Nonrefundable fee clauses do not give attorneys license to keep large sums of money for doing 
nothing.

I am an inmate in a state correctional institution. I hired a lawyer and he wanted a $50,000 retainer. I paid him half the retainer. I had two preliminary hearings and he did not show up. Because he didn’t show up, I then fired him. I requested a refund of the fee. He refused, saying he had a nonrefundable fee clause. Does that protect him from keeping the funds?

Nonrefundable fees are accepted in Pennsylvania and some other states, but they are not favored. The courts have allowed lawyers sometimes to retain substantial nonrefundable fees, but that is when there is a sophisticated client, such as a business or a law firm, involved and the firm has actually done significant work or turned away other business.

The basic nonrefundable fee is acceptable as long as the lawyer outlines it and emphasizes it in the fee agreement. But if the lawyer doesn’t do any work and is only collecting the fee, then the fee should be returned.

In the question as presented, the lawyer clearly should return the fee. The lawyer quoted a fee of $50,000 and apparently received one-half of the fee. The lawyer, because he wasn’t paid the entire fee, chose not to go to two preliminary hearings. That was obviously a major mistake, because going to a preliminary hearing doesn’t enter one for trial. Certainly no one charges $25,000 to go to a preliminary hearing, which is normally in the range of anywhere between $600 and $1,500. The client then discharged the lawyer because the lawyer wasn’t appearing.

Under that scenario, the lawyer did not do anything and the lawyer’s failure to appear was the cause of the lawyer’s discharge. The lawyer cannot accept a fee that is nonrefundable and then create conditions where the lawyer is not performing his or her duties, yet the lawyer refuses to return the fee. Rule of Professional Conduct 1.5 prohibits an excessive fee. This would be a classic excessive fee case.

A classic example where a nonrefundable fee should be returned is if a lawyer accepts a nonrefundable fee when the lawyer knows he or she can’t handle the case because of a conflict of interest, either with a co-defendant or with state witnesses. At times, lawyers will accept nonrefundable fees from two clients, but will ultimately be conflicted out. If that occurs, it is not the client’s fault and the lawyer may have to return the fees.

In the question presented here, the lawyer chose not to take any steps until he received the full fee. As a result, the client discharged the lawyer and the lawyer should return the fee. There is absolutely no basis for not returning the fee under these circumstances.

Rule of Professional Conduct 1.5 precludes excessive fees. Receiving a $25,000 retainer and doing absolutely no work while waiting for the balance does not allow the lawyer to keep that fee if the lawyer is discharged because he or she decided not to go to the preliminary hearings. Under those circumstances, the client should make a complaint with the Office of Disciplinary Counsel and the client should also make a complaint with the Client Security Fund, because this kind of conduct may border on conversion.

The bottom line is a lawyer, as a professional, has to use some common sense. Using the magic word “nonrefundable” does not allow a lawyer to keep massive sums of money for doing nothing. This typical fee arrangement would clearly violate Rule 1.5 of the Rules of the Professional Conduct as an excessive fee.

Law firms must set up a screening process to keep newly hired lawyers from participating in cases that present potential conflicts of interest.

A very good trial lawyer has been hired by our law firm. I am concerned about conflicts of interest because this lawyer did a lot of plaintiffs work and our firm does a lot of defense work. What can I do?

The problem of lawyers coming to a new firm in this modern world of law practice is a very serious issue. When a lawyer comes to a new firm, the lawyer brings with him or her all of the conflict of interest issues that the lawyer had from past firms and past clients. The new firm is then burdened with those conflicts.

Obviously, one way to try to avoid those conflicts is through discussions during the hiring process and sharing the names of clients. On the other hand, there are some issues of confidentiality that may be violated by so doing. Under Rule of Professional Conduct 1.6, there is a very broad confidentiality rule. Although names of clients are not usually included within the attorney-client privilege, it depends on the context in which the names are revealed.

A critical step when a lawyer joins a new firm is for the new firm to immediately set up a screening process under Rule of Professional Conduct 1.10(b). That rule prohibits the lawyer or the lawyer’s firm from representing someone where there is a conflict of interest. In other words, when a new lawyer comes in, if he or she worked for firms that represented people on the other side of litigation, then the new firm normally is not going to be able to continue.

But there is a screening process under Rule 1.10(b) of the Rules of Professional Conduct. That process requires the disqualified lawyer be screened from any participation in the case. It requires that the new lawyer is not apportioned any part of the fees from any conflict cases. The process requires immediate written notice to the former clients so these clients can ensure compliance.

These steps are very difficult to take, particularly in a small firm where there is close contact by the lawyer. The courts will carefully scrutinize these matters. There was one decision where the screening was found to be ineffective because of the fact that the law firm did not have a good system to ensure that fees were not apportioned to the lawyer on the conflicted cases.

One of the best cases in this area that every lawyer should read when he or she is hiring an attorney who is bringing conflict of interest issues to the new firm is a rather old case, but is the still valuable case of Dworkin v. General Motors, 906 F.Supp. 273 (E.D.Pa., 1995). That case involved a lemon-law type of law firm. That firm handled almost exclusively plaintiffs’ cases against car manufacturers for lemon-type cars. The firm hired an attorney who came from one of the car manufacturers. In a very detailed decision, the federal judge listed what has to be done for an effective screening process. In that case, one of the key aspects was the fact that it was a very detailed screening process set up by the new firm and the new firm had set this up before the lawyer actually came into the office.

Obviously, the effectiveness of screening and issues of conflict and whether the screening would be effective is going to be decided on a case-by-case basis, but the Dworkin case is one that should be read closely by any firm hiring a lawyer who is going to bring some burdensome conflicts with him or her when he or she comes to the new firm.

Another critical aspect is the notification to the former client and perhaps former firm. That has to be done promptly and really almost immediately — the sooner the better. A delay could be fatal to the screening process.

Because of the mobility and changing nature of the practice of law, it is not unusual that lawyers are going to move from firm to firm, sometimes multiple times during a long legal career. Despite the changing environment of practicing law, the sense of professionalism still prevails.

The rules prohibiting conflict of interest, particularly Rules 1.7, 1.8 and 1.9, are alive and well. The disqualification rule, which includes the screening provisions under Rule of Professional Conduct 1.10, also has to be closely followed.

A wise law firm will carefully consider all of these rules. Once someone is hired and becomes involved, if the screen is determined to be ineffective, the law firm could lose quite a bit of money if it is no longer able to proceed on cases that have been worked on for some time. •

Chester County lawyer Samuel C. Stretton has practiced in the area of legal and judicial ethicsfor more than 35 years. He welcomes questions and comments from readers. If you have aquestion, call Stretton directly at 610-696-4243 or write to him at 301 S. High St. P.O. Box 3231, West Chester, Pa. 19381.