AMENDED ETHICS OPINION 080711 (2025)
PREFACE:
Ethics Opinion 080711 noted that Montana Rule of Professional Conduct (MRPC) 1.5 permits a lawyer to charge a fixed or flat fee, provided that the agreement meets other obligations of professional conduct, including full disclosure to the client, reasonableness of fees, refund obligations, and depositing funds. The original Opinion 080711 indicated that the use of the terms “nonrefundable” and “earned on receipt” are “discouraged.” In 2023, the American Bar Association (ABA) issued Formal Opinion 505, indicating that a fee paid to a lawyer in advance for services to be rendered in the future must be placed in a client trust account and may be withdrawn only as earned by the performance of the contemplated services. The Committee has reconsidered the original Opinion 080711 in light of this and other recent guidance, and now clarifies the following three points: 1) a fee paid to a lawyer in advance for services to be rendered in the future must be placed in a Rule 1.15-compliant trust account and may be withdrawn only as earned by the performance of the contemplated services; 2) it is not accurate to label a fee “nonrefundable” or “earned on receipt” before it actually has been earned, and labels do not dictate whether a fee has been earned; and 3) it is not possible for a lawyer to contract around the requirements that all fees must be reasonable and unearned fees must be returned to the client or the inherent unreasonableness of retaining a fee that has not been earned yet. These points are derived from the application of MRPC 1.5(a), 1.5(b), 1.15(a), 1.15(c), 1.15(d), and 1.16(d).
DISCUSSION:
1. Under the general anti-commingling rule, MRPC 1.15(a), client property, which includes unearned fees paid in advance, must be held in an account separate from the lawyer’s own property. Rule 1.15 was amended to address specifically the issue of advance fees in a new paragraph (c): “A lawyer shall deposit into a client trust account legal fees and expenses that have been paid in advance, to be withdrawn by the lawyer only as fees are earned or expenses incurred.” Therefore, advances must be placed into a client trust account until those fees are earned.
2. If a “flat” or “fixed fee” is paid by the client in advance of the lawyer performing the legal work, the fees are an advance. Use of the term “flat fee” or “fixed fee” does not transform the arrangement into a fee that is “earned on receipt.” Lawyers may want to ensure payment and may, therefore, ask for a fee to be paid in advance before committing to the representation. If they do, then that fee must be placed in a Rule 1.15-compliant trust account, to be disbursed to the lawyer only after the fee has been earned.
3. Advances of unearned fees, including advances of all or a portion of a “fixed” or “flat” fee, are funds the client pays for specified legal services that the lawyer has agreed to perform in the future. Pursuant to 1.15(c), the lawyer must deposit an advance of unearned fees in a Rule 1.15-compliant trust account. The funds may be earned only as the lawyer performs specified legal services or confers benefits on the client as provided for in the written statement of the basis of the fee, if a written statement is required by Rule l.5(b). See also Restatement (Third) of the Law Governing Lawyers §§ 34, 38 (1998). Rule l.5 does not prevent a lawyer from entering into these types of arrangements.
4. To determine when an advance “fixed” or “flat” fee is earned, the written statement of the basis or rate of the fee should include a description of the benefit or service that justifies the lawyer’s earning the fee, the amount of the advance unearned fee, as well as a statement describing when the fee is earned. Whether a lawyer has conferred a sufficient benefit to earn a portion of the advance fee will depend on the circumstances. Rule 1.5(b). The circumstances under which a fee is earned should be evaluated under an objective standard of reasonableness. Rule l.5(a).
