Disciplinary Board of the Supreme Court v. Hoffman
2013 ND 137
| N.D. | 2013Background
- In July 2010 Bradford Wetmore hired attorney Michael R. Hoffman for felony defense under a written contract calling for a $30,000 "minimum fee" described as nonrefundable; Wetmore also paid $1,000 into Hoffman’s trust account for costs.
- Hoffman deposited the $30,000 into his operating account, performed limited work (≈25.8 hours) over ~2.5 months, appeared at a preliminary hearing on Sept. 21, 2010, and Wetmore terminated Hoffman on Sept. 22, 2010.
- Wetmore demanded return of the unearned portion; Hoffman refused. Disciplinary Counsel alleged violations of N.D.R. Prof. Conduct 1.5 (fees), 1.15 (safekeeping), and 1.16(e) (termination/refund).
- A Hearing Panel found violations of Rules 1.5, 1.15 and 1.16(e), recommended reprimand, return of $25,460, and assessment of costs; Hoffman objected.
- The North Dakota Supreme Court reviewed de novo, concluded the $30,000 minimum fee was reasonable and properly deposited in the operating account (no 1.5 or 1.15 violation), but held Hoffman violated Rule 1.16(e) by failing to refund the unearned portion after termination.
- Court ordered refund of $25,460 plus interest (from Sept. 22, 2010), and assessed partial disciplinary costs of $2,400; it declined to impose additional discipline.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the $30,000 nonrefundable minimum fee was unreasonable under Rule 1.5 | Fee was unreasonable given limited services and should be reduced | Fee was reasonable for the seriousness, risk, and customary local practice; nonrefundable designation is enforceable | Fee was reasonable under Rule 1.5 — no violation of 1.5(a) |
| Whether placing the $30,000 in operating account violated Rule 1.15 | Payment was an advance fee and should have been held in trust | Nonrefundable fee became lawyer’s property on payment and could go to operating account | No 1.15(a)/(c) violation: deposit in operating account was permissible under this contract |
| Whether a nonrefundable fee must be refunded upon client termination under Rule 1.16(e) | Even designated nonrefundable, unearned portion must be refunded on termination | Designation made fee earned and not refundable; lawyer entitled to keep it on discharge | Rule 1.16(e) requires refund of any unearned advanced fee upon termination; Hoffman violated 1.16(e) |
| Appropriate remedy/sanction | Reprimand and refund as recommended by Hearing Panel | Opposition to discipline beyond contract enforcement; due process objections to retroactive application of other authorities | Court ordered refund ($25,460 + interest) and partial costs ($2,400) but declined to impose formal discipline |
Key Cases Cited
- In re Disciplinary Action Against Hann, 819 N.W.2d 498 (N.D. 2012) (discusses flat/nonrefundable fees and need to assess whether fee was earned upon termination)
- In the Matter of Cooperman, 633 N.E.2d 1069 (N.Y. 1994) (held special nonrefundable retainer agreements against public policy)
- Grievance Adm’r v. Cooper, 757 N.W.2d 867 (Mich. 2008) (addressing ethical permissibility of some nonrefundable retainers)
- In re Sather, 3 P.3d 403 (Colo. 2000) (labeling fees "nonrefundable" does not relieve duty to return unearned fees on discharge)
- Kentucky Bar Ass’n v. Earhart, 360 S.W.3d 241 (Ky. 2012) (nonrefundable retainers may be permitted but total fee must still be reasonable and may require partial refund on termination)