The Money-Back Guarantee

No, not a refund for a conviction, which would tantamount to a contingency fee, but a refund upon discharge. John Wesley Hall notes a decision out of North Dakota, Disciplinary Board v. Hoffman, where an attorney was ordered to refund  the “unearned” portion of a fee upon discharge.

A criminal defense lawyer did not violate ethics rules by charging a flat rate $30,000 fee and depositing it in his operating account. However, when the client terminated the relationship (previously firing another lawyer before this one because he was a “flitter”) when only about $5,000 worth of time had been expended, the lawyer was ordered to refund the balance because it became unreasonable.

The standard practice in criminal defense is to get paid up front, the reason being that the likelihood of payment later is slim to none. The incentives for a client to pay shift. Clients’ expectations of their future ability to pay tend to be unduly rosy, and when the times comes for payment, it’s not there. Unpaid legal fees tend to influence a lawyer’s choices when the path of a case isn’t as anticipated, which happens fairly regularly.

Not too many clients feel an obligation to fulfill their promise to pay if things either don’t go as they hope, or don’t appear to be going that way. Finally, some criminal defense clients are, well, criminals, and will avoid paying if at all possible. In any event, experience is that anything unpaid up front will never be paid. That’s just the way it tends to be.

At the same time, clients always have the right to terminate their relationship with a privately retained lawyer, for good, bad or no reason. The question then shifts to refunding fees paid in advance. Some states allow nonrefundable retainers. New York does not. But even non-refundable retainers aren’t always non-refundable. The agreement between lawyer and client remains subject to the lawyer’s performing the services for which he was retained. Having an agreement that says the lawyer gets to keep the money regardless of whether he delivers doesn’t fly.

The problem is calculating what amount, or percentage, of a legal fee is earned and what should be refunded. Does the fee cover a trial? What are the chances that there would be a trial? If not, and the case would end in a plea, that fundamentally changes the calculus. A few appearances might be the lion’s share of the work the lawyer intended to put into the case, while it would be a pittance for the lawyer who planned to try the case. Nobody can see into the future, making this a gaping hole in the ability to figure out what’s fair.

A secondary problem is that when the calculus is based on actual work performed, it includes aspects that were never understood or agreed upon, such as the “value” of work subsumed in the single advance fee, and fails to account for other factors. What’s the worth of a court appearance for a lawyer who doesn’t charge hourly? What’s the value of motions when the lawyer never kept track of time because he charged a flat fee?  What about the hundred phone calls that were never logged?

On the flip side, what about the lawyer’s having taken a case that precluded his working on another, or conflicted him out of representing a different defendant? The time given to one case comes at the expense of another. How is that calculated? Or the nights with his kids lost to the client who needs constant reassurance? Many clients don’t think telephone calls, meetings and letters are compensable because “they didn’t do anything for me,” though they still require the lawyer to dedicate time to the client even though it’s true that it didn’t do anything to advance the client’s defense. Hand-holding can suck up enormous amounts of time if you let it, and does nothing other than keep the held hand warm.

To make matters worse, even if a discharged lawyer arrives at what he believes to be a fair refund of unearned fees, and even if the client agrees to accept the amount in satisfaction, it doesn’t mean the matter is resolved. Remember, the lawyer has a fiduciary relationship, and the bargaining power is hardly even.  The problem arises when the client takes the amount the lawyer refunded to a new lawyer and learned it’s not enough to cover the retainer. Suddenly, what seemed like a fair deal turns sour.

The new lawyer tells the client that the refund wasn’t sufficient. The client goes back to the lawyer and demands more. The first lawyer says, “sorry, but we made a deal,” except they didn’t. Since the client was unrepresented in his negotiation of a refund with the lawyer, what seemed like a resolution is now open to renegotiation.

This creates the perverse incentive for the first lawyer to refuse to give a refund unless the client is represented by a new lawyer and can reach a binding settlement. But the client can’t retain new counsel because he has no funds because he hasn’t gotten a refund.

So what seems to be such a well-intended method for clients, who are entitled to discharge a lawyer and obtain a refund, turns into an absurd Catch-22. Adding insult to injury, the prosecution for which the client needs representation continues apace while the dispute over the refund leaves the client without representation.

While the client can always grieve the lawyer’s refusal to refund the legal fee, that won’t slow the speed of prosecution or put money in the client’s pocket to retain new counsel. The argument that this conundrum impairs the client’s ability to freely discharge his lawyer is certainly true, but does nothing to enable the lawyer and client to timely resolve their differences and enable the client to retain new counsel.

The rules sound great on paper, but they often play out very differently in practice. This is an area where the rules have created huge disincentives for both lawyers and clients, despite the fine-sounding rhetoric.  Nobody is happy about it, and nobody is helped. And yet, these remain the rules.


2 thoughts on “The Money-Back Guarantee

  1. Foolish

    *SHG…….Disregarding my previous comment on posting anonymously, as it is not good for ones professional life to be linked to stories like the one that follows:

    Perfectly made point, from a defendant’s standpoint. I had a business appointment that involved meeting a client at a federally-owned facility. Inadvertently, I forgot that I was lawfully carrying a firearm on my person. Lawfully, that is, so long as I wasn’t on “federal” property. It was just in the aftermath of 9/11, and this transgression was easily discovered.

    I was released after hours of questioning and given a ticket with a CFR violation code on it. Fearing a potential stretch in a less than desirable establishment, I hired a rather well-known defense attorney who came with a $10k retainer. Ultimately, I appeared at the Federal courthouse, was ushered into a room, not a court room, but an office, where I was informed b the investigator that they “verified my story” and would be dismissing the case with a $100 fine. Note I was never photographed, fingerprinted or placed in a cell at the time I was detained for questioning, or anytime thereafter.

    I did feel a bit “hosed” for paying $10,000 of my hard earned money, but also recognized, after discussing it with my attorney that I did receive the best outcome I could have expected and he was gracious enough to offer me “credit” towards any future criminal defense needs that may arise. As I do my level best to avoid such situations, thankfully I have not had to take him up on the offer in the twelve years that have passed.

    He may not have spent $10k worth of time, but I got $10k worth of outcome….and a painful reminder to be aware of my possessions and my environment. And no, my wife was not pleased with me.

    1. SHG Post author

      Federal cases raised the bar even more than state cases. First, federal judges are far less likely to care whether a lawyer gets paid, or adequately paid, for his case. Second, signing on at arraignment obliges the lawyer to follow through on appeal (if appropriate) as well. That means there is a huge potential for the lawyer to take a huge beating on the case. Finally, federal judges tend to be far more demanding and have far greater expectations of lawyer than state court judges, meaning that the work required in a case can be far more burdensome than in state court.

      So a $10k retainer for a case that ended quickly with a perfect outcome? Sounds like a deal to me. As for $10k and the potential of having to suffer a ride through the federal system, it was a very costly mistake. But it’s not the lawyer’s fault, as you obviously understand and appreciate.

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