Ethics Opinion 389

Flat Fees, Subscription Fees and Disbarment

Rule 1.15 contains the default rule requiring a lawyer to hold funds of clients or third parties in trust, separate from the lawyer’s funds. Rule 1.15’s application to prepaid flat fees (typically received by lawyers in connection with criminal cases, immigration matters, and subscription services) has been the subject of much confusion among the bar’s membership.

The current text of Rule 1.15(e) of the District of Columbia Rules of Professional Conduct requires the following treatment of a client’s advances (prepayments) of fees or costs:

• Advances of unearned fees and unincurred costs shall be treated as property of the client [in a qualifying lawyer trust account] until earned or incurred unless the client gives informed consent to a different arrangement. Regardless of whether such consent is provided, [a lawyer shall refund] to the client [ ] any unearned portion of advanced legal fees and unincurred costs at the termination of the lawyer’s services in accordance with Rule 1.16(d).

A trilogy of cases from the D.C. Court of Appeals between 2009 and 2024 has defined “unearned” fees, “earned” fees, and client “informed consent” in ways that are not obvious on the face of the rule.¹

Failure to follow the strict requirements of these three cases creates a risk of disciplinary prosecution for commingling (which is typically sanctioned by public censure), negligent misappropriation (which carries a presumptive minimum sanction of a six month suspension), or intentional or reckless misappropriation (which carries a presumptive sanction of disbarment under In re Addams, 579 A.2d 190, 191(D.C. 1990) (en banc)).²

This opinion examines common misconceptions about the rules governing fee agreements that could expose District-licensed attorneys to professional discipline and offers practical ways to comply with the applicable Rules and case law.

Applicable Rules³

• Rule 1.0(e) (Terminology: Informed Consent)
• Rule 1.8(i) (Lawyer Liens and Their Enforcement)
• Rule 1.5 (Fees)
• Rule 1.7 (Conflict of Interest: General Rule)
• Rule 1.15 (Safekeeping Property)
• Rule 1.16 (Declining or Terminating Representation)

Discussion

The Trilogy Adds Requirements Not Evident in Rule 1.15.
The first case in the trilogy, In re Mance, 980 A.2d 1196 (D.C. 2009), stands for the proposition that prepaid flat fees and prepaid costs are subject to the same entrustment requirements under Rule 1.15(a) as prepayments for hourly fee projects; absent a valid Rule 1.15(e) waiver of entrustment, prepaid fees and costs belong in trust, until earned by performance of the associated work.⁴

The second case, In re Ponds, 279 A.3d 357 (D.C. 2022), adds requirements for a lawyer to provide verbal and written disclosures to a client before the client can waive the entrustment requirements under Rule 1.15(a).

The third case in the trilogy, In re Alexei, 319 A.3d 404 (D.C. 2024), holds that a lawyer may not make interim draws from trust on a flat fee project unless the client has expressly agreed to treat portions of the flat fee as earned before completion of the entire flat fee project.

Rule 1.15(d) has traditionally allowed a lawyer to impound disputed trust funds, for reasons such as the lawyer’s good faith assertion of a reasonable amount of fees earned; provided that the lawyer could not draw from trust over the client’s objection (even if that objection is baseless), until the fee dispute was resolved via settlement, arbitration, or litigation. See, e.g., In re Haar, 667 A.2d 1350, 1353 (D.C. 1995) (Haar I); In re Haar, 698 A.2d 412, 421 (D.C. 1997) (Haar II). Alexei suggests Rule 1.15(d) will no longer apply to disputes over prepaid fees unless the lawyer’s flat fee agreement has an explicit contractual mechanism to resolve a lawyer’s claims to the portion of fees earned when the lawyer’s services are terminated before completing the entire scope of work to which the flat fee applies.

Engagement Agreement and Banking Formalities.
Rule 1.5 contains specific requirements for disclosure of how fees and costs will be charged to a client. When “the lawyer has not regularly represented the client,” the lawyer must provide the client with a writing stating “the basis or rate of the fee, the scope of the lawyer’s representation, and the expenses for which the client will be responsible.” Rule 1.5(b).⁵ That writing must be transmitted “before or within a reasonable time after commencing the representation.” Id.

As part of any investigation into alleged lawyer misconduct, Disciplinary Counsel likely will request a copy of the lawyer’s engagement agreement with the client. Failure to have complied with Rule 1.5(b) can provide an additional basis for discipline even in cases that started with no allegations relating to the fee or its collection. If the engagement agreement provides for prepayment for future services, Disciplinary Counsel’s investigation may expand into whether the lawyer has complied with the trilogy even if funds handling has nothing to do with the original complaint against the lawyer.

Under Rule 1.5(a), “[a] lawyer’s fee shall be reasonable.” The rule provides a non-exclusive list of eight factors to be considered in assessing the fee’s reasonableness. Under case law, however, the overarching requirement of reasonableness imposes rights and obligations that are not readily apparent from the current text of Rules 1.0 (Terminology), 1.5 (Fees), or 1.15 (Safekeeping Property).

