Retainers require well-written fee agreements.
I often hear discussion about retainers. How many different types of retainers are there?
The word retainer is probably overused and can have many different meanings. Generally, the following is a pretty good thumbnail sketch of the different retainers:
First, there is what some people call a general retainer. Usually, a general retainer is not paid for any particular fee or project. A general retainer is earned the second it is received. A general retainer is just to keep the lawyer available for a period of time if the client should need the lawyer. At least in the past, corporations at times would pay law firms or a particular lawyer a general retainer.
The concept of general retainer is in contrast to a retainer that is really an advance fee payment. That type of retainer is unearned legal fees and should be placed in the escrow/IOLTA account. The unearned fee retainer can be taken, as the fee is earned pursuant to whatever the fee agreement states.
There are also flat-fee retainers, which are also in the form of an advance retainer. The fee is not truly earned until the agreed-upon legal work is done. In criminal law, you will often see a flat-fee retainer. A lawyer might say he or she will represent the client for a drunken driving jury trial for $5,000. Lawyers who use flat-fee retainers have to carefully define in the fee letter or fee agreement exactly what that means and when it is earned.
There is also the concept of a nonrefundable fee or nonrefundable retainer. That is a hybrid of the above-discussed retainer. A nonrefundable fee is really not a retainer. It just means the money is earned the second it is paid to the lawyer. This type of fee is often seen in criminal cases, where a lawyer will ask for a certain amount of money and treat it as nonrefundable so the money can immediately be spent and placed in the firm's operating account as opposed to the firm's escrow account. There is some danger to this because sometimes clients change their minds or discharge the lawyer very early in the game. If a substantial amount of money is given, even though it says nonrefundable, the lawyer may have to refund a portion of that fee if the lawyer is discharged after very little work has been done. Factors that could require a return of the fee are the amount of the fee, the amount of work, the sophistication of the client and how clear the fee agreement is on that particular issue.
The purists of the English language might note that calling advance fees retainers is incorrect usage. The concept of a general retainer is perhaps the only true definition of a retainer. All other uses of the word retainer are really just a description of fees that are being paid in advance or fees that are being treated as nonrefundable.
The Rule of Professional Conduct involving fees is found at Rule 1.5. In that rule, there is no use of the concept or word retainer. The rule talks about fees, written fee letters or agreements, what is excessive and what is not, and referral fees.
It is important for the lawyer to clearly define the nature of the fee arrangement in the fee letter or fee agreement. This is important because to a large extent it depends on where the money is placed. If it is an advance fee, then the money has to be placed in escrow until it is earned and withdrawn. If one receives an advance fee and immediately uses the money, in theory that could be a conversion. Sometimes it is better to get away from the description used as retainers, limited retainers, etc. The best method is to simply describe what the fee arrangement is. If a fee is being received and it is supposed to be held until earned, then the agreement would state the amount to be received and the rate at which it will be billed out.
The fee agreement should state whether it is a nonrefundable fee and, if so, that it is earned immediately upon receipt and it is the lawyer's money at that point in time. If it is a general retainer for the purpose of keeping the firm available, then it should so state that this is the fee that is earned immediately upon receipt and there is no additional work that is necessary other than the firm is available when needed, or something to that effect.
How the fee is defined in the fee agreement is what is important. A well-written fee agreement and a fee that is not excessive are what is necessary.
Serving as counsel and on the board of a
corporation can lead to conflict.
May counsel to a corporation also serve on the board of directors of that corporation?
The question is an interesting one, particularly in view of Rule of Professional Conduct 1.13. This rule defines when an organization, such as a corporation, is a client. The rule makes very clear that a lawyer who is retained by the organization represents the organization through the duly authorized constituents.
Rule 1.13 has responsibilities for a lawyer when officers of the corporation refuse to do the right thing. There are certain reporting requirements and perhaps a resignation requirement.
The problem with the lawyer being on the corporation's board of directors is a potential conflict of interest. The lawyer is the constituent to some extent and may not be in a position to provide the board the independent counsel necessary if the lawyer is also counsel for the corporation and a member of the board.
Traditionally, if one goes back 50 to 70 years, it was not uncommon for lawyers to be on the board of directors and also serve as general counsel. But the Rules of Professional Conduct, such as Rule 1.7, have gotten far more complex, particularly with the concept of concurrent conflict of interest.
Pennsylvania has never prohibited directly a lawyer serving on the board and also being general counsel. There are some American Bar Association Ethics Committee opinions that suggest the better practice is not to do so.
Any lawyer who does serve in that dual capacity must make it very clear to the board of directors the different duties the lawyer has. Board members also have to understand that discussions with the general counsel who is a board member may not be in the attorney-client privilege. Board member discussions don't become privileged just because one of the board members is a lawyer.
This becomes confusing when that lawyer is also general counsel for the corporation. These discussions have to be defined before the board so people understand that what they say may not be within the attorney-client privilege when the lawyer is playing a dual role. The service on the board of directors does not trigger any attorney-client privilege.
Therefore, lawyers who want to serve as counsel to a corporation and also on the board have to be very aware of the potential for conflict and also should be aware that the better practice is not to do both roles. But if the lawyer chooses to do both roles, then the lawyer should make it very clear in writing to board members the limitations of this dual role and what the different responsibilities are and also when the attorney-client privilege would apply. The lawyer will make it clear in discussions as a board member there are no privileges as opposed to when people come to the attorney for advice.
This dual role might also create conflicts where at times the lawyer is going to have to disqualify himself or herself.
Chester County lawyer Samuel C. Stretton has practiced in the area of legal and judicial ethics for more than 35 years. He welcomes questions and comments from readers. If you have a question, call Stretton directly at 610-696-4243 or write to him at 301 S. High St. P.O. Box 3231, West Chester, Pa., 19381.