By Jett Hanna
Two recent Texas Ethics Opinions from the Professional Ethics Committee for the State Bar of Texas may change how lawyers structure contingent fee agreements and non-refundable retainers.
In Opinion 610, the opinion committee determined that it is unethical for lawyers to retain a security interest in a client’s cause of action under Texas law. Discussions with certain bar officials indicate that a similar determination applies when lawyers receive a portion of a client’s cause of action. Contingent fee agreements in Texas have commonly included provisions which either grant a security interest in or an assignment of a client’s cause of action to secure payment of a contingent fee.
The ethics of non-refundable retainers are the subject ofOpinion 611. The conclusion of the opinion is that “non-refundable retainers” advanced for payment of future legal services are refundable if legal representation is not carried out. As a result, it is an ethical violation to deposit these types of non-refundable retainers in the lawyer’s operating account rather than in a trust account. Lawyers may transfer these funds to their operating accounts as their fees are earned. Non-refundable retainers paid solely for securing the availability of a lawyer are earned immediately, and may be deposited directly in operating accounts. Criminal law attorneys frequently treat retainers as if they have been earned upon payment. Lawyers in other practices may do so as well when payment is consider a flat fee, even though future legal work is required. Family lawyers frequently charge a non-refundable retainer, in part to discourage shopping that works to conflict out family lawyers in a particular jurisdiction. Under the opinion, care must be used in characterizing the nature of this fee.
While committee opinions do not have the force of law, they are persuasive authority on interpretation of ethics rules. Lawyers should carefully consider whether their fee practices should change in light of these new opinions.