MCLE Self-Study
Where Do I Deposit My Retainer?
Y
by Mary Grace Guzman, Sam Bellicini and Jerome Fishkin
ou have signed an attorney client fee agreement and your
client has written a check for $10,000 as a retainer. Does
it go into your client trust account or not?
It depends. California law permits you to choose which
account it goes into, but only if the “retainer” is really a payment
of fees in advance. If it is a “true retainer,” that is, a payment to
reserve your future services, it must not be deposited into trust.
If it is a prepayment for both fees and costs, it must go into trust.
A cautionary note: If the retainer states that it is also for
“costs,” it probably has to go into trust, and the cost portion has
to remain there. Those are issues for another article. In this article, we discuss the prepayment of fees only.
The California story begins with Baranowski v. State Bar, 24
Cal. 3d 153, 593 P.2d 613 (1979), in which State Bar prosecutors
sought a ruling that the attorney violated former Rule 8-100, now
Rule 4-100 of the Rules of Professional Conduct, because he did
not deposit two advance fees in trust. The court sidestepped a
direct ruling on the issue, holding that the attorney violated the
former rule requiring refunding the unearned portions of the two
advance fees, no matter where the money was. That rule is now
in Rule 3-700(D)(2).
In the absence of a definitive ruling from the Supreme Court,
the courts of appeal are free to rule on the subject. In T.R. Foods
Inc. v. Rose, 47 Cal. App. 4th Supp. 1, 56 Cal. Rptr. 2d 41 (Cal.
App. Dep’t Super. Ct. 1996), the court ruled that advance fees
belonged in trust. As a decision by an appellate division of a Superior Court, T.R. Foods, is however, not controlling. Thus, in In Re
White, 121 Cal App 4th 153, 18 Cal Rptr 3d 444 (2004), the only
other published opinion reaffirms that the issue is “unsettled.”
Baranowski defined a true retainer as “… a sum of money paid
by a client to secure an attorney’s availability over a given period of time. Thus, such a fee is earned by the attorney when
paid since the attorney is entitled to the money regardless of
whether he actually performs any services for the client.” However, in the disciplinary case, Matter of Lais, No. 91-O-08572,
1998 WL 391171 (Cal. Bar Ct. July 10, 1998), the State Bar Court
looked to the real purpose of the retainer. The Lais attorney client
agreement required a $2,750 payment for 10 hours of service at
a rate of $275 an hour. The attorney attempted to come within
Baranowski’s definition by incorporating the language “assuring
availability of [Lais] in this matter.”1 The State Bar Court disagreed
that the contract fell within the Baranowski’s definition of a retainer, noting that the agreement was not limited by a specific
period of time.
The Bar Association of San Francisco Ethics Opinion 1980-1 examined the question of which account an attorney should place
a flat or fixed fee. The majority opinion states that when a client
pays an attorney a fixed fee for services to be performed, the fee
belongs to the attorney and the product of the services belongs
to the client. Because funds belonging to an attorney cannot be
placed in trust, fixed fees should not be deposited in trust but
rather placed in the attorney’s general account.
The minority opinion disagreed, stating that advance fixed or
flat fee payments should be deposited into a separate trust account, provided that where there is a specific agreement with
the client that the fee has been earned on payment to the attorney, any sums paid for anticipated costs may be deposited in the
firm’s general account.
Picking up on the minority statement in the 1980 San Francisco opinion, many attorneys began inserting a phrase into their
fee agreements that refer to the retainer as “earned upon receipt.” Some specify “fees paid solely to reserve my services and
therefore unrefundable.” However, if the agreement goes on to
state that the advance payment will be debited against by future
charges, such additional language destroys any argument that
the initial payment is a retainer.
The State Bar’s Formal Ethics Opinion 2007-172 addresses advance fees when discussing whether an attorney may accept payment of advances for costs and expenses from a client by credit
card. In its discussion, the Opinion states that placement of an
advance fee into either the general account or trust account is at
the discretion of the attorney.
Contra Costa County Bar Association
2300 Clayton Road, Suite 520, Concord, CA 94520
Ph 925.686.6900 | Fx 925.686.9867
www.cccba.org | contracostalawyer.org
Where Do I Deposit My Retainer?
by Mary Grace Guzman, Sam Bellicini and Jerome Fishkin
Page 2
Arbitration Advisory 2011-01 from The State Bar’s Fee Arbitration Committee states that fee arbitrators should look to the true
purpose of the retainer, and not be controlled by the verbiage in
the fee agreement. Such sentiment follows Lais.
ney to accept an advance fee in a loan modification matter. That
prohibition only applies to attorneys for consumers; Civil Code
2944.7(d) carves out an exception for attorneys working for the
banks.
Arbitration Advisory 2011-01 concludes that a prepayment of
fees may be deposited in trust, but it does not necessarily have
to be. It also notes that when current Rule 4-100 was proposed to
the Supreme Court, the State Bar expressly stated that it did not
intend the Rule to require that advance fees be placed in trust.
Thus, it follows Baranowski and not T.R. Foods.
In 2013, Business & Professions Code 6242 was enacted to
make it illegal for an attorney to accept an advance fee for services under an immigration reform act.