Under Rule 1.15(a), a lawyer in possession of property of clients or third parties must keep that property separate from the lawyer’s own property. When the property is money, the money must be kept in a trust account. The current version of Rule 1.15(e) provides that:

• Advances of unearned fees and unincurred costs shall be treated as property of the client pursuant to paragraph (a) until earned or incurred unless the client gives informed consent to a different arrangement. Regardless of whether such consent is provided, Rule 1.16(d) applies to require the return to the client of any unearned portion of advanced legal fees and unincurred costs at the termination of the lawyer’s services in accordance with Rule 1.16(d).

Comment [9] to Rule 1.15 explains:

• Paragraph (e) permits advances against unearned fees and unincurred costs to be treated as either the property of the client or the property of the lawyer, but absent informed consent by the client to a different arrangement, the rule’s default position is that such advances be treated as the property of the client, subject to the restrictions provided in paragraph (a). In any case, at the termination of an engagement, advances against fees that have not been incurred must be returned to the client as provided in Rule 1.16(d). For the definition of “informed consent,” see Rule 1.0(e).

“’Informed consent’ denotes the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.” Rule 1.0(e). Clients who are “experienced in legal matters generally and in making decisions of the type involved” or are represented by independent legal counsel may require “less information and explanation than others.” Id. at cmt. [2].

These rules are intended to protect clients. Client money in a lawyer trust account cannot be attached by the lawyer’s creditors. That is not the case when client funds are located in a lawyer’s operating account. The above language from the current version of Rule 1.15 authorizes clients to give “informed consent” to having their funds put in an operating account but does not detail exactly what must be done to get an enforceable informed consent. The trilogy now requires additional steps to obtain an effective consent, as discussed below.

Client protection also requires lawyers to withdraw money that belongs to the lawyers from the trust account promptly after the lawyer becomes entitled to the money. Failure to withdraw the lawyer’s funds results in “commingling” of entrusted funds with lawyer funds and potentially exposes the trust account to claims from the lawyer’s creditors. In re Hessler, 549 A.2d 700, 702 (D.C. 1988) (“By mingling client funds with the attorney’s own, the client’s funds become more difficult to trace and are subject to the risk that they may be taken by creditors of the attorney.”).

Commingling is treated as a serious disciplinary offense because it is often a precursor to accidental misappropriation. Simple commingling, without other aggravating factors, typically results in a censure. In re Osborne, 713 A.2d 312, 313 (D.C. 1998). The presumptive sanction for negligent misappropriation of funds that are supposed to be in trust is a six-month suspension. In re Anderson, 778 A.2d 330, 342 (D.C. 2001). The presumptive sanction for reckless or intentional misappropriation is disbarment. In re Addams, 579 A.2d 190, 191(D.C. 1990) (en banc) (“[I]n virtually all cases of misappropriation, disbarment will be the only appropriate sanction unless it appears that the misconduct resulted from nothing more than simple negligence.”).⁶

Contract Caveat: According to Mance: No Matter What the Engagement Agreement Says, Flat Fees for Future Services Are Not “Earned on Receipt.” Likewise, Calling the Prepayment a Retainer Doesn’t Make It Earned on Receipt.
In re Mance, 980 A.2d 1196 (D.C. 2009), involved a murder case in which a father hired an attorney to defend the father’s son. The attorney put most of the money in his trust account and the rest in his operating account. Id. at 1200. At the time, it was common for criminal defense attorneys to have flat-fee-earned-on-receipt engagement arrangements.

From the attorney’s perspective, there was nothing to do until the son authorized him to start negotiating the terms under which the son would turn himself in to police. Id. at 1200. However, the father was upset by an apparent lack of action by the attorney. The father hired another attorney and asked the first attorney for a refund. When the attorney did not immediately refund the entire payment, the father filed a bar complaint.

The Court of Appeals ultimately held “that when an attorney receives payment of a flat fee at the outset of a representation, the payment is an ‘advance[] of unearned fees’ and ‘shall be treated as property of the client … until earned unless the client consents to a different arrangement.’” Id. at 1202 (quoting Rule 1.15). Quoting Rule 1.5(a), the Court noted that “[t]he primary rule concerning the amount of fees is that ‘[a] lawyer’s fee shall be reasonable.’” Id. Citing a Colorado opinion, Mance held that “an attorney earns fees only by conferring a benefit on or performing a legal service for the client.” Id. (quoting In re Sather, 3 P.3d 403, 410 (Colo. 2000)). Thus, “a flat fee is an advance of unearned fees because it is money paid up-front for legal services that are yet to be performed.” Id.

Mance “note[d] that an attorney may obtain informed consent from the client to deposit all of the money in the lawyer's operating account or to deposit some of the money in the lawyer's operating account as it is earned, per their agreement.” Id. at 1206 (citing Rule 1.15). However, the court found no informed consent in that case because there had been no discussion with the client of the possibility of the money being put in a trust or escrow account, or what that meant. Id. at 1207.

Mance also described how treating flat fees as unearned fees protects a client’s right to change counsel:

• Another important benefit to placing flat fees in a trust or escrow account is preservation of the client’s right to choose his or her counsel, including the right to discharge an attorney. See D.C. Rule 1.7(b) cmt. 8 (“Clients have broad discretion to terminate their representation by a lawyer and that discretion may generally be exercised on unreasonable as well as reasonable grounds.”). Since a flat fee is not owned by an attorney until it has been earned through the performance of services to the client, “the client will not risk forfeiting fees for work to be performed in the future if the client chooses to discharge his attorney.

