True retainers have pros and cons
By Diane Karpman
True retainers are rare and exotic, and almost antithetical to our Anglo American ideas regarding being paid for working. Some lawyers find the idea of being paid for not working enchanting, if not mesmerizing.
It is important to remember that not everyone can justifiably obtain a “true retainer.” Usually you have to be “special,” or have some unusual skills. As one court noted, “A lawyer of towering reputation, just by agreeing to represent a client, may cause a threatened law suit to vanish.” Bain v. Weiffenbach (Fla. App. 1991) 590 So.2d 544.
True retainers (sometimes called general or classic) are frequently obtained by criminal defense lawyers and matrimonial lawyers. Fortune 500 companies have been known to send true retainers yearly to merger and acquisition firms to prevent particular lawyers from taking a position adverse to their interests.
A true retainer is a specific amount of money paid by a client to a lawyer to guarantee the lawyer’s services if they are needed at some point in the future. The client is buying the lawyer’s commitment and the lawyer is promising to be available. The lawyer is not getting compensated for actual work — that would be separate. This is a hold on his time. The funds are entirely earned upon receipt and, therefore, cannot go into the client trust account, since they do not belong to the client. Once remitted, the client loses any interest in the funds.
In these circumstances, lawyers are being compensated for lost opportunities, for turning away other potential clients. Another justification for the true retainer is that a lawyer is compensated for an uncertain promise, to being available for the client “without knowing in advance the nature and extent of the projects on which he will be obligated to work.” Kelly v. MD Buyline, Inc. 2 F. Supp. 2d 420, 446 (1998).
In Ryan v. Butera, Beausang, Cohen & Brennan, 193 F. 3d 210 (3rd Cir. 1999), a true retainer was upheld where the law firm received $1 million for 10 weeks of representation. The corporate client was sophisticated and had a reputation for nonpayment of legal fees. The client was involved in an involuntary bankruptcy, where a number of unresolved asbestos personal injury actions were stayed. When the bankruptcy petition was dismissed, the client faced a renewed round of energetic asbestos litigation. The parties unambiguously intended the $1 million payment to be a nonrefundable general retainer that would create a locked-in fee and would entice qualified counsel to make himself available to handle an indeterminate number of suits.
Authorities maintain that true retainers chill a client’s right to terminate a lawyer. In Ryan, the court maintained that was not the case, since the client (after a 10-week interval) tried to renounce the deal and fire the lawyer for dilatory practices.
True retainers are unusual, but they are usually upheld by the courts unless they are obtained by way of fraud. In Baranowski v. State Bar (1979) 24 Cal. 3d 153, the California Supreme Court mentioned the concept of a true retainer, which inferentially suggests that it is a traditional and accepted method of lawyers doing business. They have a long-standing tradition in the United States, dating back to 1693, according to one commentator. Thomas Hull, History and Analysis of Retainer Fees, Nicholas Johnson’s Economics of Law Practice Seminar, UI College of Law, Fall 1999.
True retainers are risky, because clients will claim they didn’t understand. (Who knows what clients understand anyway?) In a recent unreported California case, Faal v. Davis, Cal: Court of Appeals, 2nd Appellate Dist., 5th Div. 2010, the client was deemed not credible when making that specious claim.
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• Legal ethics expert Diane Karpman can be reached at 310-887-3900 or at karpethics@aol.com