You are about to graduate from law school, or, perhaps, you have just completed your law degree.  Now, where will you apply your talents?
The answer will influence your income, your happiness and your life.  A mountain of student loans and other debt may affect the type of law you practice, where you live and work, and the type of career you choose.
Regardless of whether you start a solo private practice, join a large firm or work in a corporate environment, you will need a method to ensure that you are paid for your services.  For example, if you are handling a criminal case, your client may be neither willing nor able to pay after she's convicted.  After all, prison wages are moderate, to say the least.  Therefore, payment in advance will be necessary to accommodate your diverse needs.  This is called a retainer.  This article discusses the type of advance fee called the "retainer."

Introduction

Retainers are used in connection with all types of billing systems, including hourly fees and set fees.  Lawyers often collect payments in advance and hold them in a client trust account.  As the lawyer completes the work, he can deduct the necessary funds from the client's portion of the trust account.  Then the appropriate amount may be deposited in the lawyer's office account.  This eliminates any delay in payment or the need for collection.
 The compensation of lawyers has been subject to criticism in books and articles since the fifteenth century.1  For hundreds of years, many attempts have been made to regulate how attorneys receive compensation.  Peter Stuyvesant, the Governor of New York, first attempted to regulate attorneys' fees.  In 1658 he expressly forbid "excessive fees."2  Governor Stuyvesant's proclamation stated:  "It is then provided that the officers enumerated shall serve the poor gratis for God's sake, but may take from the wealthy the fee specified."3
Even today, the manner in which attorneys handle money is confusing, risky, and fraught with ethical considerations.4  For example, State Bar Associations reprimand attorneys who commingle funds between client accounts and operating accounts.5  On the surface, keeping client funds separate from operating funds may appear easy.6  However, determining when the funds may be transferred from the client to the lawyer may be complex.7  Numerous state bars, including Iowa's, often discipline lawyers for errors of judgment in this context.8

ADVANCE FEES

There are various forms of prepayment, "the general (or traditional) retainer", "the nonrefundable retainer", "the special (or specific) retainer", "the security retainer", and "the hybrid retainer".9
A retainer fee is "an agreement between [an] attorney and client in which the client agrees to pay a sum to the attorney in exchange for the attorney's promise to be available to perform, at an agreed price, for any legal services... that arise during a specified period."10
A retainer can occupy several common forms:
(1) The "general (or traditional) retainer" is a specific amount of money paid by a client to guarantee the lawyer's services if such services are needed at some time in the future.11  A general retainer only secures the promise of an attorney's availability, rather than compensating the attorney for the actual work performed which is subsequently billed on an hourly basis.12  Thus, the lawyer earns the general retainer at the time of receipt.
(2) The "nonrefundable retainer" prepays for a service without obligation to return funds, even if the client decides to discharge the attorney and the work has not yet commenced or been completed.  This type of retainer has been banned in the U.S.13 and is different from the typical advance fee charged today by many firms.14
(3) A "special" or "specific" retainer is the most common form used today.15  It is an advance fee payment of a predetermined amount.  It is often calculated on the basis of the lawyer's hourly fee, and is deducted from the client account as services are completed.16  This constitutes a legal agreement that the attorney will perform specified legal services.17  The attorney is ethically bound to deposit such funds into a client trust account.  The lawyer may charge the account as she completes the work.
(4) The "security retainer", used in bankruptcy cases, "secures payment of fees for future services."18
(5) A "hybrid retainer" combines the features of a special retainer with those of the general retainer.19  It covers both the lawyer's availability and work performed on behalf of the client.20

ORIGIN OF THE ATTORNEY FEE
At the time of the Norman Conquest, there was neither case precedent nor a professional class of lawyers in England.21  Litigants settled legal problems through "trial by battle," that is, they fought to the death or hired professional swordsmen to solve their disputes.22  By the thirteenth century, an informal legal profession developed which featured a type of lawyer called a 'placitator' who received an honorarium.23  By the middle ages, these placitators were called attorneys and barristers.24  These legal professionals received compensation directly from the court.  Citizens did not provide the English lawyers with direct compensation until well into the nineteenth century.25
By contrast, retainer fees have had a long-standing tradition in the United States, dating back to 1693.26
Since the 1960's, straight hourly billing has become the most prevailing method of payment.27

