Refundability: When is a Fee Earned?

 Posted on January 15,2011 in Uncategorized

More on my series of posts about the proposed amendments to the Disciplinary Rules, and specifically the State Bar's efforts to do away with flat fees in Question A of the referendum...

The State Bar's theory appears to be that there exists a dichotomy: a fee is either "earned" or "refundable," so that if there is any possibility that a portion of a fee will have to be refunded, that portion is not earned.

So when is a legal fee no longer refundable?

A portion of any fee is refundable as long as a court could decide that the fee was excessive-under the current rules, "unconscionable"; under the amended rules, retrospectively "unreasonable." The limitations period for filing a grievance against a lawyer in Texas is four years.

So a lawyer could complete her representation, and four years later the client could file a grievance alleging that the fee was (under the rules if they are amended) in retrospect unreasonable. A court (or a grievance committee, if the lawyer was so foolish) could, years after the contracted work was done, rule that the fee had been unreasonable, and the lawyer could be required to refund a portion of the fee. The possibility is remote, but it exists.

If-as the State Bar contends-a fee is not earned until there is no possibility that the lawyer will be required to refund a portion of it, then a fee (any fee, not just a flat fee) is not earned until four years after the representation is complete. And if-as the State Bar wishes-a lawyer must keep any unearned fees in trust, then any lawyer who spends a penny of any fee until four years after the representation ends does so at her own risk.