At its March 1, 2025, meeting, the VSB Council voted to approve changes to Rule of Professional Conduct 1.5. The proposed amendment to the Rule includes a new subjection (g), which codifies an understanding that has been around since 1994: “nonrefundable advanced legal fees are prohibited.” The Virginia State Bar will now petition the Supreme Court of Virginia to adopt the proposed change.
The prohibition in proposed Rule 1.5(g) is not new. In 1994, Legal Ethics Opinion 1606 examined several aspects of fees under Rule 1.5 and stated that “any fee arrangement involving advanced legal fees and providing for a nonrefundable or minimum fee violates the Disciplinary Rules and is thus improper.” LEO 1606, at *4. As support, LEO 1606 cited the need to ensure a client has an unqualified right to terminate the attorney-client relationship, that a lawyer has an ethical duty to refund any advanced fees that are not earned, and that a fee that is unearned is unreasonable.
Proposed Rule 1.5(g) includes two proposed comments that reiterate and expound on the points made in LEO 1606. Proposed Comment [10] states that “[a] nonrefundable advanced fee compromises the client’s unqualified right to terminate the lawyer-client relationship because the right to terminate the representation would be negatively affected if the client would still risk paying for services not provided.” In other words, allowing a lawyer to retain fees for services not rendered could force a client to continue with the representation despite their loss of confidence in the lawyer’s integrity, judgment, or capacity.
Proposed Comment [10] also points out that retention of a nonrefundable fee after a client terminates the attorney-client relationship before the lawyer earns the fee would violate the lawyer’s responsibility to refund to a client any advanced fees not earned at the termination of the representation. Proposed Comment [10] ultimately makes clear that “an unearned fee is per se unreasonable” under Rule 1.5(a). Accordingly, a lawyer who retains an unearned nonrefundable fee would be charging an unreasonable fee and, thus, violate the Virginia Rules of Professional Conduct.
Proposed Comment [11] makes an important distinction for legal practitioners between true retainers and advanced legal fees, something that LEO 1606 also addressed. A true retainer is a client’s payment for guaranteeing the right to secure a lawyer’s employment to represent his interests in future legal matters. A lawyer earns a true retainer when paid. Thus, the fee becomes the lawyer’s property upon receipt. As proposed Comment [10] makes clear, “the retainer must be charged solely for these purposes and not as prepayment for legal services to be rendered in the future.” An advanced legal fee, however, is one paid to a lawyer for legal services not yet performed. Such fees are not the lawyer’s property until earned and thus must be deposited into the lawyer’s trust account upon receipt. The distinction lies in the fee agreement’s purpose: securing a lawyer’s availability to take a client’s legal matter at a later time vs. paying a lawyer in advance for a specific legal matter for which a client has presently retained the lawyer.
A lawyer who does not understand this distinction may encounter issues with nonrefundable fees and thus violate Rule 1.5(g). Virginia lawyers should closely review their standard fee agreements and engagement letters to ensure that the terminology complies with Rule 1.5, which, above all else, requires legal fees to be reasonable.
For more information about the proposed Rule 1.5(g) or assistance with ensuring your standard fee agreement complies with it, please contact:
Dennis Quinn (dennis.quinn@carrmaloney.com),
Sarah Conkright (sarah.conkright@carrmaloney.com) or
William Bartle (william.bartle@carrmaloney.com). By: Sarah W. Conkright and William Bartle