PUBLIC POLICY AND SOCIAL CONSEQUENCES
 Of the many types of retainers, the nonrefundable and the general retainer have fallen out of favor in the United States.  Since the 1930s, the non-refundable retainer has decreased in popularity due to social and economic changes in a post-modern society.  Prior to the 1930s, the general retainer indicated a relationship between attorneys and clients-one based on their personal relationship.  The general retainer guaranteed the complete availability of the attorney to assist the client when needed, as opposed to the modern fee-for-services method of compensation.
Today, people seek different attorneys for particular legal matters.  Clients have no duty of loyalty when seeking an attorney's services.  Instead, a client will probably shop around for an attorney based on his or her fee, training, or even the proximity of the attorney's office to the client's home.  For example, clients today may hire a family attorney, but that same client may seek a different lawyer for handling real estate or criminal proceedings.  Simultaneously, the same client may select yet another lawyer to handle estate planning or creation of a will or trust.
In 1994, in the Cooperman case, the New York Court of Appeals banned nonrefundable retainers, thus requiring attorneys to collect fees under a theory of quantum meruit only.28  Quantum meruit is a legal theory in equity that means "'as much as deserved' and measures recovery under implied contract to pay compensation as reasonable value of services rendered."29  This standard of payment is an essential element of quantum meruit, suggesting that if the lawyer has not rendered any services, he or she is not entitled to payment.
The Cooperman court reasoned that "non refundable agreements compromise the client's absolute right to terminate the unique fiduciary attorney-client relationship."30  Simply stated, this holding indicates that clients should not feel burdened or obligated to continue using lawyers they do not want.  In other words, when it comes to representation, clients should be free to exercise freedom of choice "with or without cause at any time."31
Some scholars believe that the Cooperman court held that an attorney was only entitled to recover payment in quantum meruit.32  For example, if a client hired an attorney for $12,000 a year and the client discharged the attorney after one month, the attorney would be entitled to only $1,000 or 1/12 of the entire fee.  The remainder, which would be unearned, would be returned to the client under the quantum meruit theory.
Some lawyers argue that the quantum meruit rule is an unfair policy and that a retainer should be non-refundable.  The support for this conclusion is the fact that as soon as an attorney accepts a retainer, s/he has an obligation to turn away all business that might conflict with the retained client's interest.  Under this view, upon receipt, the attorney has earned his or her full fee whether or not any work has been completed.
 Opponents of the non-refundable fee argue that the quantum meruit practice safeguards clients against paying attorneys for work not done.33  Some of these opponents believed the Cooperman court made its decision based on the 1916 landmark case, Martin v. Camp.34  In Martin, a client discharged the firm to whom he had paid a retainer and the firm refused to return any of his fees because it had supposedly "rendered substantial services".35  The Martin court disagreed with the firm based on the quantum meruit theory and ordered the refund of the client's money.36  The Martin court further explained that the attorney-client relationship is different from a regular business relationship because it evolves from trust and confidence.37  The court concluded this relationship allowed a client to discharge an attorney at any time, for any reason, with or without cause.38
Legal Ethics
 There is a serious issue that pertains to legal ethics in the area of retainers: namely, is the retainer earned upon its receipt or at the time the work is completed?  The answer to this question raises further inquiries into the commingling of funds.
State Bars often reprimand attorneys due to the commingling of funds between their client accounts and the lawyer's own operating account.39  Ethical rules require that retainers must be earned and fees must be reasonable.40  According to Professor Rothrock, "[a] special retainer belongs to the client until earned," therefore barring the commingling of funds.41
 In the event of a dispute between lawyer and client, separate accounts will preserve a client's funds until there is a resolution.42  This measure safeguards the client because the funds in question are unavailable to the firm.
Federal tax implications are also an important consideration for the attorney when she decides whether to accept retainer fees.  The attorney must determine whether the funds belong to the client or to the lawyer.43  These funds will become taxable income once the lawyer earns them and deposits them in the firm's operating account.  Some unscrupulous firms have even kept these funds in their client trust account in an attempt to cloak these records from review by the Internal Revenue Service (IRS).44
To thwart these deceptive practices, attorneys must follow the American Bar Association's Model Rules of Conduct and each state bar's Rules of Professional Ethics.  The American Bar Association (ABA) insists that members uphold these high standards in an effort to build public trust.
Model Rule 1.5 and DR 9-102 requires attorneys to exercise care as fiduciaries.45  The ethical provision of Model Rule 1.5 states:
(a) A lawyer's fee must be reasonable and the following factors will influence whether it meets the reasonableness test:
1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
3) the fee customarily charged in the locality for similar legal services;
4) the amount involved and the results obtained;
5) the time limitation imposed by the client or by the circumstances;
6) the nature and length of the professional relationship with the client;
7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and
8) whether the fee is fixed or contingent.46