Id. at 1203 (quoting In re Sather, 3 P.3d at 410). See also Rule 1.16(d) (“In connection with any termination of representation, a lawyer shall take timely steps to the extent reasonably practicable to protect a client’s interests, such as … refunding any advance payment of fee or expense that has not been earned or incurred.”) (emphasis added).

Mance distinguished prepaid “flat fees” from what we will call “availability fees” to avoid using a variety of confusing and potentially conflicting applications of the word “retainer” that have been applied in the past. An availability fee “‘is a fee paid, apart from any other compensation, to ensure that a lawyer will be available for the client if required.’” Id. at 1202 (quoting RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 34 cmt. e (Am. L. Inst. 2000)). Such a fee “is a ‘fee[] paid solely for availability and therefore do[es] not involve an advance fee but a fee that is fully earned when paid.’” D.C. Legal Ethics Opinion 264 (1996) (citations omitted).⁷ Such arrangements “‘are quite rare,’ and have ‘largely disappeared from the modern practice of law.’ However, attempts to cast what is actually an advance payment of fees for services to be performed later as [an availability fee] are very much present today.” ABA Formal Opinion 505, at 3 (footnotes omitted).⁸

A true availability fee fairly can be viewed as the client’s purchasing an option to retain the lawyer in the future. The price paid for the option is fully earned by the lawyer upon receipt but, to exercise the option, the client may need to engage the lawyer in the future and enter into a separate fee agreement with the lawyer to pay for the legal work to be done during that engagement.⁹

Mance also warned against efforts to evade its dictates by creative terminology or “front loading.”

• Simply labeling a fee as something other than a flat fee or extreme ‘front-loading’ of payment milestones in the context of the anticipated length and complexity of the representation will not excuse the lawyer from safekeeping the client’s funds until it can reasonably be said that they have been earned in light of the scope of the representation.

Mance at 1204-05 (footnote omitted). A footnote to the quoted sentence stated that “[t]he questionable ethical viability of non-refundable fee advances has inspired some imaginative terminology designed to characterize the advance payments in a manner that eludes the issue: retainers, non-refundable retainers, fee advances, or advanced fees, prepaid fees, flat fees, and minimum fees.” Id. at 1204 n.9 (quoting Idaho Sup. Ct. Bd. Of Prof’l Ethics & Conduct v. Apland, 577 N.W.2d 50, 55 (Iowa 1998) (quoting ABA/BNA Lawyers’ Manual on Professional Conduct 45:109 (1993)).

In practice, a regulator or court can easily identify prepayments for legal services by examining the circumstances surrounding the payment and asking what the client understood. The names that the parties applied to the payment at the outset will carry little or no weight.

Recognizing that its ruling was new and different from a “widely-used practice,” Mance made its ruling prospective as to D.C. bar members other than the respondent in that case. 980 A.2d 1205-06. As to that respondent, the court wrote that its interpretation would have made him guilty of a long list of violations:

• “misappropriation of client funds in violation of Rule 1.15(a);”
• “commingling of lawyer funds with those of the client in violation of Rule 1.15(a);”
• “failure to maintain complete records of client funds in violation of Rule 1.15(a)…;”
• “failure to treat an advance as client funds in violation of Rule 1.15(d);”
• “failure to take timely steps to surrender client funds in violation of Rule 1.16(d);” and
• “failure to deposit client funds in a specially titled trust or escrow account, in violation of Rule 1.16(d).”

Id. at 1208. Given its decision to apply the ruling prospectively, however, Mance found that respondent could not be guilty of the “more serious violations” of the provisions in the list, especially misappropriation. Id. The takeaway from Mance is that clients cannot be bound to engagement agreements that purport to transform, through misleading contractual language, prepayments into something they are not.

Ponds: Detailed Requirements for Any Client Consent to Unearned Funds Being Placed in an Operating Account.
The Court of Appeals revisited these issues in 2022 when it disbarred an attorney who entered into the following flat fee agreement with a client, put the entire flat fee in his operating account, and did not refund the money at the conclusion of the representation despite an Attorney-Client Arbitration Board ruling requiring him to do so:

• The fee agreement between [the lawyer] and [the client] described the flat fee as non-refundable. It further provided that [the lawyer] was not required to keep a record of the time he spent working on [the client’s] case; that the flat fee was the exclusive property of [the lawyer]; that [the client] waived any claim of property interest in the flat fee; and that [the client] agreed that the flat fee would not be placed in an escrow account. The fee agreement did not advise [the client] that [the lawyer] could keep the flat fee only if [the lawyer] provided the agreed-upon services or that [the lawyer] was required to return the flat fee if it was unreasonable or unearned. The fee agreement also did not explain what an escrow account is or the benefits of keeping client funds in such an account.

In re Ponds, 279 A.3d 357, 359 (D.C. 2022). The case turned on whether this agreement was an enforceable “informed consent” from the client.