The most recent case examining Baranowski is Banning Ranch
Conservancy v. Superior Court, 193 Cal. App. 4th 903, 123 Cal.
Rptr. 3d 348 (2011). Banning Ranch Conservancy hired Shute,
Mihaly & Weinberger (the Shute firm) to represent them in an
action against the City of Newport Beach to protect open-space
against planned development. Newport Beach moved to disqualify the Shute firm. It asserted two theories: (1) conflict of
interest based on eight prior representations that had closed 10
years earlier; and (2) the 2005 attorney client agreement, which
promised the attorney’s availability “as-requested.”
The California State Bar supported both of these laws. And in
2014, the State Bar sponsored AB 1515, which would have enacted into law the ABA Model Rule text requiring advance fees
to be deposited into a client trust account. While the bill died in
committee, it nevertheless represents the latest move to bring
California in line with the ABA Model Rules trust account requirement.
Endnotes
1
Id., No. 91-O-08572, 1998 WL 391171, at *12.
2
Id., 193 Cal. App. 4th 903, 916-17, 123 Cal. Rptr. 3d 348, 357-58.
Newport Beach had previously hired the Shute firm for eight
different matters, which had closed 10 years prior to the current
litigation. In examining the 2005 attorney client agreement, the
court relied on Baranowski’s definition of a retainer. Like Lais
and T.R. Foods, the court looked for language where the attorney promised to be available to the client for a specific period of
time. This limitation did not exist in the agreement.2 Thus, there
was no present attorney client relationship.
____________________________________________________
But the issue has not died. Adopted in 2010, ABA Model Rule
1.15(c) requires that, “A lawyer shall deposit into a client trust
account legal fees and expenses that have been paid in advance,
to be withdrawn by the lawyer only as fees are earned or expenses incurred.” Model Rule 1.15 is not the law of the State of
California, but it is frequently presented in law schools as the law.
In everyday practice, many California attorneys deposit prepaid
fees in trust.
____________________________________________________
The California Legislature has also passed laws that regulate
advance fees. In 2009, Civil Code 2944.7 and Business & Professions Code 6106.3 were enacted to make it illegal for an attor-
About the Authors
Mary Grace Guzman and Sam Bellicini are associates of Fishkin
& Slatter LLP. Jerome Fishkin is a partner. The law firm specializes
in advising attorneys and law students in matters of legal ethics.
The law firm publishes updates on legal ethics on its website at
http://www.fishkinlaw.com/Whats-New.shtml
MCLE Self-Study Test
To receive MCLE credit, please answer the test questions on the
next page, choosing the one best answer to each question.
Mail the test page and your payment ($30* for CCCBA members /
$45 for non-members) to CCCBA at the address on the test form.
Certificates are dated as the day the form is received.
Contra Costa County Bar Association
2300 Clayton Road, Suite 520, Concord, CA 94520
Ph 925.686.6900 | Fx 925.686.9867
www.cccba.org | contracostalawyer.org
MCLE Self-Study
Where Do I Deposit My Retainer?
MCLE Self-Study TEST
In T.R. Foods Inc. v. Rose, the Court of Appeals ruled that
advance fees do not belong in trust.
2
In the Bar Association of San Francisco Ethics Opinion 1980-1,
the majority opinion stated that when a client pays an attorney a fixed fee for services to be performed:
7
10
AB 1515 was enacted into law.
TrueFalse
11
California law permits an attorney to choose whether a retainer goes into their trust account or their general account.
TrueFalse
California has no laws that regulate advance fees.
TrueFalse
(c) Into either the general or trust account at the discretion of the attorney.
6
AB 1515 requires advance fees to be deposited into a client
trust account.
TrueFalse
12
(b) Into the trust account.
5
9
The State Bar’s Formal Ethics Opinion 2007-172 states that
an advance fee may be placed:
(a) Into the general account.
4
Baranowski v. State Bar defined a true retainer as “… a sum
of money paid by a client to secure an attorney’s availability
over a given period of time.”
TrueFalse
TrueFalse
(a) The fee and the product of the services belong to the attorney.
(b) The fee belongs to the attorney and the product of the services belongs to the client.
(c) The fee and the product of the services belong to the client.
3
8
Arbitration Advisory 2001-01 concludes that a prepayment
of fees may be deposited in trust but does not have to be.
TrueFalse
HOW TO RECEIVE ONE HOUR OF MCLE CREDIT
Answer the test questions above and mail this page with your
payment ($30* for CCCBA members / $45 for non-members) to
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Name
ABA Model Rule 1.15(c) is the law of the State of California.
Firm Name
TrueFalse
Address
Civil Code 2944.7 & Business & Professions Code 6106.3
make it illegal for attorneys to accept an advance fee in a
loan modification matter for consumers.
TrueFalse
It is illegal for an attorney to accept an advance fee for services under an immigration reform act.
TrueFalse
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Contra Costa County Bar Association
2300 Clayton Road, Suite 520, Concord, CA 94520
Ph 925.686.6900 | Fx 925.686.9867
www.cccba.org | contracostalawyer.org
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