To conform to the Model Rules and ethical standards, a practicing attorney must create a written retainer fee contract.  In addition, DR 2-110(A)(3) and Rule 1.16(A) obligate the return of any unearned advance fee payment if, and when, an attorney's representation of the client ceases.47
If an attorney decides to use a retainer, the following basic checklist should safeguard him or her from misunderstandings:

I. Retainer(s)
* Refundable or nonrefundable engagement fee, or combination
* Evergreen-replenish in response to bills
* Applied to initial charges or final bills
* Deposit into trust account if refundable
II. Fee Basis
* Hourly rate(s), results-accomplished for a combination
* Right to increase during the representation
III. Costs
* Provide for lawyer's authority to incur
* Clarify if a lawyer advances or paid directly by client
* Experts- client pays or lawyer advances-use separate letter for each expert
* Control- attorney must use and allocate internal resources, other lawyers and personnel and hire experts
IV. Predictions of Outcome
* Avoid guarantees; detail unpredictability
V. Billing Procedures
* Detail terms- monthly, periodic, at end
* State payment responsibility
* Provide for right to withdraw for non-payment
VI. Finance Charges
* Comply with applicable truth-in-lending laws
* Billing statements also must meet requirements
* Provide for late fees
VII. Payment by Opposing Party
* Provide that client is ultimately responsible
* Collection services must be paid for by client
* Right to pursue opposing party may be included
VIII. Additional Retainer(s)
* Allow for additional retainers depending on the course of litigation or representation
IX. Security Requirements
* Provide for assets to flow through lawyer
* Retain rights to require security interests in collateral
* Attorney's lien on assets and cause of action where appropriate
* Require guarantor
X. Nonpayment by Client
* Provide for recovery of costs of collection, including lawyer's fees and normal hourly rates
XI. Settlement
* Assure client no settlement commencement without authority
XII. General Contract Terms
* No addendum of the agreement except in writing
* Provide for severability for unenforceable terms
* Detail which state laws apply
* Complete disclosure of agreement may be made to court
* Include other general contract terms, as appropriate
XIII. Client Cooperation
* Impose the duty on the client to cooperate fully
XIV. Ethical Requirements
* Review all state and local requirements to ensure compliance
* Full disclosure to client that retainer agreement is a binding contract
* Recommend client obtain legal advice if required 48

Conclusion
This article has reviewed aspects of the origin and development of the retainer in the attorney-client relationship.  While there is much debate regarding the economic feasibility and ethical implications associated with this method of payment, these concerns have not stopped several hundred thousand attorneys from using this method.  The considerations I have outlined, particularly in this last section, should assist those who use this method.  

