Retainers and Conflicts of Interest

The Colorado court of appeals decided an interesting case on August 18 that provides guidance about clients’ retainer accounts and potential versus actual conflicts of interest between clients and their attorneys.  The appellate decision itself has little, if anything, to do with family law, but it is an interesting case for appellate purposes, and I practice appellate law.

The case, In re the Marriage of Rubio and Concerning the Marrison Law Firm, involved a dispute between a husband and wife.  The wife retained a law firm to represent her in the dispute and paid a retainer to the firm.  Husband then served a writ of garnishment on the firm to seize the unearned portion of the retainer to satisfy a judgment he had against the wife.

The court of appeals concluded that the law firm did have to comply with the writ of garnishment and surrender the unearned portion of the retainer because, by law, the unearned portion of the retainer still belongs to the client, not the firm.  The court also reasoned that the firm could not have a lien on unearned funds because an attorney’s lien is only for work performed, not for work expected to be performed.

Also on appeal was a question of whether the law firm’s entrance in the suit to protect the retainer funds created a conflict of interest between the firm and its client, the wife.  The court of appeals concluded that any conflict between the firm and its client regarding the retainer balance was only a potential conflict because the firm and the client had a common goal of preserving the retainer for the firm’s use.  Therefore, the wife could and did waive any potential conflict.

This case should serve as a warning to attorneys assisting clients with post-decree matters, as retainers the attorney receives for post-decree work may be subject to garnishment if there are any outstanding judgements against the client.

This also begs the question, however, whether as attorneys, we need to disclose the balance of any retainer with our firms when we are completing sworn financial statements for our clients.  Because, as the court of appeals noted in Rubio, the unearned balance still belongs to the client, and it should probably be disclosed as such on the sworn financial statement.

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