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At the request of the Colorado Supreme Court, the state Bar association has proposed a new ethics rule in light of In re Sather. The Sather opinion was handed down Aug. 22, and the ethics committee of the Colorado Bar has been working on a revision of a Colorado Rule of Professional Conduct concerning advance fees since then. In the case, Westminster, Colo., attorney Larry D. Sather received a “non-refundable” advance of $20,000 for a civil case he undertook. He spent the money instead of putting it in escrow and then failed to return the unearned portion when his client discharged him. Sather was not disciplined for failing to deposit a client’s advance into a trust account because the rules did not clearly state that advance fees must be placed into a trust account until earned. They are not earned upon receipt, like an engagement retainer, the court ruled. “Because we acknowledge that our opinion concerning the proper disposition of such a fee has widespread practical implications and because we wish to provide practicing attorneys a full opportunity both to comment on any proposed rules and also to comport their practices to these ethical constraints, we are referring these issues to the Colorado Bar Association,” wrote Justice Michael L. Bender. The Bar’s ethics committee met throughout the fall with Chief Justice Mary Mullarkey and Justice Bender to determine a procedure for recommending proposed new rules to the Supreme Court. Last week, the ethics committee presented the following draft for Rule 1.5(f), an addition to the already existing rules regarding fees. It states: “Fees are not earned until the lawyer confers a benefit on the client or performs a legal service for the client. Advances of unearned fees are property of the client … and shall be deposited in the lawyer’s trust account …” In the commentary accompanying the proposal, the ethics committee admitted that the rule contained implied suppositions. “There is a presumption that any advance fee is a deposit from which the attorney will be paid for specific legal services, unless the fee agreement expressly states otherwise,” the committee writes. The group also clarified an “earned” fee. “A lawyer cannot treat a fee as ‘earned’ simply by labeling the fee as ‘earned on receipt’ or by calling it an earned retainer,” the commentary says. The committee goes on to quote the Sather opinion: “Rather, the attorney must explain in detail the nature of the benefit being conferred on the client, whether it is the attorney’s guarantee of availability, prioritization of the client’s work, or some other appropriate consideration.” A complete commentary is available on the Colorado Bar Association’s Web site at http://www.cobar.org/. The ethics committee is soliciting public comment through Nov. 8. In the opinion of ethics committee vice chair Ray Micklewright, of Denver’s Wolf & Slatkin, it was wise to send the issue to the Bar. “The court said, ‘We’ll rely on the Colorado Bar Association’s Ethics Committee to suggest the rules that will regulate the way in which lawyers and clients communicate about these sort of flat fee arrangements,’ ” he explained. The rule will clear up a murky ethical area, Micklewright said. “I think it’s always been sort of a conceptual problem: When does a lawyer earn his or her fees? This rule says clearly that you earn your fees when the legal services are provided,” he explained. Lawyers will be forced to be more explicit than ever when it comes to fees, which is fine with Micklewright. “It needs to be spelled out very clearly exactly what a lawyer is being paid for and articulated clearly in writing when those fees are earned,” he said. Rule 1.5(g) explicitly states: “nonrefundable fees or nonrefundable retainers are prohibited.” The clarification was necessary for some attorneys, Micklewright continued. “Lawyers had been sort of confused about the non-refundable retainer. It was left up in the air.” For Micklewright, although the court’s request of the Bar was unique, it was not a surprise. “This was an unusual set of circumstances, but it indicates the great trust that the Colorado Supreme Court has in the ethics committee.”

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