CONTENTS
- 1. Attorney Retainer Fees | Overview of the Case
- - Summary of the Issues
- 2. Attorney Retainer Fees | The Supreme Court's Determination
- - Principle: Attorney Retainer Fees May Be Paid Only for the Organization's Own Cases
- - Exception: Payment as an Organization's Expense Is Permitted Where Business Relevance Is Recognized
- - Specific Determination: Business Relevance Was Recognized in This Case
- 3. Attorney Retainer Fees | Concept and Structure of Calculation
- - Practical Checklist for Companies and Organizations
- - Response Strategies by Type of Risk
1. Attorney Retainer Fees | Overview of the Case
This case, in which attorney retainer fees were at issue, centered on whether an organization's officers' payment of attorney retainer fees from the organization's funds to respond to their own criminal case constituted occupational embezzlement.
The defendants were implicated in a criminal case arising from a dispute that occurred during the takeover of the association's building and operations, and, in responding to it, they retained attorneys and paid the costs from the association's funds.
The prosecutor viewed the payment of the attorney retainer fees as the misappropriation of the organization's funds for expenses related to a personal criminal case, and indicted the defendants by applying the crime of occupational embezzlement.
The defendants, however, argued that the case arose in the course of carrying out the association's business rather than for personal benefit, and that the expenditure was legitimate because there was a need to respond in the association's interest.
Summary of the Issues
The key issues in this case may be summarized as follows.
In particular, the distinction between a personal case and a business-related case is crucial, and this case is a leading precedent that set out that standard.
2. Attorney Retainer Fees | The Supreme Court's Determination
The Supreme Court ruled on this case as follows.
Principle: Attorney Retainer Fees May Be Paid Only for the Organization's Own Cases
The Supreme Court made the basic principle clear.
The attorney retainer fees that may be paid as an organization's expense are, in principle, limited to cases in which the organization itself is a party to the litigation.
In other words, attorney retainer fees for civil or criminal cases in which the representative personally is a party may not, in principle, be paid as the organization's expense.
Exception: Payment as an Organization's Expense Is Permitted Where Business Relevance Is Recognized
The court found, however, that payment is permitted by way of exception in the following cases.
- Where the substantive interest lies with the organization
- Where the representative has become a party as a matter of legal form
- A dispute arising in the course of the representative's performance of duties
- Where conducting the litigation is necessary for the organization's interest
In other words, where a case is a personal case in form but an organization's case in substance, the attorney retainer fees may be paid as the organization's expense.
Specific Determination: Business Relevance Was Recognized in This Case
The Supreme Court determined that the defendants' conduct was legitimate, taking the following circumstances together into account.
- The case arose in the course of the association's takeover of operations rather than for personal benefit
- The association's board of directors resolved to execute the litigation costs from the budget
- The internal regulations provided a structure of reimbursement liability in the event of a conviction
- There was past precedent of the organization bearing similar costs
- Payment was made after a review of legality through consultation with a large law firm
Taking these points together, the court determined that it was difficult to find that, in paying the attorney retainer fees, the defendants had any intent to embezzle the organization's funds for their own benefit (intent of unlawful acquisition).
Ultimately, the Supreme Court found that the crime of occupational embezzlement was not established, for the following reasons, and upheld the judgment of acquittal.
3. Attorney Retainer Fees | Concept and Structure of Calculation
Attorney retainer fees are the costs a client pays when retaining an attorney to handle a case, and they generally consist of an initial retainer and a success fee.
The initial retainer is the basic compensation for handling the case itself and is paid regardless of the outcome, while the success fee has a structure under which an additional amount is paid depending on the judgment or the result of a settlement.
The retainer fees vary according to the difficulty of the case, the scale of the amount involved, the complexity of the legal issues, the time required, and the attorney's experience, and, particularly in criminal cases, wide variations in cost can arise depending on the importance of formulating a defense strategy and responding to the investigation.
Because attorney retainer fees are thus a key element of responding to a case, the question of who should bear them can become an important legal issue directly tied to criminal liability.
This case is likewise a leading example in which whether it was lawful for the organization to bear the attorney retainer fees was at issue.
Types of Parties Bearing Attorney Retainer Fees
Type | Party Bearing the Cost |
Personal case | Individual |
Company-related case | Company permitted |
Related to an officer's duties | Company permitted (conditionally) |
Embezzlement issue arises | Criminal risk arises |
Practical Checklist for Companies and Organizations
To prevent disputes related to attorney retainer fees, companies and organizations should review the following points.
Response Strategies by Type of Risk
Type of Risk | Response Strategy |
Shifting personal-case costs | Secure materials proving business relevance |
Suspicion of embezzlement | Secure a board resolution and a basis in the regulations |
Internal disputes | Set out payment standards in writing |
Responding to audits and investigations | Secure outside legal advice and records of decision-making |
This judgment set out the standard that paying attorney retainer fees from an organization's funds is not immediately assessed as embezzlement, but must be determined according to business relevance and whether the organization's interest is served.
In particular, it carries great significance for corporate and association practice in that, even where a case is a personal case in form, the organization may bear the costs if the dispute substantively arose in the course of carrying out the organization's business.
Such a determination, however, depends on highly specific circumstances, so it is important to manage the risk in advance by refining internal regulations and conducting a legal review.
Daeryun Law Firm LLP provides practice-oriented advice across the entire process on a one-stop basis, from analyzing the risk of occupational embezzlement related to attorney retainer fees, designing internal regulations, and refining the board's decision-making structure, to responding to investigations and conducting criminal litigation.
If you need assistance with a related matter, you are welcome to make a 🔗legal consultation reservation at any time.
