Dowling's New Standards for Retainers


            On May 3, 2007, the Illinois Supreme Court issued an opinion, in a case of first impression, recognizing the viability of advance payment retainers in Illinois. Previously, only two types of retainers were explicitly recognized by the Court: classic and security interest retainers.   Brian Dowling v. Chicago Options Associates, Inc. et al. (DLA Piper Rudnick Gray Cary (US), LLP),  No. 102578, 2007 WL 1288279, 226 Ill.2d. 277, 875 N.E.2d 1012, 314 Ill.Dec. 725 (Ill. 2007).  (Click here for the Court's summary of the opinion.)  The ARDC has compiled Frequently Asked Questions (FAQs) to help educate lawyers about the Dowling decision and what the decision means for their practice. 


In Dowling, the Court recognized the following three types of retainers:


(1) A classic retainer, also referred to as a true or general retainer, is paid by a client to the lawyer in order to secure the lawyer’s availability during a specified period of time or for a specified matter. This type of retainer is earned when paid and immediately becomes property of the lawyer, regardless of whether the lawyer ever actually performs any services for the client. Dowling at *6.


(2) A security retainer is where funds paid to the lawyer are not considered present payment for future services but are intended to secure payment of fees for the future services the lawyer is expected to perform. This type of retainer remains the property of the client and, therefore, must be deposited in a trust account and kept separate from the lawyer’s own property until the lawyer applies it to charges for services that are actually rendered.  Dowling at *6.  Any unused portion of the retainer is refunded to the client under Rules 1.15(b) and 1.16(d) of the Illinois Rules of Professional Conduct.  Dowling at *12.


(3) An advance payment retainer consists of a present payment to the lawyer in exchange for the commitment to provide legal services in the future. Ownership of this retainer passes to the lawyer immediately upon payment.  Dowling at *6, 11.


Importantly, “[a]dvance payment retainer agreements must be in writing and they must clearly disclose to the client the nature of the retainer, where it will be deposited, and how the lawyer or law firm will handle withdrawals from the retainer in payment for services rendered.” Dowling at *12 (emphasis supplied).  Further, the Court ruled that:


[A] written agreement providing for an advance payment retainer must contain language advising the client of the option to place his or her money into a security retainer. The agreement must clearly advise the client that the choice of the type of retainer to be used is the client’s alone; provided, however, that if the attorney is unwilling to represent the client without receiving an advance payment retainer, the agreement must so state, including the attorney’s reasons therefor. In addition, an advance payment retainer agreement must set forth the special purpose behind the retainer and explain why an advance payment retainer is advantageous to the client. Finally, in the event that the parties’ intent cannot be gleaned from the language of their agreement, we conclude that the agreement must be construed as providing for a security retainer....construing an unclear retainer agreement to establish a security retainer will provide the greatest protection for a client’s funds, since they will not be subject to the lawyer’s creditors and withdrawals from the funds may be made only with notice to and agreement of the client. Reimbursement to the client of any unearned fees may also be facilitated by construing an unclear agreement as a security retainer, since the funds must be held separate from the lawyer’s own funds.


Dowling at *13.


            The Dowling Court provided guidance to the profession in determining what types of retainers are appropriate.  The decision depends on the circumstances of each case.  The Court counseled:

The guiding principle, however, should be the protection of the client’s interests. In the vast majority of cases, this will dictate that funds paid to retain a lawyer will be considered a security retainer and placed in a client trust account, pursuant to Rule 1.15. Separating a client’s funds from that of the lawyer protects the client’s retainer from the lawyer’s creditors. See In re Lewis, 118 Ill. 2d 357, 362-63 (1987). Commingling of a lawyer’s funds with those of a client has often been the first step toward conversion of a client’s funds. In addition, commingling of a client’s and the lawyer’s funds presents a risk of loss in the event of the lawyer’s death. In re Clayter, 78 Ill. 2d 276, 281 (1980). Thus, advance payment retainers should be used only sparingly, when necessary to accomplish some purpose for the client that cannot be accomplished by using a security retainer.

Dowling at *11


        The Court also ruled that any written retainer agreement, regardless of the type of retainer contemplated, should clearly define the kind of retainer being paid. If the parties agree that the client will pay a security retainer, that term should be used in the agreement; it should also state that the funds remain the property of the client until used to pay for services rendered and that the funds will be deposited in a client trust account.  Dowling at *12.