Consultation Fees in Maryland

by Trey Ross, M.Ed., Esq.agreement

Lawyer: I’ve heard of attorneys charging a nonrefundable consultation fee or an engagement fee. I would like to know if it’s all right for my firm to request such fees. Can we do that?

Brief answer: In almost every case, a Maryland lawyer will be in violation of the Maryland Lawyer’s Rules of Professional Conduct if he charges a nonrefundable fee. Still, for lawyers who do, you should be well-versed in the limited exceptions (discussed below) in which Maryland courts have sided with attorneys on this topic.

  1. Consultation fees in general

A consultation fee is usually a nonrefundable fee paid to the attorney by the client – or the potential client – in exchange for the lawyer’s time at their initial meeting. Because the written agreement between the parties indicates that the fee is nonrefundable, attorneys often place the funds in their personal accounts rather than the state mandated client escrow account.

Lawyers who charge a nonrefundable fee and those who place such payments in anything other than the client trust account[1] will likely face reprimand or disbarment if challenged by the Attorney Grievance Commission.[2]

To start, lawyers are prohibited from charging unreasonable fees.[3] Ordinarily, at the point of consultation, the lawyer has not completed any legal work which should require a fee. Therefore, consultation fees are almost always unreasonable since they are unearned.[4]

In addition, nonrefundable consultation fees are contrary to public policy. A nonrefundable fee agreement “undermines the client’s understanding of her rights and may discourage a client from seeking refunds to which the client may be entitled.”[5] Also, non-refundable fees “may discourage the client from discharging her lawyer for fear the client will not be able to recover advance fees for which the lawyer has yet to perform any work.”[6]

  1. The Engagement Fee: A consultation fee exception

Some lawyers have tried to obtain nonrefundable-upfront-fees by calling the fee an “engagement fee.”[7] An engagement fee is a nonrefundable fee that is paid upfront and does not have to be deposited in a client escrow account since it automatically becomes the property of the attorney.[8]

Maryland’s highest court has provided that an attorney can require an engagement fee when he or she “performs a service or provides a benefit to the client in exchange for the fee.”[9] However, an engagement fee can be requested in a small number of situations; simply calling a fee an engagement fee will not suffice.[10]

One instance where Maryland has recognized that an engagement fee can exist is when “the attorney is deprived [of] the right of rendering services for the other party” by meeting with the potential client.[11] For example, as discussed in Stinson, “in certain counties [in Maryland] one spouse will attempt to prevent his/her mate from obtaining representation [in divorce proceedings] by arranging initial conferences and thereafter discharging skilled family practitioners. For this reason, those specialists demand what appear to be high–if not exhorbitant [sic]–initial consultation fees.”[12]

So, if meeting with a potential client forces the attorney to turn away work that he or she would have otherwise accepted, the attorney can charge an engagement fee.[13]

Other instances in which Maryland has implied – via dicta – that an attorney could be justified in charging an engagement fee occur when the fee is paid “in consideration of [an attorney’s] expertise and skill in [a particular area of law],” paid for an attorney’s act of “prioritizing [the client’s] case over other work,” paid because the attorney “would need to hire additional help to take on the case,” or paid so that the attorney “could keep up with” a particular field of law.[14]

Note: It is odd how the court suggests that an attorney can charge a nonrefundable fee for offering his “expertise” yet an attorney would be in violation of the rules if he holds himself out as an expert.[15] Likewise, the other examples mentioned in the paragraph above seem to fall under general duties of practitioners, so one would think that lawyers cannot charge a special fee for such actions.[16]

Summary:

Nonrefundable consultation fees are generally unreasonable and are arguably a violation of public policy. In most instances, a nonrefundable fee will be a violation of the Maryland Lawyer’s Rules of Professional Conduct, and can lead to disbarment or other sanctions. Thus, a lawyer would be wise to avoid using them altogether.

Although the court has provided an engagement fee exception, the risks associated with improperly charging a nonrefundable fee far outweighs the short-term windfall the lawyer may receive from the client.

[1] Md Lawyers’ Rules of Prof’l Conduct R. 1.15(a) (West, Westlaw through 2/1/2013) (requiring all client funds to be placed in a client trust account until earned by the attorney).

[2] Nonrefundable Fees? Maryland Courts (8/26/2013 1:50 AM), http://www.mdcourts.gov/attygrievance/docs/

articles/barjournalart4.pdf (providing “[a]n attorney who states that her advanced fee is non-refundable is…misleading her client”).

[3] Md Lawyers’ Rules of Prof’l Conduct R. 1.5(a) (West, Westlaw through 2/1/2013).

[4] E.g., Attorney Grievance Comm’n of Md. v. Stinson, 50 A.3d 1222 (Md. 2009) (providing that an attorney was in violation of the Maryland rules for refusing to a refund a client for a “nonrefundable” upfront fee).

[5] Nonrefundable Fees? Maryland Courts (8/26/2013 1:50 AM), http://www.mdcourts.gov/attygrievance/docs/

articles/barjournalart4.pdf (citing In re Sather, 3 P.3d 403 (Colo. 2000)).

[6] Id.

[7] Stinson, 50 A.3d 1222.

[8] Attorney Greivance Comm’n of Md. v. Kreamer, 946 A.2d 500, 542 n.16 (Md. 2008) (citing In re Gray’s Run Technologies, Inc., 217 B.R. 48, 53(Bankr. M.D. Pa. 1997) and providing that engagement fees are “earned upon receipt”); Md. State Bar Ass’n Ethics Op. 92-41 (1992)(providing that “[i]f the retainer is ‘an engagement fee’ and if it is reasonable under the dictates of Rule 1.5(a), the fee can be placed in the firm’s general account).

[9] Stinson, 50 A.3d at 1243 (quoting In re Sather, 3 P.3d 403, 411 (Colo. 2000)).

[10] Id. at 1222.

[11] Md. State Bar Ass’n Ethics Op. 92-41.

[12] Stinson, 50 A.3d at 1232-1233 (citing a lower court’s discussion of Melvin Hirshman, Aspects of Attorneys’ Fees: Engagement Fee, Non-Refundable Retainer, Limitations on the Ability of Counsel to set a Fee, Maryland Bar Journal, Apr. 17, 1984, at 13).

[13] Id. at 1244.

[14] Id.

[15] Md Lawyers’ Rules of Prof’l Conduct R. 7.4 (West, Westlaw through 2/1/2013) (providing “[a] lawyer shall not hold himself or herself out publicly as a specialist”).

[16] E.g., Md Lawyers’ Rules of Prof’l Conduct R. 1.3 (West, Westlaw through 2/1/2013) (providing “[a] lawyer shall act with reasonable diligence and promptness in representing a client”); Md Lawyers’ Rules of Prof’l Conduct R. 1.1 (West, Westlaw through 2/1/2013) (providing “[a] lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation”).

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