The court held that it was not because it fell short of the following guidelines:

• Informed consent [under Rule 1.15(e)] requires an attorney to discuss the “material risks of and reasonably available alternatives to the proposed course of conduct.” In re Mance, 980 A.2d at 1206 (internal quotation marks omitted). To satisfy this requirement in connection with a flat-fee agreement, the attorney must “expressly communicate to the client verbally and in writing” that (1) “the attorney will treat the advance fee as the attorney's property upon receipt”; (2) “the attorney can keep the fee only by providing a benefit or providing a service for which the client has contracted”; (3) “the fee agreement must spell out the terms of the benefit to be conferred upon the client”; (4) “the client must be aware of the attorney’s obligation to refund any amount of advance funds to the extent that they are unreasonable or unearned if the representation is terminated by the client”; and (5) “unless there is agreement otherwise, the attorney must ... hold the flat fee in escrow until it is earned by the lawyer's provision of legal services.” Id. at 1206-07 (internal quotation marks omitted).

279 A.3d at 358-59. The most likely “benefit to the client” of an agreement like this is the described scope of services that the lawyer commits to provide if the client enters into the agreement.

As to the sanction, the respondent in Ponds argued that “his failure to comply with the requirements of In re Mance was simply a good faith but perhaps negligent mistake of law.” Id. at 362. The Court of Appeals disagreed and disbarred him because “[d]isbarment is normally the appropriate sanction when an attorney has intentionally or recklessly misappropriated client funds.” Id. (quoting In re Smith, 70 A.3d 1213, 1218 (D.C. 2013)).

Alexei: Flat Fees Not Earned Until the Conclusion of the Matter Absent a Written Agreement to the Contrary.
The third case in the trilogy is In re Alexei, 319 A.3d 404 (D.C. 2024). The attorney in that case entered into a flat-fee-earned-on-receipt billing arrangement with an immigration client. The flat fees were for filing (1) a green card application, (2) a separate immigration-related request, and (3) an appeal from a prior immigration decision. Id. at 406. The amount in question was initially paid into the lawyer’s trust account. However, the lawyer periodically transferred portions of the payment to his operating account based on time spent working on the matter at the lawyer’s standard hourly rate. Hourly drawdowns from trust led the attorney to have paid himself all of the client trust funds before any of the filings referenced in the engagement agreement had been made. Id. As discussed below, the ultimate problem for the attorney was that “[t]he agreement neither mentioned [the lawyer’s] hourly rate nor specified how [the lawyer] might earn the advanced funds.” Id. at 406.

It is clear from the Hearing Committee Report and the Board on Professional Responsibility Report in Alexei that at least some of the documents that the lawyer had agreed to file were eventually filed, including the green card application. However, that application “was ultimately denied, and [the client] hired new counsel.” Alexei, 319 A.3d at 406. Through new counsel, the client filed a Lozada-based¹⁰ disciplinary complaint against the respondent while “sincerely” thanking him for his past service and asking him to “[p]lease understand this is not personal, it is just something that is necessary in order to re-open my [immigration] case.” Id. at 407. The disciplinary complaint did not allege any misappropriation of funds but the issue emerged during Disciplinary Counsel’s investigation. Id.

Before the case reached the Court of Appeals, both the Hearing Committee and the Board on Professional Responsibility concluded that the respondent “violated no rules of professional conduct because he had earned at least a portion of the advance payment as he worked on the case.” Id. at 406. Disciplinary Counsel argued to the Board “that In re Mance held that advanced payments on a flat fee could be earned only after the attorney finished the legal services encompassed by the fee [agreement].” Id. at 407. “[T]he Board determined that that case did not ‘articulate the bright-line rule that Disciplinary Counsel now advocates,’” and found that that Disciplinary Counsel had not carried its burden of proving a violation by clear and convincing evidence. Id.

Disciplinary Counsel appealed, arguing that, “unless the fee agreement says otherwise, the ‘default rule’ is that the entire flat fee for a specified service is earned only when the attorney actually provides the entirety of that service to the client.” Disciplinary Counsel’s Opening Brief, In re Alexei, No. 23-BG-591, at 11 (D.C. filed Oct. 5, 2023).

Finding this to be an “issue of first impression,” the Court of Appeals endorsed Disciplinary Counsel’s “default rule”:

• [A]s a default rule, attorneys earn funds advanced on a flat-fee payment only when all the legal services pertaining to the flat fee are complete. We reach this conclusion for three reasons: (1) it best fits the nature of a flat fee, (2) it places the onus to contract differently on the party generally best positioned to do so, and (3) it facilitates clarity and better enforcement of the rules of professional conduct.

In re Alexei, 319 A.3d at 411.

Alexei acknowledged the respondent’s “arguments in favor of a more flexible default rule” based on “fear that the default rule we adopt today could leave attorneys unpaid for significant work if their client terminates the representation before the attorney completes the job.” Id. at 413. It found, however, that “[a]ttorneys are not without remedy against a client who declines to pay for partial services.” Id.

• [A]ttorneys may recover for uncompensated work through a quantum meruit action. See, e.g., Ginberg v. Tauber, 678 A.2d 543, 544 (D.C. 1996) (involving a quantum meruit action brought by an attorney against their former client for “the reasonable value of the services [the attorney] provided”); Jonathan Woodner Co. v. Laufer, 531 A.2d 280, 287 (D.C. 1987) (clarifying that appellant, an attorney, could recover under a quantum meruit theory if he “present[ed] proof of the reasonable value of the services rendered in advancing” the client’s goal). Or, if the parties have agreed to arbitrate their fee disputes, the attorney may file a petition with the Attorney/Client Arbitration Board.

