August 24, 2022
A recent Law 360 story by James Boyle, “Philly, Pa. Bar Clarify How Attys Can Handle Advance Fees” reports that Pennsylvania attorneys can deposit advance fees into their operating accounts as long as the client clearly consents, according to a new ethics opinion jointly released by the Pennsylvania and Philadelphia Bar associations.
The PBA's Legal Ethics and Professional Responsibility Committee issued the opinion with the Philadelphia Bar's Professional Guidance Committee. The opinion was issued as a clarification to a PBA ethics opinion from 1995, which said nonrefundable retainers from a new client were permissible, but it must be accompanied by a clear written agreement or deposited into a client escrow account.
According to Sarah Sweeney, co-chair of the Philadelphia Bar's Professional Guidance Committee, attorneys were confused whether there was a difference between a retainer fee that is earned upon receipt and an advance payment for legal services. The new opinion makes that distinction.
"The [two committees] worked together in an effort to provide some clarity on the proper handling of legal fees paid at the outset of an engagement," Sweeney said in a statement. "Specifically, the Opinion distinguishes fees that are earned upon receipt from fees that are simply paid in advance, and concludes that the former may be deposited in the attorney's operating account." In other words, fees that are not earned upon receipt are considered advance fees, which are typically placed into an escrow account and drawn upon by the attorney as they represent the client.
Under the newly issued opinion, if there is an informed, written consent from the client, that fee can be placed into the attorney's operating account. Fees that are considered earned upon receipt can be deposited into the operating account, as long as the attorneys clearly inform clients of the fee agreements.
"Ethics opinions are one of the most valuable services that we provide as Philadelphia's premier trade association for attorneys," Philadelphia Bar Association Chancellor Wesley R. Payne IV said in a statement. "We were happy to partner with the Pennsylvania Bar Association in providing valuable clarity for our community on a common practice management issue."