Nonrefundable Retainers: Impermissible Under Fiduciary, Statutory and Contract Law

Since the New York Court of Appeals banned nonrefundable retainers, numerous other courts have joined in prohibiting this widespread practice of lawyers charging a fee for services in advance and keeping the fee even if the services are not performed. This may reflect increased judicial recognition of the effect of egregious fee practices on the image of the bar and the role such practices play in the declining esteem in which the legal profession is held. Among the more provocative contributors to this ongoing debate, Professor Steven Lubet recently reviewed our work advocating the ban against nonrefundable retainers and posed a number of questions about the per se prohibition against them. In this Article, we respond to Professor Lubet\u27s questions as well as to those posed by other scholars. In Part I, we discuss the client discharge right, the cornerstone upon which the absolute ban on nonrefundable retainers rests, and respond to a series of arguments concerning its meaning, how it may be impaired, and whether it may be waived. In Part II, we show that legitimate purposes that may be served by nonrefundable retainers cannot avoid impairing the client discharge right, but that other fee arrangements that do not impair that right can easily be designed to serve some of those ends. In Part III, we extend an invitation to address the issues we have identified to all those who believe that a per se ban against nonrefundable retainers is unnecessary to prevent the abuses they generate. We have previously extended this invitation to devise a less inclusive rule that would in a practical and self-effectuating way prohibit the abuses while permitting the attainment of legitimate purposes. Unfortunately for the debate, however, none of the participants have accepted this invitation. We therefore think it bears repeating