Id. at 413.

Under the text of Alexei, absent a contractual basis to impound in trust the portion of prepaid fees that a discharged lawyer in good faith believes to have been earned, the quantum meruit remedy is now safely available only after refunding to the client and hoping that the client will still have the means to pay at the conclusion of the quantum meruit action.¹¹

Alexei recognized that the default rule it was adopting was not within the holding of Mance. See 319 A.3d at 409-10. Thus, the court determined to apply its “holding prospectively such that it does not apply to Mr. Alexei or any agreements already in force before the issuance of this opinion.” Id. at 415.

What Alexei Did Not Discuss: The Common Law Retention Lien and Rule 1.8(i).
Alexei did not address the long history of retaining liens in the District of Columbia and its interplay with Rule 1.15(d) (on lawyer’s right to impound in trust funds pending resolution of fee dispute). “The substantive law of the District of Columbia has long permitted lawyers to assert and enforce liens against the property of clients. See, e.g., Redevelopment Land Agency v. Dowdey, 618 A.2d 153, 159-60 (D.C. 1992), and cases cited therein.” D.C. Rule 1.8 cmt. [16]. Under the common law, attorneys in the District of Columbia had:

• a so-called “retaining lien,” which attaches to particular funds or papers, belonging to the client, that come into the attorney’s possession. See Wolf v. Sherman, 682 A.2d 194, 197 (D.C.1996); Lyman v. Campbell, 87 U.S. App. D.C. 44, 45-46, 182 F.2d 700, 701-02 (1950); District of Columbia Bar Legal Ethics Op. No. 100 at 172, 173 n. 5 (1984) (providing that attorney may assert retaining lien on client assets in attorney’s possession but may not ethically deduct fee from client funds held in escrow absent “a specific agreement between the attorney and client” permitting the withdrawal) (quoting ABA Committee on Ethics, Informal Op. No. 859, Aug. 4, 1965).

In re Haar, 698 A.2d 412, 416 n.4 (D.C. 1997) (Haar II). “The retaining lien attaches to property of the client in the possession of the attorney and entitles the attorney to retain possession of that property until the fee is paid.” Wolf, 582 A.2d at 197.¹² The traditional subject of the retaining lien is what most attorneys today understand to be a “retainer,” an advance payment from the client to assure that the attorney will be paid for work to be performed in the future and costs associated with that work.

Changes to Rule 1.8(i) severely limited an attorney’s ability to assert and enforce a retaining lien as to “a client’s files.” Unlike its predecessor, the rule now provides:

• A lawyer may acquire and enforce a lien granted by law to secure the lawyer’s fees or expenses, but a lawyer shall not impose a lien upon any part of a client’s files, except upon the lawyer’s own work product, and then only to the extent that the work product has not been paid for. This work product exception shall not apply when the client has become unable to pay, or when withholding the lawyer’s work product would present a significant risk to the client of irreparable harm.

Rule 1.8(i) (emphasis added).

However, this rule does not affect a lawyer’s continued ability to assert and enforce a retention lien as to client property in the lawyer’s possession other than “a client’s files.” To the contrary, it affirmatively states the attorney’s right to do so: “Rule 1.16(d) requires a lawyer to surrender papers and property to which the client is entitled when representation of the client terminates. Paragraph (i) of this rule states a narrow exception to 1.16(d): a lawyer may retain anything the law permits – including property – except for files.” Rule 1.8, cmt. [17] (emphasis added).¹³

Under Rule 1.15(d):

• If a dispute arises concerning the respective interests among persons claiming an interest in such property, the undisputed portion shall be distributed and the portion in dispute shall be kept separate by the lawyer until the dispute is resolved. Any funds in dispute shall be deposited in a separate account meeting the requirements of paragraph (a) and (b).

A comment to this rule explains:

• The lawyer is not required to remit to the client funds that the lawyer reasonably believes represent fees owed. However, a lawyer may not hold funds to coerce a client into accepting the lawyer’s contention. The disputed portion of the funds should be kept in trust and the lawyer should suggest means for prompt resolution of the dispute, such as arbitration. The undisputed portion of the funds should be promptly distributed.

Rule 1.15 cmt. [7].

The engagement agreement in the Alexei case contained no explicit terms to treat a portion of the client’s prepayment as disputed funds under Rule 1.15(e) and thereby impound that portion in trust pending resolution of the fee dispute. Alexei is clear that refunding before pursuing a quantum meruit claim is not required to the extent the lawyer has a contractual claim of earned fees based an explicit and fair pricing method for partially-completed work. A fee agreement that contains a clearly written lien notice is another basis on which to defer refunding, what the lawyer reasonably believes can be proven as earned, before pursuing a quantum meruit claim.¹⁴ For examples of such lien notices, see Cassandra Burke Robertson & Jesse Wynn, Untangling Attorney Retainers from Creditor Claims, 12 St. Mary’s J. Legal Mal. & Ethics 142 (2021).

