Disciplinary Board of the Supreme Court v. Hoffman
2013 ND 137, 834 N.W.2d 636 (2013)
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Rule of Law:
An attorney's duty under professional conduct rules to refund any unearned portion of an advance fee upon termination of representation supersedes a contractual term designating the fee as a 'nonrefundable minimum fee.' The total fee ultimately retained by the attorney must be reasonable for the services actually performed.
Facts:
- In July 2010, Bradford Wetmore retained attorney Michael R. Hoffman for representation in a criminal matter involving several felony charges.
- Wetmore and Hoffman executed a written contract specifying a $30,000 'minimum fee' for Hoffman to defend the charges through dismissal or sentencing, including a potential jury trial.
- The agreement explicitly stated, 'There is no refund of the minimum fee.'
- Wetmore paid Hoffman the $30,000 fee, which Hoffman deposited into his operating account rather than a client trust account.
- Over approximately two and a half months, Hoffman had several conferences with Wetmore, corresponded with the prosecutor, and appeared at a 45-minute preliminary hearing.
- On September 22, 2010, after Hoffman had expended approximately 25.8 hours on the case, Wetmore terminated his employment.
- Wetmore requested a refund of the 'unearned portion' of the $30,000 fee, but Hoffman refused, citing the nonrefundable nature of the fee agreement.
Procedural Posture:
- Disciplinary Counsel filed a petition for discipline against attorney Michael R. Hoffman with the Disciplinary Board of the Supreme Court.
- The petition alleged violations of professional conduct rules regarding unreasonable fees (1.5(a)), safekeeping of client property (1.15(a), (c)), and refunding fees upon termination (1.16(e)).
- A Hearing Panel of the Disciplinary Board found that Hoffman had violated all the charged rules.
- The Hearing Panel recommended that Hoffman be reprimanded, ordered to refund $25,460 to Wetmore, and pay the costs of the proceeding.
- Hoffman objected to the Hearing Panel's findings and recommendations, bringing the case before the Supreme Court of North Dakota for a de novo review.
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Issue:
Does an attorney's duty to refund any advance payment of a fee that has not been earned upon termination of representation under N.D.R. Prof. Conduct 1.16(e) apply to a 'minimum fee' that was designated as nonrefundable in a valid employment contract?
Opinions:
Majority - Per Curiam
Yes. An attorney's ethical obligation under N.D.R. Prof. Conduct 1.16(e) to refund any unearned portion of an advanced fee upon termination of representation applies even when a contract labels that fee as a 'nonrefundable minimum fee.' While the initial fee agreement was not per se unreasonable under Rule 1.5(a) and placing the fee in an operating account did not violate Rule 1.15, the overarching duty to refund unearned fees upon termination remains. The court reasoned that a client's absolute right to discharge their lawyer at any time would be impermissibly burdened if the client had to forfeit a substantial fee for services not yet rendered. Therefore, even a fee designated as nonrefundable must be analyzed for reasonableness in light of the work actually performed, and any amount that constitutes a windfall or penalty for termination must be returned to the client.
Analysis:
This decision establishes a clear precedent in North Dakota that the ethical duty to refund unearned fees under Rule 1.16(e) overrides contractual language designating a fee as 'nonrefundable.' It signals to attorneys that they cannot rely on such clauses to retain an entire flat or minimum fee if the representation is terminated prematurely. The ruling protects a client's right to discharge counsel by preventing attorneys from imposing a financial penalty for doing so. Future fee disputes involving 'nonrefundable' retainers will require an analysis of the reasonableness of the fee based on the quantum meruit value of the services actually rendered, rather than simply enforcing the terms of the contract.
