Association (ABA).

Attorneys in each state must refund any unearned legal fees. Lawyers who fail to comply with this requirement face disciplinary measures, including sanction, suspension, and actual disbarment.

It is important to note that the rules vary from state to state. Depending on the fee agreement, some states, such as Georgia, allow some legal fees to be non-refundable. Before hiring an attorney, make sure you fully understand their fee structure.

What Happens If I Paid More Than My Lawyer Earned?

What should you do when the total amount billed by your attorney does not exhaust the retainer fee? This could happen if you decide to stop pursuing legal action or your case ends unexpectedly through a settlement or other means.

The good news is that you should be able to receive a refund on the money that is left over after covering all of the legal fees. Ask your lawyer for a final accounting and a refund of unearned legal fees.

Avoid Overpaying Legal Fees

Your attorney’s fee structure should be in writing. You will then fully understand the fees being charged and eliminate any possibility of miscommunication.

Disciplinary action is certain if a lawyer mishandles client funds.

Previously, bookkeeping errors with no real impact on a client could go unnoticed. Due to the popularity of random trust account audits, those “harmless” errors are more likely to be discovered and prosecuted. A common issue in handling funds received from clients is what to do with a check that represents both already earned fees and yet-to-be earned fees in advance.

An Overview of the Situation

Mixed checks frequently occur when a retainer agreement requires replenishing an initial deposit.

In one retainer agreement, the client may be required to deposit $5,000 in trust, against which monthly bills will be drawn, and to keep the $500 in trust at all times. At the end of the month, the client will deposit another $5,000 into the lawyer’s trust account. When the monthly bill is less than $5,000, the check is simply advance fees; if it exceeds $5,000, part of the check will cover the balance of fees owed for the month, and the rest will be advanced fees.

The second situation gives many lawyers pause.

Earned Fees: How Lawyers Should Handle Them

The way earned fees are handled is quite simple – they are never deposited in a trust. Earned fees do not belong to clients; they belong to the lawyer.

Trust accounts are only for money belonging to clients. The firm’s operating account receives a check exclusively for earned fees. The deposit of personal funds into trust (beyond those reasonably necessary to pay bank fees) is prohibited under the rules against commingling and depositing personal funds.

Fees for Advanced Payments

Depending on the jurisdiction, advanced (yet-unearned) fees must be placed in trust. California does not require advanced fees to be placed in a trust, but lawyers can choose to do so.

Although many lawyers believe this is the most prudent route to take, you will not violate any ethical rules if you deposit advanced fees into the operating account.

Unless otherwise agreed by the client, advanced fees must be placed in trust in DC. Advanced fees must be placed in trust in Florida and many other states.

Mixed Checks

Earned fees do not go into trust, so in states that do not require advanced fees to be held in trust, you can deposit the whole check into the firm’s operating account. As-yet-unearned fees must be earmarked in the books as still being subject to refund to the client if they are never earned.

Another perfectly acceptable course of action is to put the entire check in a trust, then write a check from the trust to the operating account since it is permissible to put the advanced fees in trust even though this is not required.

A client’s check should contain both advanced costs (which are required to be held in trust) and a non-refundable retainer (which belongs to the attorney and should not be held in trust).

The State Bar of California’s Handbook on Client Trust Accounting for California Attorneys addresses the issue explicitly. The State Bar of California instructs lawyers to deposit the check in a trust and to withdraw from trust the amount of the non-refundable retainer as soon as the check clears and funds are available.

Do I Need an Attorney?

Depending on your situation, especially if there has been legal malpractice, it might be best to consult with a separate liability attorney if you are in the middle of a fee dispute with your attorney. If you feel the fee is unreasonable, an attorney can help you bring your former attorney to court to recover the money you have already paid.

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