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Refund of Fee Paid by Third Party: Don’t “Pay it Forward”

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Assume a client has retained your services, and you receive a check in the mail for the advance fee or the flat fee, but the check doesn’t come from the client’s account.  Maybe the payment is from a family member, the client’s employer, or a significant other.  This is the third-party payor situation.  You need to pay close attention to where the funds are coming from.  Why?  Because if the representation ends prematurely and/or there are unearned fees that must be returned, you are required to return the funds from whence they came.  If the client demands that the funds be returned to him or her, don’t simply “pay it forward.”  Let the client know that you need some verification from the payor that the funds may be refunded to the client.  One limited exception: if the third-party has given the funds as a “gift” to the client, then the funds are the client’s and may be returned to the client under these circumstances.

You  also need to be aware of who the check is from because you’ll want to address the third party payor situation in your fee contract or by agreement.  I would suggest having a separate third-party payor fee agreement that acknowledges that the client consents to having the third party pay the legal fee, that the client’s confidential information will remain protected and not be shared with the third party without the client’s consent, and that in the event a refund is due, the funds will be returned to the payor so that the client doesn’t dispute the refund later.  See Rule 1.8(f) for further guidance.