5. A lawyer and client may agree that a “flat” or “fixed” fee or a portion of a “flat” or “fixed” fee is earned in various ways. See, e.g., New Hampshire Bar Assoc. Ethics Committee Practical Ethics Article, Practical Suggestions for Flat Fees or Minimum Fees in Criminal Cases (Jan. 17, 2008). See also In re Mance, 980 A.2d 1196, 1202, 1204-1205 (D.C. 2009), citing Alec Rothrock, The Forgotten Flat Fee; Whose Money is it and Where Should it be Deposited?, 1 FLA. COSTAL L.J. 293, 323 (1999) for the proposition that some opinions “allow the lawyer to withdraw fees according to milestones ‘based upon passage of time, the completion of certain tasks, or any other basis mutually agreed upon between the lawyer and client.’” For example, the lawyer and client may agree to an advance flat fee that will be earned in whole or in part based upon the lawyer’s completion of specific tasks or the occurrence of specific events, regardless of the precise amount of the lawyer’s time involved. For instance, in a criminal defense matter, a lawyer and client may agree that the lawyer earns portions of the flat fee upon client consultation, the lawyer’s entry of appearance, review of discovery, preliminary hearing, pretrial conference, disposition hearing, motions hearing, trial, and sentencing. Similarly, in trusts and estates matters, a lawyer and client may agree that the lawyer earns portions of the flat fee upon client consultation, legal research, completing the initial draft of testamentary documents, further client consultation, and completing the final documents. A sample fee agreement based upon a Colorado model form is attached for further guidance. See, e.g., Colo. Rules of Prof’l Conduct R. 1.5(h) (defining a flat fee, explaining proper handling, setting forth required contents of the agreement, and appending an authorized form agreement).
6. The portions of the advance “flat” or “fixed” fee earned as each such event occurs need not be in equal amounts. However, the fees attributed to each event should reflect a reasonable estimate of the proportionate value of the legal services the lawyer provides in completing each designated event to the anticipated legal services to be provided on the entire matter. See Rule l.5(a).
7. The Rules do not allow a lawyer to sidestep the ethical obligation to safeguard client funds by characterizing an advance as “nonrefundable” and/or “earned upon receipt.” A lawyer may not charge an unreasonable fee. See Rule 1.5(a) (“A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses.”). A lawyer may require advance payment of a fee but is obliged to return any unearned portion. See Rule 1.16(d). See also, Rule 1.15(c). Therefore, under the Rules, an advance fee paid by a client to a lawyer for legal services to be provided in the future cannot be nonrefundable. Any unearned portion must be returned to the client. Labeling a fee paid in advance for work to be done in the future as “earned upon receipt” or “nonrefundable” does not make it so. See, e.g., In re O’Farrell, 942 N.E.2d 799, 803 (Ind. 2011) (“Regardless of the term used to describe a client’s initial payment, its type is determined by its purpose, i.e., what it is intended to purchase.”); Mo. Sup. Ct. Advisory Comm. Formal Op. 128 (Amended 2018) (labels not conclusive); In re Wintroub, 277 Neb. 787, 801; 765 N.W.2d 482 (2009) (citing cases from several jurisdictions for the proposition that “a lawyer may not retain an unearned fee, even if the fee agreement clearly provides that the fee is nonrefundable”); Iowa Sup. Ct. Att’y Disciplinary Bd. v. Turner, 918 N.W.2d 130, 147 (Iowa 2018) (simply labeling payment of advance fees as “nonrefundable” does not relieve attorney from obligation to deposit them into trust accounts).
8. As noted in the original Opinion, an “engagement retainer fee” or “general retainer” is a “fee paid, apart from any other compensation, to ensure that a lawyer will be available for the client if required. Such a retainer must be distinguished from a lump-sum fee [i.e., a “flat” or “fixed fee”] constituting the entire payment for a lawyer’s service in a matter and from an advance payment from which fees will be subtracted (see Restatement (Third) of the Law Governing Lawyers § 34, Comment e and § 38, Comment g). An engagement or general retainer fee agreement must comply with Rule l.5 and should expressly include the amount of the retainer fee, describe the service or benefit that justifies the lawyer’s earning the retainer fee, and state that the retainer fee is earned upon receipt. As defined above, an engagement or general retainer fee will be earned upon receipt because the lawyer provides an immediate benefit to the client, such as foregoing other business opportunities by making the lawyer’s services available for a given period to the exclusion of other clients or potential clients, or by giving priority to the client’s work over other matters.
A sample form fee agreement is attached here.