1 Ives, E.W., The Reputation of the Common Lawyers in English Society, 1450-1550. University of Birmingham Hist. Journal 130, 132-33 (1959-60).
2 Lester Brickman and Jonathan Klein, The Use of Advance Fee Retainer Agreements in Bankruptcy: Another Special Law for Lawyers? 43 S.C.L.Rev. 1037, 1046-47.
3 Id. See article footnote 37.
4 Rothrock, Alex, On Retainers, Flat Fees and Commingling. 26 NOV Colo. Law.83 (1997).
5 Id.
6 Id.
7 Id.
8 In Iowa, for example, commingling of funds is grounds for censure by the state bar. The Iowa Supreme Court Bd. of Professional Ethics v. Sunleaf, 588 N.W.2d 125 (1999); The Committee on Professional Ethics and Conduct of the Iowa State Bar Association v. Toomey, 253 N.W.2d 573, 575 (1977).
9 Rothrock, supra note 4, at 84.
10 McKinnon, Alexander K., Analytical Approaches to the Nonrefundable Retainer. 9 Geo. J. Legal Ethics 590-91 (1996) (quoting Lester Brickman & Lawrence A. Cunningham, Nonrefundable Retainers Revisited, 72 N.C. L.Rev. 1 (1993)).
11 Rothrock, supra note 4, at 83-84.
12 McKinnon, supra note 10, at 588; see also Drinker, Henry S., Legal Ethics, 172 (1953).
13 Brickman, supra note 3, at 1068.
14 Id. at 1066.
15 Id. at 1067.
16 Rothrock, supra note 4, at 83-84.
17 Brickman, supra note 3, at 1066.
18 Brickman, supra note 3, at 1070.
19 Kunen, Pamela S., No Leg to Stand On: The General Retainer Exception to the Ban on Nonrefundable Retainers Must Fall, 17 Cardozo L.Rev. 719, 724 (1996).
20 Id.
21 Drinker, Henry S., Legal Ethics, New York: Columbia University Press, 11 (1953).
22 Id. at 12-13.
23 Id. at 13.
24 In England, unlike the United States, the legal profession has two kinds of lawyers: solicitors and barristers. A solicitor conducts legal business while a barrister would argue before the court. Drinker, Henry S., Legal Ethics, New York: Columbia University Press, 18 (1953).
25 Id. at 15.
26 Kunen, supra note 19 at 721. In the article's footnote at 9, "according to the 1709 Act for Regulating and Establishing Fees, were as follows: "For a Retaining Fee Six Shillings; For Drawing Writt Three Shillings; For Drawing a Declaration Six Shillings; For Drawing a Pleas Three Shillings; For a Pleading Fee upon Tryall Ten Shillings; For Every Terme Not Exceeding Three Courts Six Shillings; The Lawyers Fees for the Court of Sessions Mayors Court and Court of Common Pleas in Every City and County throughout this Colony for the Prosecuting of any Action to a Judgment in the whole shall not Exceed Fifteen Shillings." Id. at 159 (quoting 1 Colonial Laws of New York 1638-53 (1894)). The significance of the inclusion of retainer fees suggest that retainer fees were considered legal fees, i.e., fees for services. This practice of fee regulation... can be traced back... [a]s far back as 1658, [when] Stuyvesant made a proclamation regulating fees. See Legal and Judicial History of New York 73 (Alden Chester Ed., 1911)."
27 George B. Shepard and Morgan Cloud, Time and Money: Discovery Leads to Hourly Billing, 1999 U. Ill.L.Rev. 91, 157.
28 In re Cooperman, 633 N.E.2d 1069, 1070 (N.Y. 1994).
29 Black's Law Dictionary, 6th Ed., 1243 (1998).
30 Kunen, supra note 19, at 725.
31 Kunen, supra note 19, at 726.
32 Id.
33 Id.
34 Martin v. Camp, 114 N.E. 46 (N.Y. 1916) (quoted in Kunen, Pamela S., No Leg to Stand On: The General Retainer Exception to the Ban on Nonrefundable Retainers Must Fall, 17 Cardozo L.Rev. 719, 725 (1996)).
35 Id.
36 Id.
37 Kunen, supra note 19, at 725.
38 Id. at 726.
39 Rothrock, supra note 4, at 85.
40 9 Geo. J. Legal Ethics 591 (1996).
41 Rothrock, supra note 4, at 84.
42 Rothrock, supra note 4, at 83.
43 Id.
44 Id.
45 Edward L. Winer, How to Negotiate a Written Retainer Agreement and Keep the Client Content, 11 FALL Fam. Advoc.6, 7-8 (Fall 1988).
46 Id. at 8.
47 Id.
48 Id. at 13-19.