A separate provision of Rule 1.15 requires lawyers to “promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive.” Rule 1.15(c). Thus, any amount in the lawyer’s possession in excess of the lawyer’s reasonable belief as to what can be proven in quantum meruit must be paid to the client promptly. What is “prompt” depends on the circumstances because “[t]he Rules of Professional Conduct [] are rules of reason.” D.C. Rules: Scope cmt. [1]. If the lawyer is travelling and unable to make a transfer, for example, “prompt” requires doing it reasonably soon after returning. Holding on to other people’s funds for over a year is not “prompt.” In re Nave, 197 A.3d 511 (D.C. 2018); In re Martin, 67 A.3d 1032 (D.C. 2014).

Possible Arrangements to “Earn” Fees Before the Conclusion of the Matter and Holding Disputed Fee Amounts in Trust Pending Resolution of Any Fee Dispute.
As to possible arrangements that could entitle the lawyer to some amounts prior to the conclusion of a flat fee matter, Alexei left open a number of approaches so long as the chosen one is documented in the engagement agreement:

• “[T]he agreement might provide that the attorney earns the flat fee at an hourly rate set forth in the contract up to but not exceeding the total flat fee.” To avoid improper front-loading, the hourly rate must be set at a level that will not prematurely exhaust client funds before completing substantially all work.
• “[T]he agreement might involve multiple discrete legal services … and attach a separate price for each service that sums to the total flat fee. Under such a contract, an attorney would earn the portion of the flat fee attributable to each separate legal service upon completing that project.”¹⁵
• “[T]he agreement might provide that after the attorney submits, say, a first draft of a legal brief to the client for approval, [the lawyer] earns a [stated] percentage of the flat fee. These agreements, by deviating from the default rule, would allow attorneys to earn portions of the advanced flat fee as they worked on the client's behalf.”
• “The rate at which the attorney earns the fees—whether hourly, by milestones, or by some other measurement—would still need to comport with the separate ethical requirement that the fees be reasonable.”

319 A.3d at 414.

As we previously have written:

• The agreement can also contain language reflecting that the lawyer will earn the entire fee at the conclusion of a representation even if certain specified milestones have never been reached. For example, a lawyer who persuades a prosecutor to dismiss criminal charges in advance of trial could earn the entire fee, even if the lawyer and client had specified the trial as a milestone in their agreement. The milestones and approaches used can and should be tailored to the type of engagement. Those suitable for a criminal matter may not be appropriate to use for a real estate transaction or the drafting of a will.

D.C. Legal Ethics Opinion 355 (2010).¹⁶

Although not required by the trilogy, we recommend that the lawyer give notice to the client as each agreed milestone is reached, unless the circumstances are such that the client has other means of knowing that. In a criminal case, for example, with a milestone of “appearing at the arraignment, $500,” separate notice should not be required because both the attorney and the client would have been physically present at the arraignment. If another threshold involved the “filing of a discovery motion, $500,” however, the client might not know about it unless the lawyer gives notice or makes a practice of sending copies of all filings to the client. In arrangements based on hourly rates, lawyers can simply continue the usual practice of sending a monthly statement reflecting their tasks, the hours expended, and the charges to be taken against the agreed fee. Building a record in which the client receives regular notices (and perforce, opportunities to object) will strengthen the lawyer’s position in the event of any later dispute or disciplinary investigation.

Monthly Recurring Fees or Subscription Agreements.
An agreement might also provide for the periodic payment of a fixed amount in exchange for certain services generally described, as is often the case in lobbying or outside counsel for small business agreements. It is the nature of such arrangements that more work may be done in some months than in others during the term of the contract. The flat fee per period allows the parties to share the risk and smooth out the expected payments. The client may prefer for its own budgeting purposes to know the full amount in advance and pay it in installments (which may be equal or unequal, periodic or intermittent, regular or irregular) during the term of the engagement. So long as the agreement is reviewed and adjusted from time to time to assure that it has not become “unreasonable,” we do not believe that the client is entitled to a refund of the monthly (or periodic) fee for odd months (or periods) in which little or no actual work was done.

Under the Mance/Ponds/Alexei trilogy, however, the monthly fee in this situation will not be considered to have been “earned” until the month (or other agreed period) in question has passed. Billing ideally should be “in arrears” and the monthly amount should remain in the trust account until the month (or other period) ends. If the client terminates the representation mid-month, the lawyer should think very carefully before treating any portion of that month’s fee as having been earned. Uncertainty on this issue can be avoided if the engagement agreement spells out a formula for calculating the fee for a mid-month termination, perhaps by applying a fraction in which the numerator is the number of days in the month when the lawyer was still retained and the denominator is the total number of days in that month.

Lawyers sometimes enter into subscription agreements with clients under which clients are entitled to specified legal services in exchange for payment of a monthly or other periodic fee. A simple example would entitle the client to up to a certain number of consultations per month for a fixed or reduced fee. After that threshold has been crossed, the rates are adjusted to a level defined in the subscription agreement. These agreements may go into considerable detail as to what services are and are not covered. To the extent that these plans require payment in advance for legal services to be provided in the future, however, they are subject to Mance, Ponds and Alexei. Lawyers offering such plans should conduct themselves accordingly, especially if and when the client terminates the agreement sooner than originally expected. Lawyers should be aware that, if an unsophisticated client uses no services for several months, Disciplinary Counsel may assert that the trilogy requires a return of some or all of the funds to the client.

