TN’s Approach to Nonrefundable Fees – A Reminder

Near the end of February 2015, the New York City Bar put out its Formal Opinion 2015-2 evaluating a question of propriety of a flat, nonrefundable monthly fee in a retainer agreement and reached the conclusion that a particular one that was something of a “hybrid” was problematic.  Although the NYC opinion makes for a good read, it is of limited utility in evaluating these issues in Tennessee.

While New York has an RPC 1.5(d)(4) that prohibits non-refundable retainer fees, Tennessee has gone in a significantly different direction.  RPC 1.5(f) in Tennessee makes nonrefundable fees enforceable provided that they are reasonable in amount and that the fee is “agreed to in a writing, signed by the client, that explains the intent of the parties as to the nature and amount of the nonrefundable fee.”  Tennessee lawyers, of course, still have to tread carefully in this area — especially with respect to avoiding problems of commingling by depositing a fee designated as nonrefundable (and therefore earned upon payment) into a client trust account rather than into an operating account where it belongs.