In New Jersey, nonrefundable retainer agreements may be ethical in some circumstances according to N.J. Advisory Comm. Op. 644 (Oct. 4, 1990). The opinion states: that "...a retainer may be fully earned, and therefore nonrefundable, when the attorney stands ready to provide the anticipated representation, whether or not it actually materializes.” Furthermore, such arrangements are ethical only "provided that such a fee arrangement is fair and reasonable under the circumstances of the particular representation." “...[A]n initially reasonable nonrefundable retainer arrangement may become unreasonable because of subsequent unforeseen circumstances, such as the sudden death of a client resulting in an abatement of the action. Clearly the unused portion of even a nonrefundable retainer should be returned if contravening events should render it unconscionable for the attorney to keep it.”

However, in the realm of matrimonial practice, R. 5:3-5(b) forbids non-refundable retainer agreements. (R. 5:3-5 presents the roadmap for retainer agreements in the family law context.) Experienced New Jersey attorney Elliott Gourvitz ignored this proscription and was sanctioned by the Disciplinary Review Board. The offensive clause of his retainer agreement stated: "In the event that the amount of time we spend on your case (and the resulting fee generated) is less than the amount of money you have paid us, the unused money shall be promptly returned to you, except for a minimal fee of $5,000. This nonrefundable fee may exceed the attorney's ordinary hourly time charge." One of the three clients who filed an ethics complaint against Gourvitz on the basis of the nonrefundable fee clause reported that at the initial meeting with Gourvitz. associate, she paid him a $5,000 retainer. A week later, she called to report the happy news that she had reconciled with her husband and did not wish to proceed. After contacting the firm on numerous occasions, she eventually received a $1,275 refund in 2007 (more than 3 years after the initial payment) after retaining counsel to pursue her interests against the Gourvitz firm.

The DRB found that Gourvitz violated R. 5:3-5(b) as well as RPC 1.5(a), requiring that fees be reasonable, and RPC 8.4(a), which makes it unethical to violate or to try to violate ethics rules.

The area of nonrefundable fees is a hot topic nationwide and we have most likely not heard the final word in New Jersey. Stay tuned! What is the rule in your state?

Categories: Uncategorized

Comments are closed.