Conclusion

Prepaid fees should normally be held in a trust account until earned by performing the associated work. Although it is possible to secure an enforceable informed consent from the client to put the prepayment in the law firm’s operating account, the Mance, Ponds and Alexei trilogy now requires oral and written specific disclosures to the client as described above.

The lesson of the trilogy is that prepaid legal fees for future services cannot be “earned on receipt” regardless of what the engagement agreement says. When and how prepaid fees will be earned during the representation should be defined in a written engagement agreement with the client. Failing that, the fee will not be deemed earned for purposes of drawing from the trust account until the natural completion of the entire matter.

Even then, the lawyer may not be entitled to a full fee if the matter ends without achieving all the agreed milestones on which the “earning” of the fee was conditioned. Lawyers can and should anticipate that possibility and contract for a reasonable written solution in the engagement agreement at the start of the matter.

During the representation, we recommend that the lawyer inform the client as the agreed milestones are met, unless the circumstances are such that the client already knows about it.

When the representation ends before the matter ends, the lawyer may not pay herself from trust, over the client’s objection, until that objection is resolved by agreement, arbitration, or litigation. While the lawyer will have the right to bring a quantum meruit claim against the client to collect a fee for the reasonable value of the lawyer’s services, it is no longer safe to hold the disputed amount of the fee in trust pending a resolution of the dispute absent a client’s prior written authorization to do so. Being safe means refunding before suing for quantum meruit or contracting from the outset to an impoundment in trust of what the lawyer in good faith believes to be the value of services rendered in the lawyer’s trust account during the pendency of the dispute.

Because Disciplinary Counsel routinely requests the engagement agreement whenever someone files a disciplinary complaint against an attorney, every disciplinary complaint could potentially trigger a disciplinary investigation into a lawyer’s billing and payment procedures even if the complaint itself has nothing to do with such matters and lacks any merit.

Lawyers will not be able to avoid rules established by the Mance, Ponds and Alexei decisions by calling what amounts to a prepayment for future services some form of earned on receipt “retainer” or similarly misleading characterization. Lawyers who do so, whether deliberately or because they honestly do not understand the difference, may put their law licenses in peril.

Published: August 2025

1. The Legal Ethics Committee understands that work is currently under way to prepare proposed revisions to Rule 1.15 (reflecting current case law) for submission to the D.C. Court of Appeals for its consideration.

2. Disbarment is the presumptive sanction in the District and most other jurisdictions for intentional misappropriation. Reckless misappropriation under the District’s precedents is the non-intentional use of client (or third-party) entrusted property without proper consent, resulting from something more than simple negligence. Recklessness may be found, for example, when a lawyer pays the same invoice from trust twice, yet fails to detect and correct the error for several months because the lawyer has no bookkeeping system designed to prevent or detect the duplicate payment. By contrast, a promptly detected and corrected duplicate payment may be treated in the District as the lower-sanctioned negligent misappropriation. The Court of Appeals has acknowledged that “[t]he decision in Addams has generated substantial controversy and criticism over the years.” In re Mensah, 262 A.3d 1100, 1102-03 (D.C. 2021) (collecting and summarizing cases). For those of our members who are also licensed elsewhere, our multistate survey suggests that the District is the only jurisdiction that routinely disbars for what the District classifies as a first offense of reckless misappropriation. See generally, David Luty, In the Matter of Mitigation: The Necessity of a Less Discretionary Standard for Sanctioning Lawyers Found Guilty of Intentionally Misappropriating Client Property, 32 Hofstra L. Rev. 999 (2004).

3. Unless otherwise indicated, any citations to a “Rule” in this opinion are to the D.C. Rules of Professional Conduct.

4. D.C. Rule 1.15(e) allows a client to waive the default rule that client prepayments must be held in trust until the lawyer completes the associated work. This waiver applies only to prepayments: clients cannot waive entrustment for traditional escrows (such as proceeds of real estate settlements or collection litigation). Note also that states following the ABA’s Model Rule 1.15 do not allow waiver of entrustment under any circumstances.

5. This opinion refers to the writing that Rule 1.5 requires as an “engagement agreement.” Rule 1.5 specifies when writings or written agreements are required. As is the case with Rule 1.7—a rule that does not require a writing or a client signature for a conflict waiver—"[i]t is ordinarily prudent for the lawyer to provide at least a written summary of the considerations disclosed and to request and receive a written informed consent, although the rule does not require that disclosure be in writing or in any other particular form in all cases. Lawyers should also recognize that the form of disclosure sufficient for more sophisticated business clients may not be sufficient to permit less sophisticated clients to provide informed consent. Moreover, under the District of Columbia substantive law, the lawyer bears the burden of proof that informed consent was secured.” Rule 1.7 cmt. [28].

