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Dowling, Revisited

11/29/2017

November 29, 2017

“A rose by any other name would smell as sweet,” said a 13-year-old Juliet to Romeo. In the vernacular of the modern-day millennial, Juliet’s pronouncement in Shakespeare’s 1 timeless tragedy roughly translates into a dab.
Fast forward approximately 400 years since the time of Romeo and Juliet, when on May 3, 2007, the Illinois Supreme Court issued its opinion in Dowling v. Chicago Options Associates, 226 Ill. 2d 277 (2007). In it, the Court affirmatively recognized three types of retainers available to attorneys in Illinois: the classic retainer, the security retainer, and the advance payment retainer.  Six years after Dowling, the Commission published an E-Blast entitled “Minimizing Your Risk – The Proper Handling of Retainers”,2 summarizing the three types of retainers and the requirements for each. In short, advance payment retainers are the lawyer’s property immediately upon payment, and that means no client trust accounts, no ledger sheets, no hassle. The classic retainer goes a step further—the client relinquishes all interest in those funds. See In re McDonald Bros. Construction, Inc., 114 B.R. 989 (Bankr. N.D. Ill. 1990) To the solo practitioner who divides their time between practicing law and chasing clients around for outstanding fees, the allure of a retainer that ostensibly guarantees a lawyer’s fees regardless of any work performed must seem irresistible. To that same practitioner, it may be useful to delve a little deeper into the three types of retainers before boldly declaring that a retainer is “non-refundable”, lest that attorney wants to belong in an increasing list of lawyers who are being investigated for improper use of these retainers.

The Classic

The Court in Dowling defined the classic, or general, retainer in the following way:
[A classic] retainer is paid by the client to the lawyer to secure the lawyer’s availability during a specific period of time or for a specified matter. This type of retainer is earned when paid and immediately becomes property of the lawyer, regardless of whether the lawyer ever actually performs any services for the client.
Dowling, 226 Ill. 2d at 286. The Restatement, which refers to the same type of retainer as an “engagement retainer”, submits that the retainer is:
a fee paid, apart from any other compensation, to ensure that a lawyer will be available for the client if required. An engagement retainer must be distinguished from a lump sum fee constituting the entire payment for a lawyer’s service in a matter and from an advance payment from which fees will be subtracted… A fee is an engagement retainer only if the lawyer is to be additionally compensated for actual work, if any, performed.

Restatement (Third) The Law Governing Lawyers, §34 (2001) In the simplest of terms, a classic retainer has nothing to do with compensation for services: the lawyer’s promise to be available earns the retainer; any actual work performed will require additional payment.

The Advance Payment

Next, we move on to the advance payment retainer, the subject of Dowling’s inquiry. In Dowling, the Court set forth the following requirements for an advance payment retainer:

  1. It must be in writing;
  2. It must clearly disclose to the client the nature of the retainer, where it will be deposited, and how the lawyer will handle withdrawals from the retainer in payment for services rendered;
  3. It must contain language advising the client the option to place his or her money into a security retainer;
  4. It must advise the client that the choice of the type of retainer to be used is the client’s alone, and if the attorney is unwilling to represent the client without receiving an advance payment retainer, then the agreement must so state;
  5. Finally, it must set forth the special purpose behind the retainer and explain why an advance payment retainer is advantageous to the client.

The last requirement is where most attorneys falter: There are few scenarios in which an advance payment retainer would be appropriate, Dowling being one those few. In Dowling, the client wished to hire counsel to represent him against judgment creditors. Paying the lawyers a security retainer would have meant that the funds still belonged to the client, which in turn made it subject to the claim of the client’s creditors. By using an advance payment retainer, the client placed the funds out of the reach of his creditors and secured legal representation. In the absence of a carefully drawn retainer agreement, the majority in Dowling turned to the parties’ intent—their desire to shield the client’s assets from the judgment creditor—as the controlling factor in construing the retainer as an advance payment retainer. Where intent cannot be gleaned from the language of the parties’ agreement, then it must be construed as a security retainer.

The Security

Like Shakespeare, the security retainer needs no introduction, but perhaps deserves endless discussion and its own SparkNotes.3 It is by far the most common type of retainer used by attorneys. A security retainer allows the attorney to hold the retainer to secure payment of fees for future services and provides, well, security. Money is deposited into an IOLTA account and remains the property of the client until it is earned by the attorney. It is simple in concept, but not always so simple in execution.

Table Time

Every fee agreement, regardless of type, should be viewed through the prism of Rules 1.5 and 1.16(d). That is, every fee collected by the lawyer must be reasonable, and all fees are subject to refunds (in the case of classic retainers, a refund is appropriate if the attorney reneged on the promise and was unavailable for representation). If widespread confusion and panic has not yet set in, here is a table:

 

Classic

APR

Security

Interest

Lawyer’s upon payment

Lawyer’s upon payment

Client’s until applied to legal services

Deposit

Operating account

Operating account

Trust account

Purpose

Present payment to secure future availability

Payment in exchange for commitment to provide legal services

Secure payment of fees for future services that lawyer is expected to perform

Writing required?

No4

Yes

No5

Need to be reasonable?

Always

Subject to refund?

Always

 

For advance payment retainers, it may be helpful to ask the following questions:

  1. It is necessary to accomplish some purpose for the client that cannot be accomplished by using a security retainer?
  2. Is the intent of the parties clear from the terms of the contract?
  3. Does it meet the elements set forth in Dowling?
  4. Is the language of the engagement letter unambiguous?

If the answer is “no” to any of the above questions, there is a good chance that it is not an advance payment retainer.
            For classic retainers, the following set of questions may provide guidance:

  1. Is the lawyer charging a classic retainer while at the same time agreeing to represent a client in a specific legal matter?
  2. It the fee being collected for work that had been performed, was being performed, or was to be performed?
  3. Does the client have any questions as what the money is being used for?

If the answer to any of those questions is “yes”, then the retainer might not be so classic.

Wherefore art thou, retainer?

The proverbial rose here is the security retainer, and calling it by another name does not make it so. Neither advance payment retainers nor classic retainers are intended to be used by lawyers as an across-the-board, standard business practice. Attorneys who venture into unfamiliar territory simply to save themselves the hassle of maintaining complete records or to avoid issuing refunds risk an unhappy client filing a request for investigation. Finally, here is a tl;dr (too long; didn’t read) for the millennial: be careful when using classic or advance payment retainers.

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1Mr. Shakespeare went on to produce “West Side Story” and will be directing the upcoming live-action film “The Lion King”.

2See https://www.iardc.org/minimizingyourrisk_retainers.pdf


3 See Rule 1.15 of the Illinois Rules of Professional Conduct.

4However, an agreement in writing is always preferred, if not required, by the Illinois Rules of Professional Conduct. See Rule 1.5(b)-(c).

5See above footnote.