On occasion, an attorney may contract with a client for a fixed or flat fee. Often such a fee is paid at the beginning of the representation before the work has been started or completed.
May those funds be deposited into the law firm’s general operating account or should they be placed in the firm’s trust account?
The short answer is that, until the fee is earned, the funds should be placed into the firm’s trust account.
A client can fire a lawyer at any time for any reason or for no reason. And Rule of Professional Conduct 1.16(d) requires an attorney, upon termination, to refund “any advance payment of fee that has not been earned.” Thus, if a client discharges an attorney prior to the earning of the fixed fee and the funds have been placed in the firm’s operating account, Rule 1.15(II) would be violated.
But the obligation to refund unearned fees does necessarily require an attorney to refund the full amount of a fixed fee if the attorney is discharged prior to the completion of the specified services.
For example, an attorney can designate by contract certain points in a representation at which specific portions of the fixed fee are earned. But such an agreement must be made in good faith and not as an attempt to penalize the client for premature termination. See Georgia Formal Advisory Op. No. 03-1.
In addition, a lawyer may enter into an “availability-only” retainer agreement, wherein the client is making payment to the lawyer solely to secure the lawyer’s future availability and thereby restricting the lawyer’s ability to represent other clients. (Georgia Formal Advisory Op. No. 03-1; Alabama RO 2008-03). Such a fee is earned at the time of receipt. But lawyers must not improperly characterize a fixed fee agreement for future services as an availability-only retainer.