6. The Court of Appeals ultimately held in In re Mensah, 262 A.3d 1100,1105(D.C. 2021) that, in some negotiated discipline cases involving reckless but not intentional misappropriation, a three-year suspension with reinstatement conditioned on a showing of fitness to practice law may be an appropriate resolution. Id. at 1105. It should be noted that a “disbarment” in the District of Columbia is in effect a five-year suspension with a showing of fitness required for reinstatement. Id. at 1102.

7. Separate from its discussion of various forms of retainers, D.C. Legal Ethics Opinion 264 (1996) also stated that a fee advance belongs to the lawyer and must be put in the lawyer’s operating account rather than being commingled with client funds in a trust account. That aspect of the 1996 opinion was superseded by changes to Rule 1.15 that took effect in 2000.

8. In 2023, the American Bar Association provided guidance on these issues through the lens of the ABA Model Rules of Professional Conduct. ABA Standing Committee on Ethics and Professional Responsibility, Formal Opinion 505, Fees Paid in Advance for Contemplated Services (2023). As is typical, that opinion notes in its first footnote that the Model Rules are only models and that the “controlling” authorities are provided by the “laws, court rules, regulations, rules of professional conduct and opinions promulgated in individual jurisdictions.” The ABA opinion then went beyond the usual disclaimer, adding, “This is especially noteworthy for this opinion as jurisdictions have adopted substantially different rules relating to the management of client property including fees paid in advance for legal work to be performed in the future.” This opinion focuses on the D.C. rules and case law. Practitioners in other jurisdictions should study their own controlling local authorities carefully because there are significant variations around the country as to what is and is not permitted, and as to what the likely sanction for an error might be.

9. The trilogy of cases discussed in this opinion do not address what should or must happen if an availability fee arrangement is terminated, or attempted to be terminated, by the lawyer or the client before the agreed availability period expires. We assume, without deciding, that refundability of a previously earned-on-receipt true availability fee may be impacted by circumstances under which contracts are determined to be void, voidable, or impossible to perform.

10. When an immigrant seeks to reopen an immigration decision on grounds of ineffective assistance of counsel, he or she must file a disciplinary complaint against former counsel or explain why such a complaint was not filed. In re Lozada, 19 I&N Dec. 637 (BIA 1988). As a practical matter under Lozada’s progeny, the immigrant’s challenge will not be considered unless and until a disciplinary complaint is filed. American Immigration Lawyers Association, Policy Brief: Ending the Reign of Lozada and Removing Barriers to Ineffective Assistance of Counsel Claims in Immigration Law (July 11, 2024). As noted in that article, an Attorney General of the United States during the second Bush administration acknowledged “that most bar complaints under Lozada are ‘unfounded.’” Moreover, “[s]uch unfounded complaints impose costs on well-intentioned and competent attorneys, and make it harder for State bars to identify meritorious complaints in order to impose sanctions on lawyers whose performance is truly deficient.”

11. Our members who are also licensed elsewhere should note that there appears to be no other jurisdiction that requires refunding, prior to instituting quantum meruit proceedings, what the lawyer reasonably believes to be the value of services rendered in a prematurely terminated flat fee case. Even Colorado, the source of the Sather case on which the trilogy so heavily relies, does not require refunding before initiating quantum meruit arbitration or suit against the client on flat fee issues. In re Gilbert, 346 P.3d 1018, 1026 (Colo. 2015) (“It would be a waste of resources in these circumstances to force attorneys to return money to which they are entitled and then bring suit against the client to recover it.”); accord Gilbert dissenting opinion at 1030 (dissenting on other grounds, while acknowledging obvious right of lawyers to impound in trust a portion of prepaid flat fee in trust pending resolution of dispute through quantum meruit litigation). The holding of Gilbert was subsequently codified in Colorado Rules 1.5(h)(2) and 1.15(A)(c).

12. For a detailed discussion of how the possessory lien works and is protected by Article 9 of the Uniform Commercial Code, even in the absence of an agreement explicitly granting a lien, see Cassandra Burke Robertson & Jesse Wynn, Untangling Attorney Retainers from Creditor Claims, 12 St. Mary’s J. Legal Mal. & Ethics 142 (2021).

13. D.C. Legal Ethics Opinion 379 (2020) speaks broadly about limits on “retention liens” but it was focused on file retention liens and did not address the distinction that Rule 1.8(i) and its comments make about retention liens as to files and retention liens against client funds and other non-file, client property in the lawyer’s possession.

14. Explicit lien language was not before the Alexei Court. The Alexei Court expressed no intention to overrule longstanding precedent on a lawyer’s right to contract explicitly for a security interest in the client’s funds. See, e.g., Wolf v. Sherman, 682 A.2d 194 (D.C. 1996) (describing differences between common law retaining liens and contract-based “express liens”). There is likewise no basis to conclude that Alexei requires refunding before briefly first attempting to compromise and settle the fee dispute with the client.

15. We are mindful that it may be impossible, on all but the simplest projects, to craft flat fee milestones that address every possible future fork in the road. Lawyers may also consider having a contractual provision to measure the amount of fees that will accrue (or be impoundable in trust) if the representation ends after starting work on the first milestone (or any other milestone) but before completing that milestone.

16. D.C. Legal Ethics Opinion 355 was withdrawn in 2022 because the advice in the ethics opinion about any writing requirement in then Rule 1.15 was inconsistent with Ponds.